G.R. No.
147324 May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE
CORPORATION, petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio
Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE
CORPORATION, respondent.
Civil Law; Contracts; Force Majeure; Article 1174 exempts an obligor
from liability not only to events that are unforeseeable, but also to those
which are foreseeable, but inevitable.—Article 1174, which exempts an
obligor from liability on account of fortuitous events or force majeure, refers
not only to events that are unforeseeable, but also to those which are
foreseeable, but inevitable: Art. 1174. Except in cases specified by the law,
or when it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be responsible
for those events which, could not be foreseen, or which, though foreseen
were inevitable. A fortuitous event under Article 1174 may either be an
“act of God,” or natural occurrences such as floods or typhoons, or an “act
of man,” such as riots, strikes or wars.
Same; Same; Same; Terms and Conditions; Parties may stipulate on
terms and conditions as they may see fit, and these have the force of law
between them.—Under Article 1306 of the Civil Code, parties to a contract
may establish such stipulations, clauses, terms and conditions as they may
deem fit, as long as the same do not run counter to the law, morals, good
customs, public order or public policy. 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.”
Courts cannot stipulate for the parties nor amend their agreement where
the same does not contravene law, morals, good customs, public order or
public policy, for to do so would be to alter the real intent of the parties,
and would run contrary to the function of the courts to give force and effect
thereto. Not being contrary to law, morals, good customs, public order, or
public policy, Section 8 of the Agreement which Philcomsat and Globe
freely agreed upon has the force of law between them.
Same; Same; Same; Requisites; The concurrence of the following
elements must be established.—In order that Globe may be exempt from
non-
_______________
*SECOND DIVISION.
154
154 SUPREME COURT REPORTS ANNOTATED
Philippine Communications Satellite Corporation vs. Globe
Telecom, Inc.
compliance with its obligation to pay rentals under Section 8, the
concurrence of the following elements must be established: (1) the event
must be independent of the human will; (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner; and
(3) the obligor must be free of participation in, or aggravation of, the injury
to the creditor.
Same; Same; Damages; Attorney’s Fees; In cases where both parties
have legitimate claims against each other, an award of attorney’s fees would
not be warranted.—The award of attorney’s fees is the exception rather
than the rule, and must be supported by factual, legal and equitable
justifications. In previously decided cases, the Court awarded attorney’s
fees where a party acted in gross and evident bad faith in refusing to satisfy
the other party’s claims and compelled the former to litigate to protect his
rights; when the action filed is clearly unfounded, or where moral or
exemplary damages are awarded. However, in cases where both parties
have legitimate claims against each other and no party actually prevailed,
such as in the present case where the claims of both parties were sustained
in part, an award of attorney’s fees would not be warranted.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Rillorga, Africa, De Ocampo and Africa for Phil. Communications
Satellite Corp.
Salalima and Castelo for Globe Telecom, Inc.
TINGA, J.:
Before the Court are two Petitions for Review assailing the Decision of the
Court of Appeals, dated 27 February 2001, in CA-G.R. CV No. 63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio
Corporation, now Globe Telecom, Inc. (Globe), had been engaged in the
coordination of the provision of various communication facilities for the
military bases of the United States of America (US) in Clark Air Base,
Angeles, Pampanga and Subic Naval Base in Cubi Point, Zambales. The
said communication facilities were installed and configured for the
exclusive use of the US Defense Communications Agency (USDCA), and
for security reasons, were operated only by its personnel or those of
American companies contracted by it to operate said facilities. The
USDCA contracted with said American companies, and the latter, in
turn, contracted with Globe for the use of the communication facilities.
Globe, on the other hand, contracted with local service providers such as
the Philippine Communications Satellite Corporation (Philcomsat) for the
provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement
whereby Philcomsat obligated itself to establish, operate and provide an
IBS Standard B earth station (earth station) within Cubi Point for the
exclusive use of the USDCA.2 The term of the contract was for 60 months,
or five (5) years.3 In turn, Globe promised to pay Philcomsat monthly
rentals for each leased circuit involved.4
At the time of the execution of the Agreement, both parties knew that the
Military Bases Agreement between the Republic of the Philippines and
the US (RP-US Military Bases Agreement), which was the basis for the
occupancy of the Clark Air Base and Subic Naval Base in Cubi Point, was
to expire in 1991. Under Section 25, Article XVIII of the 1987
Constitution, foreign military bases, troops or facilities, which include
those located at the US Naval Facility in Cubi Point, shall not be allowed
in the Philippines unless a new treaty is duly concurred in by the Senate
and ratified by a majority of the votes cast by the people in a national
referendum when the Congress so requires, and such new treaty is
recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station at
Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate Resolution
No. 141, expressing its decision not to concur in the ratification of the
Treaty of Friendship, Cooperation and Security and its Supplementary
Agreements that was supposed to extend the term of the use by the US of
Subic Naval Base, among others.5 The last two paragraphs of the
Resolution state:
FINDING that the Treaty constitutes a defective framework for
the continuing relationship between the two countries in the
spirit of friendship, cooperation and sovereign equality: Now,
therefore, be it Resolved by the Senate, as it is hereby resolved,
To express its decision not to concur in the ratification of the
Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements, at the same time reaffirming its
desire to continue friendly relations with the government and
people of the United States of America.6
On 31 December 1991, the Philippine Government sent a Note Verbale to
the US Government through the US Embassy, notifying it of the
Philippines’ termination of the RP-US Military Bases Agreement.
The Note Verbalestated that since the RP-US Military Bases Agreement,
as amended, shall terminate on 31 December 1992, the withdrawal of all
US military forces from Subic Naval Base should be completed by said
date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its
intention to discontinue the use of the earth station effective 08
November 1992 in view of the withdrawal of US military personnel from
Subic Naval Base after the termination of the RP-US Military Bases
Agreement. Globe invoked as basis for the letter of termination Section 8
(Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default for
any failure to perform its obligation under this Agreement if such
failure results directly or indirectly from force majeure or
fortuitous event. Either party is thus precluded from performing
its obligation until such force majeure or fortuitous event shall
terminate. For the purpose of this paragraph, force majeure shall
mean circumstances beyond the control of the party involved
including, but not limited to, any law, order, regulation, direction
or request of the Government of the Philippines, strikes or other
labor difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that
"we expect [Globe] to know its commitment to pay the stipulated rentals
for the remaining terms of the Agreement even after [Globe] shall have
discontinue[d] the use of the earth station after November 08,
1992."7 Philcomsat referred to Section 7 of the Agreement, stating as
follows:
 7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth
station after it has been put into operation, a written notice shall
be served to PHILCOMSAT at least sixty (60) days prior to the
expected date of termination. Notwithstanding the non-use of the
earth station, [Globe] shall continue to pay PHILCOMSAT for the
rental of the actual number of T1 circuits in use, but in no case
shall be less than the first two (2) T1 circuits, for the remaining
life of the agreement. However, should PHILCOMSAT make use
or sell the earth station subject to this agreement, the obligation
of [Globe] to pay the rental for the remaining life of the
agreement shall be at such monthly rate as may be agreed upon
by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent Globe
a letter dated 24 November 1993 demanding payment of its outstanding
obligations under the Agreement amounting to US$4,910,136.00 plus
interest and attorney’s fees. However, Globe refused to heed Philcomsat’s
demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of
Makati a Complaint against Globe, praying that the latter be ordered to
pay liquidated damages under the Agreement, with legal interest,
exemplary damages, attorney’s fees and costs of suit. The case was raffled
to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was constrained
to end the Agreement due to the termination of the RP-US Military Bases
Agreement and the non-ratification by the Senate of the Treaty of
Friendship and Cooperation, which events constituted force
majeure under the Agreement. Globe explained that the occurrence of
said events exempted it from paying rentals for the remaining period of
the Agreement.
On 05 January 1999, the trial court rendered its Decision, the dispositive
portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Ordering the defendant to pay the plaintiff the amount
of Ninety Two Thousand Two Hundred Thirty Eight US
Dollars (US$92,238.00) or its equivalent in Philippine
Currency (computed at the exchange rate prevailing at
the time of compliance or payment) representing rentals
for the month of December 1992 with interest thereon at
the legal rate of twelve percent (12%) per annum starting
December 1992 until the amount is fully paid;
2. Ordering the defendant to pay the plaintiff the amount
of Three Hundred Thousand (P300,000.00) Pesos as and
for attorney’s fees;
3. Ordering the DISMISSAL of defendant’s counterclaim
for lack of merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial court’s Decision to the Court of Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the non-
ratification by the Senate of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements constitutes force
majeure which exempts Globe from complying with its obligations under
the Agreement; (2) Globe is not liable to pay the rentals for the remainder
of the term of the Agreement; and (3) Globe is not liable to Philcomsat for
exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it
liable for payment of rent of the earth station for December 1992 and of
attorney’s fees. It explained that it terminated Philcomsat’s services on
08 November 1992; hence, it had no reason to pay for rentals beyond that
date.
On 27 February 2001, the Court of Appeals promulgated
its Decision dismissing Philcomsat’s appeal for lack of merit and
affirming the trial court’s finding that certain events constituting force
majeure under Section 8 the Agreement occurred and justified the non-
payment by Globe of rentals for the remainder of the term of the
Agreement.
The appellate court ruled that the non-ratification by the Senate of the
Treaty of Friendship, Cooperation and Security, and its Supplementary
Agreements, and the termination by the Philippine Government of the
RP-US Military Bases Agreement effective 31 December 1991 as stated in
the Philippine Government’s Note Verbale to the US Government, are
acts, directions, or requests of the Government of the Philippines which
constitute force majeure. In addition, there were circumstances beyond
the control of the parties, such as the issuance of a formal order by Cdr.
Walter Corliss of the US Navy, the issuance of the letter notification from
ATT and the complete withdrawal of all US military forces and personnel
from Cubi Point, which prevented further use of the earth station under
the Agreement.
However, the Court of Appeals ruled that although Globe sought to
terminate Philcomsat’s services by 08 November 1992, it is still liable to
pay rentals for the December 1992, amounting to US$92,238.00 plus
interest, considering that the US military forces and personnel
completely withdrew from Cubi Point only on 31 December 1992. 10
Both parties filed their respective Petitions for Review assailing
the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following
assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN
ADOPTING A DEFINITION OF FORCE
MAJEUREDIFFERENT FROM WHAT ITS LEGAL
DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL CODE,
PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM
COMPLYING WITH ITS OBLIGATIONS UNDER THE
SUBJECT AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM
OF THE AGREEMENT, DESPITE THE CLEAR TENOR OF
SECTION 7 OF THE AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN
DELETING THE TRIAL COURT’S AWARD OF ATTORNEY’S
FEES IN FAVOR OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR EXEMPLARY DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases
Agreement cannot be considered a fortuitous event because the
happening thereof was foreseeable. Although the Agreement was freely
entered into by both parties, Section 8 should be deemed ineffective
because it is contrary to Article 1174 of the Civil Code. Philcomsat posits
the view that the validity of the parties’ definition of force majeure in
Section 8 of the Agreement as "circumstances beyond the control of the
party involved including, but not limited to, any law, order, regulation,
direction or request of the Government of the Philippines, strikes or other
labor difficulties, insurrection riots, national emergencies, war, acts of
public enemies, fire, floods, typhoons or other catastrophies or acts of
God," should be deemed subject to Article 1174 which defines fortuitous
events as events which could not be foreseen, or which, though foreseen,
were inevitable.13
Philcomsat further claims that the Court of Appeals erred in holding that
Globe is not liable to pay for the rental of the earth station for the entire
term of the Agreement because it runs counter to what was plainly
stipulated by the parties in Section 7 thereof. Moreover, said ruling is
inconsistent with the appellate court’s pronouncement that Globe is liable
to pay rentals for December 1992 even though it terminated Philcomsat’s
services effective 08 November 1992, because the US military and
personnel completely withdrew from Cubi Point only in December 1992.
Philcomsat points out that it was Globe which proposed the five-year
term of the Agreement, and that the other provisions of the Agreement,
such as Section 4.114 thereof, evince the intent of Globe to be bound to pay
rentals for the entire five-year term.15
Philcomsat also maintains that contrary to the appellate court’s findings,
it is entitled to attorney’s fees and exemplary damages.16
In its Comment to Philcomsat’s Petition, Globe asserts that Section 8 of
the Agreement is not contrary to Article 1174 of the Civil Code because
said provision does not prohibit parties to a contract from providing for
other instances when they would be exempt from fulfilling their
contractual obligations. Globe also claims that the termination of the RP-
US Military Bases Agreement constitutes force majeure and exempts it
from complying with its obligations under the Agreement.17 On the issue
of the propriety of awarding attorney’s fees and exemplary damages to
Philcomsat, Globe maintains that Philcomsat is not entitled thereto
because in refusing to pay rentals for the remainder of the term of the
Agreement, Globe only acted in accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the
Court of Appeals erred in finding it liable for the amount of
US$92,238.00, representing rentals for December 1992, since
Philcomsat’s services were actually terminated on 08 November 1992.20
In its Comment, Philcomsat claims that Globe’s petition should be
dismissed as it raises a factual issue which is not cognizable by the Court
in a petition for review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course to
Philcomsat’s Petition in G.R. No.
147324 and required the parties to submit their respective memoranda.22
Similarly, on 20 August 2001, the Court issued a Resolution giving due
course to the Petition filed by Globe in G.R. No. 147334 and required both
parties to submit their memoranda.23
Philcomsat and Globe thereafter filed their respective Consolidated
Memoranda in the two cases, reiterating their arguments in their
respective petitions.
The Court is tasked to resolve the following issues: (1) whether the
termination of the RP-US Military Bases Agreement, the non-ratification
of the Treaty of Friendship, Cooperation and Security, and the
consequent withdrawal of US military forces and personnel from Cubi
Point constitute force majeure which would exempt Globe from complying
with its obligation to pay rentals under its Agreement with Philcomsat;
(2) whether Globe is liable to pay rentals under the Agreement for the
month of December 1992; and (3) whether Philcomsat is entitled to
attorney’s fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing the
assailed Decision; hence the petitions are denied.
There is no merit is Philcomsat’s argument that Section 8 of the
Agreement cannot be given effect because the enumeration of events
constituting force majeure therein unduly expands the concept of a
fortuitous event under Article 1174 of the Civil Code and is therefore
invalid.
In support of its position, Philcomsat contends that under Article 1174 of
the Civil Code, an event must be unforeseen in order to exempt a party to
a contract from complying with its obligations therein. It insists that
since the expiration of the RP-US Military Bases Agreement, the non-
ratification of the Treaty of Friendship, Cooperation and Security and the
withdrawal of US military forces and personnel from Cubi Point were not
unforeseeable, but were possibilities known to it and Globe at the time
they entered into the Agreement, such events cannot exempt Globe from
performing its obligation of paying rentals for the entire five-year term
thereof.
However, Article 1174, which exempts an obligor from liability on account
of fortuitous events or force majeure, refers not only to events that are
unforeseeable, but also to those which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which, could not be foreseen, or
which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or
natural occurrences such as floods or typhoons,24 or an "act of man," such
as riots, strikes or wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement that the
following events shall be deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the
Philippine Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
 8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but beyond
the control of the parties. There is nothing in the enumeration that runs
contrary to, or expands, the concept of a fortuitous event under Article
1174.
Furthermore, under Article 130626 of the Civil Code, parties to a contract
may establish such stipulations, clauses, terms and conditions as they
may deem fit, as long as the same do not run counter to the law, morals,
good customs, public order or public policy.27
Article 1159 of the Civil Code also provides that "[o]bligations arising
from contracts have the force of law between the contracting parties and
should be complied with in good faith."28 Courts cannot stipulate for the
parties nor amend their agreement where the same does not contravene
law, morals, good customs, public order or public policy, for to do so would
be to alter the real intent of the parties, and would run contrary to the
function of the courts to give force and effect thereto.29
Not being contrary to law, morals, good customs, public order, or public
policy, Section 8 of the Agreement which Philcomsat and Globe freely
agreed upon has the force of law between them. 30
In order that Globe may be exempt from non-compliance with its
obligation to pay rentals under Section 8, the concurrence of the following
elements must be established: (1) the event must be independent of the
human will; (2) the occurrence must render it impossible for the debtor to
fulfill the obligation in a normal manner; and (3) the obligor must be free
of participation in, or aggravation of, the injury to the creditor. 31
The Court agrees with the Court of Appeals and the trial court that the
abovementioned requisites are present in the instant case. Philcomsat
and Globe had no control over the non-renewal of the term of the RP-US
Military Bases Agreement when the same expired in 1991, because the
prerogative to ratify the treaty extending the life thereof belonged to the
Senate. Neither did the parties have control over the subsequent
withdrawal of the US military forces and personnel from Cubi Point in
December 1992:
Obviously the non-ratification by the Senate of the RP-US
Military Bases Agreement (and its Supplemental Agreements)
under its Resolution No. 141. (Exhibit "2") on September 16, 1991
is beyond the control of the parties. This resolution was followed
by the sending on December 31, 1991 o[f] a "Note
Verbale" (Exhibit "3") by the Philippine Government to the US
Government notifying the latter of the former’s termination of the
RP-US Military Bases Agreement (as amended) on 31 December
1992 and that accordingly, the withdrawal of all U.S. military
forces from Subic Naval Base should be completed by said date.
Subsequently, defendant [Globe] received a formal order from
Cdr. Walter F. Corliss II Commander USN dated July 31, 1992
and a notification from ATT dated July 29, 1992 to terminate the
provision of T1s services (via an IBS Standard B Earth Station)
effective November 08, 1992. Plaintiff [Philcomsat] was furnished
with copies of the said order and letter by the defendant on
August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note Verbale
of the Philippine Government to the US Government are acts,
direction or request of the Government of the Philippines and
circumstances beyond the control of the defendant. The formal
order from Cdr. Walter Corliss of the USN, the letter notification
from ATT and the complete withdrawal of all the military forces
and personnel from Cubi Point in the year-end 1992 are also acts
and circumstances beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that the
afore-narrated circumstances constitute "force majeure or
fortuitous event(s) as defined under paragraph 8 of the
Agreement.
…
From the foregoing, the Court finds that the defendant is
exempted from paying the rentals for the facility for the
remaining term of the contract.
As a consequence of the termination of the RP-US Military Bases
Agreement (as amended) the continued stay of all US Military
forces and personnel from Subic Naval Base would no longer be
allowed, hence, plaintiff would no longer be in any position to
render the service it was obligated under the Agreement. To put
it blantly (sic), since the US military forces and personnel left or
 withdrew from Cubi Point in the year end December 1992, there
was no longer any necessity for the plaintiff to continue
maintaining the IBS facility…. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the
Agreement until the end of its five-year term without fault on the part of
either party. The Court of Appeals was thus correct in ruling that the
happening of such fortuitous events rendered Globe exempt from
payment of rentals for the remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying rentals
even though Philcomsat cannot be compelled to perform its corresponding
obligation under the Agreement. As noted by the appellate court:
We also point out the sheer inequity of PHILCOMSAT’s position.
PHILCOMSAT would like to charge GLOBE rentals for the
balance of the lease term without there being any corresponding
telecommunications service subject of the lease. It will be grossly
unfair and iniquitous to hold GLOBE liable for lease charges for a
service that was not and could not have been rendered due to an
act of the government which was clearly beyond GLOBE’s control.
The binding effect of a contract on both parties is based on the
principle that the obligations arising from contracts have the
force of law between the contracting parties, and there must be
mutuality between them based essentially on their equality under
which it is repugnant to have one party bound by the contract
while leaving the other party free therefrom (Allied Banking
Corporation v. Court of Appeals, 284 SCRA 357)….33
With respect to the issue of whether Globe is liable for payment of rentals
for the month of December 1992, the Court likewise affirms the appellate
court’s ruling that Globe should pay the same.
Although Globe alleged that it terminated the Agreement with
Philcomsat effective 08 November 1992 pursuant to the formal order
issued by Cdr. Corliss of the US Navy, the date when they actually ceased
using the earth station subject of the Agreement was not established
during the trial.34 However, the trial court found that the US military
forces and personnel completely withdrew from Cubi Point only on 31
December 1992.35 Thus, until that date, the USDCA had control over the
earth station and had the option of using the same. Furthermore,
Philcomsat could not have removed or rendered ineffective said
communication facility until after 31 December 1992 because Cubi Point
was accessible only to US naval personnel up to that time. Hence, the
Court of Appeals did not err when it affirmed the trial court’s ruling that
Globe is liable for payment of rentals until December 1992.
Neither did the appellate court commit any error in holding that
Philcomsat is not entitled to attorney’s fees and exemplary damages.
The award of attorney’s 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 attorney’s fees where a party
acted in gross and evident bad faith in refusing to satisfy the other
party’s claims and compelled the former to litigate to protect his
rights;37 when the action filed is clearly unfounded,38 or where moral or
exemplary damages are awarded.39 However, in cases where both parties
have legitimate claims against each other and no party actually
prevailed, such as in the present case where the claims of both parties
were sustained in part, an award of attorney’s fees would not be
warranted.40
Exemplary damages may be awarded in cases involving contracts or
quasi-contracts, if the erring party acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.41 In the present case, it was
not shown that Globe acted wantonly or oppressively in not heeding
Philcomsat’s demands for payment of rentals. It was established during
the trial of the case before the trial court that Globe had valid grounds for
refusing to comply with its contractual obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The
assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619 is
AFFIRMED.
SO ORDERED.
G.R. No. 159617. August 8, 2007.*
ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC.,
petitioners, vs. LULU V. JORGE and CESAR JORGE, respondents.
Courts; Judgments; The discretion to decide a case one way or another
is broad enough to justify the adoption of the arguments put forth by one of
the parties, as long as these are legally tenable and supported by law and
the facts on records.—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 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 Constitution. The discretion to decide a
case one way or another is broad enough to justify the adoption of the
arguments put forth by one of the parties, as long as these are legally
tenable and supported by law and the facts on records.
Corporation Law; Piercing the Veil of Corporate Fiction; The rule is
that the veil of corporate fiction may be pierced when made as a shield to
perpetrate fraud and/or confuse legitimate issues—the
_______________
*THIRD DIVISION.
444
444 SUPREME COURT REPORTS ANNOTATED
Sicam vs. Jorge
theory of corporate entity was not meant to promote unfair objectives
or otherwise to shield them.—The CA correctly pierced the veil of the
corporate fiction and adjudged petitioner Sicam liable together with
petitioner corporation. The rule is that the veil of corporate fiction may be
pierced when made as a shield to perpetrate fraud and/or confuse
legitimate issues. The theory of corporate entity was not meant to promote
unfair objectives or otherwise to shield them. Notably, the evidence on
record shows that at the time respondent Lulu pawned her jewelry, the
pawnshop was owned by petitioner Sicam himself. As correctly observed
by the CA, in all the pawnshop receipts issued to respondent Lulu in
September 1987, all bear the words “Agencia de R.C. Sicam,”
notwithstanding that the pawnshop was allegedly incorporated in April
1987. The receipts issued after such alleged incorporation were still in the
name of “Agencia deR.C. Sicam,” thus inevitably misleading, or at the very
least, creating the wrong impression to respondents and the public as well,
that the pawnshop was owned solely by petitioner Sicam and not by a
corporation.
Actions; Judicial Admissions; 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 made through palpable mistake, and (2) when it is shown that no such
admission was in fact made; 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 context.—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 made through palpable mistake, and (2) when it is shown
that no such admission was in fact made. The latter exception allows one to
contradict an admission by denying that he made such an admission. The
Committee on the Revision of the Rules of Court explained the second
exception in this wise: 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 context. 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 appear. That is the reason for the modifier “such” because if the
rule simply states that
445
VOL. 529, AUGUST 8, 2007 445
Sicam vs. Jorge
the admission may be contradicted by showing that “no admission
was made,” the rule would not really be providing for a contradiction of the
admission but just a denial. (Emphasis supplied).
Obligations and Contracts; Fortuitous Events; Elements; Words and
Phrases; Fortuitous events by definition are extraordinary events not
foreseeable or avoidable—it is therefore, not enough that the event should
not have been foreseen or anticipated, as is commonly believed but it must
be one impossible to foresee or to avoid.—Fortuitous events by definition
are extraordinary events not foreseeable or avoidable. It is therefore, not
enough that the event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee the
same. To constitute a fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the failure
of the debtor to comply with obligations must be independent of human
will; (b) it must be impossible to foresee the event that constitutes the caso
fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the
occurrence must be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor must be free from any
participation in the aggravation of the injury or loss.
Same; Same; In order for a fortuitous event to exempt one from
liability, it is necessary that one has committed no negligence or misconduct
that may have occasioned the loss; When the effect is found to be partly the
result of a person’s participation—whether by active intervention, neglect or
failure to act—the whole occurrence is humanized and removed from the
rules applicable to acts of God.—The burden of proving that the loss was
due to a fortuitous event rests on him who invokes it. And, in order for a
fortuitous event to exempt one from liability, it is necessary that one has
committed no negligence or misconduct that may have occasioned the loss.
It has been held that an act of God cannot be invoked to protect a person
who has failed to take steps to forestall the possible adverse consequences
of such a loss. One’s negligence may have concurred with an act of God in
producing damage and injury to another; nonetheless, showing that the
immediate or proximate cause of the damage or injury was a fortuitous
event would not exempt one from liability. When the effect is found to be
partly the result of a person’s partici-
446
446 SUPREME COURT REPORTS ANNOTATED
Sicam vs. Jorge
pation—whether by active intervention, neglect or failure to act—the
whole occurrence is humanized and removed from the rules applicable to
acts of God.
Same; Same; Pawnshops; Robbery; Robbery per se, just like
carnapping, is not a fortuitous event; Merely presenting the police report on
the robbery committed based on the report of the employees of the pawnshop
owner is not sufficient to establish robbery.—Robbery per se, just like
carnapping, is not a fortuitous event. It does not foreclose the possibility of
negligence on the part of herein petitioners. In Co v. Court of Appeals, 291
SCRA 111 (1998), the Court held: 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 possession was due to carnapping. Carnapping
per se cannot be considered as a fortuitous event. The fact that a thing was
unlawfully and forcefully taken from another’s rightful possession, as in
cases of carnapping, does not automatically give rise to a fortuitous event.
To be considered as such, carnapping entails more than the mere forceful
taking of another’s property. It must be proved and 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 be negligent has any participation.
In accordance with the Rules of Evidence, the burden of proving that the
loss was due to a fortuitous event rests on him who invokes it—which in this
case is the private respondent. However, other than the police report of the
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
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
no fault on the part of private respondent notwithstanding the parties’
agreement at the pre-trial that the car was carnapped. Carnapping does
not foreclose the possibility of fault or negligence on the part of private
respondent. Just like in Co, petitioners merely presented the police report
of the Parañaque Police Station on the robbery committed based on the
report of petitioners’ employees which is not sufficient to establish robbery.
Such report also does not prove that petitioners were not at fault.
Same; Same; Same; Article 2123 of the Civil Code provides that with
regard to pawnshops and other establishments which are engaged in
making loans secured by pledges, the special laws and regu-
447
VOL. 529, AUGUST 8, 2007 447
Sicam vs. Jorge
lations concerning them shall be observed, and subsidiarily, the
provisions on pledge, mortgage and antichresis.—Article 2123 of the Civil
Code provides that with regard to pawnshops and other establishments
which are engaged in making loans secured by pledges, the special laws
and regulations concerning them shall be observed, and subsidiarily, the
provisions on pledge, mortgage and antichresis. The provision on pledge,
particularly Article 2099 of the Civil Code, provides that the creditor shall
take care of the thing pledged with the diligence of a good father of a family.
This means that petitioners must take care of the pawns the way a prudent
person would as to his own property.
Same; Same; Same; Negligence; Words and Phrases; Negligence is the
omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs,
would do, or the doing of something which a prudent and reasonable man
would not do.—We expounded in Cruz v. Gangan, 211 SCRA 517 (1992),
that negligence is the omission to do something which a reasonable man,
guided by those considerations which ordinarily regulate the conduct of
human affairs, would do; or the doing of something which a prudent and
reasonable man would not do. It is want of care required by the
circumstances. A review of the records clearly shows that petitioners failed
to exercise reasonable care and caution that an ordinarily prudent person
would have used in the same situation. Petitioners were guilty of
negligence in the operation of their pawnshop business.
Same; Same; Same; Same; The Central Bank considered it not
feasible to require insurance of pawned articles against burglary—there
was no statutory duty imposed on the pawnshop owner to insure the pawned
jewelry.—Under Section 17 of Central Bank Circular No. 374, Rules and
Regulations for Pawnshops, which took effect on July 13, 1973, and which
was issued pursuant to Presidential Decree No. 114, Pawnshop Regulation
Act, it is provided that pawns pledged must be insured, to wit: 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
against burglary as well as for the latter(sic), by an insurance company
accredited by the Insurance Commissioner. However, this Section was
subsequently amended by CB Circular No. 764 which took effect on October
1, 1980, to wit: Sec. 17. Insurance of Office Building and Pawns.—The
448
448 SUPREME COURT REPORTS ANNOTATED
Sicam vs. Jorge
office building/premises and pawns of a pawnshop must be
insured against fire. (emphasis supplied). where the requirement that
insurance against burglary was deleted. Obviously, the Central Bank
considered it not feasible to require insurance of pawned articles against
burglary. The robbery in the pawnshop happened in 1987, and considering
the above-quoted amendment, there is no statutory duty imposed on
petitioners to insure the pawned jewelry in which case it was error for the
CA to consider it as a factor in concluding that petitioners were negligent.
Same; Same; Same; Same; The diligence with which the law requires
the individual at all times to govern his conduct varies with the nature of
the situation in which he is placed and the importance of the act which he
is to perform.—The preponderance of evidence shows that petitioners failed
to exercise the diligence required of them under the Civil Code. The
diligence with which the law requires the individual at all times to govern
his conduct varies with the nature of the situation in which he is placed
and the importance of the act which he is to perform. Thus, the cases
of Austria v. Court of Appeals, 39 SCRA 527 (1971), Hernandez v.
Chairman, Commission on Audit, 179 SCRA 39 (1989), and Cruz v.
Gangan, 211 SCRA 517 (1992), cited by petitioners in their pleadings,
where the victims of robbery were exonerated from liability, find no
application to the present case.
PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
Balgos and Perez for petitioners.
Herrera, Teehankee, Faylona and Cabrera for respondents.
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam,
Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner
corporation) seeking to annul the Decision1 of the Court of Appeals dated
March 31, 2003, and its Resolution2 dated August 8, 2003, in CA G.R. CV
No. 56633.
It appears that on different dates from September to October 1987, Lulu
V. Jorge (respondent Lulu) pawned several pieces of jewelry
with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes
Parañaque, Metro Manila, to secure a loan in the total amount
of P59,500.00.
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 the Southern Police
District, Parañaque Police Station as follows:
Investigation shows that at above TDPO, while victims were
inside the office, two (2) male unidentified persons entered into
the said office with guns drawn. Suspects(sic) (1) went straight
inside and poked his gun toward Romeo Sicam and thereby tied
him with an electric wire while suspects (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 case and
assorted pawned jewelries items mentioned above.
Suspects after taking the money and jewelries fled on board a
Marson Toyota unidentified plate number.3
Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987
informing her of the loss 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
happened, all jewelry pawned were deposited with Far East Bank near
the pawnshop since it had been the practice that before they could
withdraw, advance notice must be given to the pawnshop so it could
withdraw the jewelry from the bank. Respondent Lulu then requested
petitioner Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband, Cesar
Jorge, filed a complaint against petitioner Sicam with the Regional Trial
Court of Makati seeking indemnification for the loss of pawned jewelry
and payment of actual, moral and exemplary damages as well as
attorney's fees. The case was docketed as Civil Case No. 88-2035.
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 pledged
with it and could not be made liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to include
petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is
concerned considering that 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
After trial on the merits, the RTC rendered its Decision 6 dated January
12, 1993, dismissing respondents’ complaint as well as petitioners’
counterclaim. The RTC held that petitioner Sicam could not be made
personally liable for a claim arising out of a corporate transaction; that in
the Amended Complaint of respondents, they asserted that "plaintiff
pawned assorted jewelries in defendants' pawnshop"; and that as a
consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held liable
for the loss of the pawned jewelry since it had not been rebutted by
respondents that the loss of the pledged pieces of jewelry in the
possession of the corporation was occasioned by armed robbery; that
robbery is a fortuitous event which exempts the victim from liability for
the loss, citing the case of Austria v. Court of Appeals;7 and that the
parties’ transaction was that 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.
Respondents appealed the RTC Decision to the CA. In a Decision dated
March 31, 2003, the CA reversed the RTC, the dispositive portion of
which reads as follows:
WHEREFORE, premises considered, the instant Appeal is
GRANTED, and 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
In finding petitioner Sicam liable together with petitioner corporation,
the CA applied the doctrine 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 issued to them bear the words "Agencia de R.C. Sicam";
and that there was no indication on the pawnshop tickets that it was the
petitioner corporation that owned the pawnshop which explained why
respondents had to amend their complaint impleading petitioner
corporation.
The CA further held that the corresponding diligence required of a
pawnshop is that it should 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 trade which petitioners failed to do; that Austria is not
applicable to this case since the robbery incident happened in 1961 when
the criminality had not as yet reached the levels attained in the present
day; that they are at least guilty of contributory negligence and should be
held liable for the loss of jewelries; and that robberies and hold-ups are
foreseeable risks in that those engaged in the pawnshop business are
expected to foresee.
The CA concluded that both petitioners should be jointly and severally
held liable to respondents for the loss of the pawned jewelry.
Petitioners’ motion for reconsideration was denied in a Resolution dated
August 8, 2003.
Hence, the instant petition for review with the following assignment of
errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT
OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN
WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT
THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH
ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT
OPENED ITSELF TO REVERSAL BY THIS HONORABLE
COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT
WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF
THE RESPONDENTS IN THEIR BRIEF WITHOUT 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
Anent the first assigned error, petitioners point out that the CA’s finding
that petitioner Sicam is personally liable for the loss of the pawned
jewelries is "a virtual and uncritical reproduction of the arguments set
out on pp. 5-6 of the Appellants’ brief."10
Petitioners argue that the reproduced arguments of respondents in their
Appellants’ Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2 of their
Amended Complaint that Agencia de R.C. Sicam, Inc. is the
present owner of Agencia de R.C. Sicam Pawnshop, and therefore,
the CA cannot rule against said conclusive assertion of
respondents;
(2) The issue resolved against petitioner Sicam was not among
those raised and litigated in the trial court; and
(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 from its individual stockholders
or members.
Anent the second error, petitioners point out that the CA finding on their
negligence is likewise an unedited reproduction of respondents’ brief
which had the following defects:
(1) There were unrebutted evidence on record that petitioners had
observed 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 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;
(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 and banks because of high
probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA
39, 45-46), the victim of robbery was exonerated from liability for
the sum of money belonging to others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply
thereto. The parties subsequently submitted their respective
Memoranda.
We find no merit in the petition.
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 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 Constitution. The discretion to decide a case
one way or another is broad enough to justify the adoption of the
arguments put forth by one of the parties, as long as these are legally
tenable and supported by law and the facts on records.11
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 deemed conclusive and we are
not duty-bound to analyze and calibrate all over again the evidence
adduced by the parties in the court a quo.12 This rule, however, is not
without exceptions, such as where the factual findings of the Court of
Appeals and the trial court are conflicting or contradictory 13 as is
obtaining in the instant case.
However, after a careful examination of the records, we find no
justification to absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged
petitioner Sicam liable together with petitioner corporation. The rule is
that the veil of corporate fiction may be pierced 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
Notably, the evidence on record shows that at the time respondent Lulu
pawned her jewelry, the pawnshop was owned by petitioner Sicam
himself. As correctly observed by the CA, in all the pawnshop receipts
issued to respondent Lulu in September 1987, all bear the words
"Agencia de R. C. Sicam," notwithstanding that the pawnshop was
allegedly incorporated in April 1987. The receipts issued after such
alleged incorporation were still in the name of "Agencia de R. C. Sicam,"
thus inevitably misleading, or at the very least, creating the wrong
impression to respondents and the public as well, that the pawnshop was
owned solely by petitioner Sicam and not by a corporation.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter 16 dated
October 15, 1987 addressed to the Central Bank, expressly referred to
petitioner Sicam as the proprietor of the pawnshop notwithstanding the
alleged incorporation in April 1987.
We also find no merit in petitioners' argument that since respondents had
alleged in their Amended Complaint that petitioner corporation is the
present owner of the pawnshop, the CA is bound to decide the case on
that basis.
Section 4 Rule 129 of the Rules of Court provides that an admission,
verbal or written, made by a party in the course of the proceedings in the
same case, does not require proof. The admission may be contradicted
only by showing that it was made through palpable mistake or that no
such admission was made.
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 made through palpable
mistake, and (2) when it is shown that no such admission was in fact
made. The latter exception allows one to contradict an admission by
denying that he made such an admission.17
The Committee on the Revision of the Rules of Court explained the
second exception in this wise:
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 context.
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 appear.
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 made," the rule would not really be
providing for a contradiction of the admission but just a
denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended Complaint
that petitioner corporation is the present owner of the pawnshop, they did
so only because petitioner Sicam alleged in his Answer to the original
complaint filed against him that he was not the real party-in-interest as
the pawnshop was incorporated in April 1987. Moreover, a reading of the
Amended Complaint in its entirety shows that respondents referred to
both petitioner Sicam and petitioner corporation where they
(respondents) pawned their assorted pieces of jewelry and ascribed to
both the failure to observe due diligence commensurate with the business
which resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners’ Motion to
Dismiss Amended Complaint, insofar as petitioner Sicam is concerned,
averred as follows:
Roberto C. Sicam was named the defendant in the original
complaint because the pawnshop tickets involved in this case did
not show that 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 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
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 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 of context" by petitioner Sicam to suit his own
purpose. Ineluctably, the fact that 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 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 RTC.
Petitioner Sicam had alleged in his Answer filed with the trial court that
he was not the real party-in-interest because since April 20, 1987, the
pawnshop business initiated by him was incorporated and known
as Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam,
he submitted that as far as he was concerned, the basic issue was
whether he is the real party in interest against whom the complaint
should be directed.20 In fact, he subsequently moved for the dismissal of
the complaint as to him but was not favorably acted upon by the trial
court. Moreover, the issue was squarely passed upon, although
erroneously, by the trial court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise denies liability as
far as he is concerned for the reason that he cannot be made
personally liable for a claim arising from a corporate transaction.
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 debt or credit
that of a corporation.21
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 question whether the doctrine of piercing
the corporate veil should or should not apply to the case.
The next question is whether petitioners are liable for the loss of the
pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a fortuitous
event and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or when
it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen or which,
though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not foreseeable
or avoidable. It is therefore, not enough that the event should not have
been foreseen or anticipated, as is commonly believed but it must be one
impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must concur: (a)
the cause of the unforeseen and unexpected occurrence or of the failure of
the debtor to comply with obligations must be independent of human will;
(b) it must be impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c)
the occurrence must be such as to render it impossible for the debtor to
fulfill obligations in a normal manner; and, (d) the obligor must be free
from any participation in the aggravation of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous event rests on
him who invokes it.24 And, in order for a fortuitous event to exempt one
from liability, it is necessary that one has committed no negligence or
misconduct that may have occasioned the loss. 25
It has been held that an act of God cannot be invoked to protect a person
who has failed to take steps to forestall the possible adverse consequences
of such a loss. One's negligence may have concurred with an act of God in
producing damage and injury to another; nonetheless, showing that the
immediate or proximate cause of the damage or injury was a fortuitous
event would not exempt one from liability. When the effect is found to be
partly the result of a person's participation -- whether by active
intervention, neglect or failure to act -- the whole occurrence is
humanized and removed from the rules applicable to acts of God. 26
Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when he
started the pawnshop business in 1983, he thought of opening a vault
with the nearby bank for the purpose of safekeeping the valuables but
was discouraged by the Central Bank since pawned articles should only
be stored in a vault inside the pawnshop. The very measures which
petitioners had allegedly adopted show that to them the possibility of
robbery was not only foreseeable, but actually foreseen and anticipated.
Petitioner Sicam’s testimony, in effect, contradicts petitioners’ defense of
fortuitous event.
Moreover, petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have been
occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does not
foreclose the possibility of negligence on the part of herein petitioners.
In Co v. Court of Appeals,27 the Court held:
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 possession was due to carnapping. Carnapping per se
cannot be considered as a fortuitous event. The fact that a thing
was unlawfully and forcefully taken from another's rightful
possession, as in cases of carnapping, does not automatically give
rise to a fortuitous event. To be considered as such, carnapping
entails more than the mere forceful taking of another's property.
It must be proved and 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 be negligent has any
participation. In accordance with the Rules of Evidence, the
burden of proving that the loss was due to a fortuitous event rests
on him who invokes it — which in this case is the private
respondent. However, other than the police report of the 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 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 no fault on the part of
private respondent notwithstanding the parties' agreement at the
pre-trial that the car was carnapped. Carnapping does not
foreclose the possibility of fault or negligence on the part of
private respondent.28
Just like in Co, petitioners merely presented the police report of the
Parañaque Police Station on the robbery committed based on the report of
petitioners' employees which is not sufficient to establish robbery. Such
report also does not prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA did not err in
finding that petitioners are guilty of concurrent or contributory
negligence as provided in Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.29
Article 2123 of the Civil Code provides that with regard to pawnshops
and other establishments which are engaged in making loans secured by
pledges, the special laws and regulations concerning them shall be
observed, and subsidiarily, the provisions on pledge, mortgage and
antichresis.
The provision on pledge, particularly Article 2099 of the Civil Code,
provides that the creditor shall take care of the thing pledged with the
diligence of a good father of a family. This means that petitioners must
take care of the pawns the way a prudent person would as to his own
property.
In this connection, Article 1173 of the Civil Code further provides:
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, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good
father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is the omission to do
something which a reasonable man, guided by those considerations which
ordinarily regulate the conduct of human affairs, would do; or the doing of
something which a prudent and reasonable man would not do. 31 It is want
of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise
reasonable care and caution that an ordinarily prudent person would
have used in the same situation. Petitioners were guilty of negligence in
the operation of their pawnshop business. Petitioner Sicam testified,
thus:
Court:
Q. Do you have security guards in your pawnshop?
 A. Yes, your honor.
Q. Then how come that the robbers were able to enter the
premises when according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a
pawnshop.
Q. I am asking you how were the robbers able to enter despite the
fact that there was a security guard?
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 Parañaque they
pretended to pawn an article in the pawnshop, so one of my
employees allowed him to come in and it was only when it was
announced that it was a hold up.
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 open. The combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of the robbery.
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
revealing that there were no security measures adopted by petitioners in
the operation of the pawnshop. Evidently, no sufficient precaution and
vigilance were adopted by petitioners to protect the pawnshop from
unlawful intrusion. There was no clear showing that there was any
security guard at all. Or if there was one, that he had sufficient training
in securing a pawnshop. Further, there is no showing that the alleged
security guard exercised all that was necessary to prevent any untoward
incident or to ensure that no suspicious individuals were 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 pistols each, which were allegedly
poked at the employees.33 Significantly, the alleged security guard was
not presented at all to corroborate petitioner Sicam's claim; not one of
petitioners' employees who were present during the robbery incident
testified in court.
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 circumstances justly demanded.
Petitioner Sicam testified that once the pawnshop was open, 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 Parañaque at that time was quiet, there was more reason for
petitioners to have exercised reasonable foresight and diligence in
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.
We, however, do not agree with the CA when it found petitioners
negligent for not taking steps to insure themselves against loss of the
pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and
Regulations for Pawnshops, which took effect on July 13, 1973, and which
was issued pursuant to Presidential Decree No. 114, Pawnshop
Regulation Act, it is provided that pawns pledged must be insured, to wit:
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 against burglary as well as for the
latter(sic), by an insurance company accredited by the Insurance
Commissioner.
However, this Section was subsequently amended by CB Circular No. 764
which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns – The office
building/premises and pawns of a pawnshop must be
insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was deleted.
Obviously, the Central Bank considered it not feasible to require
insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the
above-quoted amendment, there is no statutory duty imposed on
petitioners to insure the pawned jewelry in which case it was error for the
CA to consider it as a factor in concluding that petitioners were
negligent.
Nevertheless, the preponderance of evidence shows that petitioners failed
to exercise the diligence required of them under the Civil Code.
The diligence with which the law requires the individual at all times to
govern his conduct varies with the nature of the situation in which he is
placed and the importance of the act which he is to perform. 34 Thus, the
cases of Austria v. Court of Appeals,35 Hernandez v. Chairman,
Commission on Audit36 and Cruz v. Gangan37 cited by petitioners in their
pleadings, where the victims of robbery were exonerated from liability,
find no application to the present case.
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 upon her in 1961.
The incident became the subject of a criminal case filed against several
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 obligation. The RTC ruled in favor of
Austria, as the Abads failed to prove robbery; or, if committed, that Maria
Abad was guilty of negligence. The CA, however, reversed the RTC
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 held that for the Abads to be relieved from the
civil liability of returning the pendant under Art. 1174 of the Civil Code,
it would only be sufficient that the unforeseen event, the robbery, took
place without any concurrent fault on the debtor’s part, and this can be
done by preponderance of evidence; that to be free from liability for
reason of fortuitous event, the debtor must, in addition to the casus itself,
be free of any concurrent or contributory fault or negligence. 38
We found in Austria that under the circumstances prevailing at the time
the Decision was promulgated in 1971, the City of Manila and its suburbs
had a high incidence of crimes against persons and property that
rendered travel after nightfall a matter to be sedulously avoided without
suitable precaution and protection; that the conduct of Maria Abad in
returning alone to her house in the evening carrying jewelry of
considerable value would have been negligence per se and would not
exempt her from responsibility in the case of robbery. However we did not
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.
In contrast, the robbery in this case took place in 1987 when robbery was
already prevalent and petitioners in fact had already foreseen it as they
wanted to deposit the pawn with a nearby bank for safekeeping.
Moreover, unlike in Austria, where no negligence was committed, we
found petitioners negligent in securing their pawnshop as earlier
discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing
officer of the Ternate Beach Project of the Philippine Tourism in Cavite.
In the morning of July 1, 1983, a Friday, he went to Manila to encash two
checks covering the wages of the employees and the operating expenses of
the project. However for some reason, the processing of the check was
delayed and was completed at about 3 p.m. Nevertheless, he decided to
encash the check because the 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 two choices: (1) return to Ternate, Cavite that same
afternoon and arrive early evening; or (2) take the money with him to his
house in Marilao, Bulacan, spend the night there, and leave for Ternate
the following day. He chose the second option, thinking it was the safer
one. Thus, a little past 3 p.m., he took a passenger jeep bound for
Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep
was held up and the money kept by Hernandez was taken, and the
robbers jumped out of the jeep and ran. Hernandez chased the robbers
and caught up with one robber who was subsequently charged with
robbery and pleaded guilty. The other robber who held the stolen money
escaped. The Commission on Audit found Hernandez negligent because
he had not brought the cash proceeds of the checks to his office in
Ternate, Cavite for safekeeping, which is the normal procedure in the
handling of funds. We held that Hernandez was not negligent in deciding
to encash the check and bringing it home to Marilao, Bulacan instead of
Ternate, Cavite due to the lateness of the hour for the following reasons:
(1) he was moved by unselfish motive for his co-employees to collect their
wages and salaries the following day, a Saturday, a non-working, because
to encash the check on July 5, the next working day after July 1, would
have caused discomfort to laborers who were dependent on their wages
for sustenance; and (2) that choosing Marilao as a safer destination, being
nearer, and in view of the comparative hazards in the trips to the two
places, said decision seemed logical at that time. We further held that the
fact that two robbers attacked him in broad daylight in the jeep while it
was on a busy highway and in the presence of other passengers could not WHEREFORE, except for the insurance aspect, the Decision of the Court
be said to be a result of his imprudence and negligence. of Appeals dated March 31, 2003 and its Resolution dated August 8, 2003,
are AFFIRMED.
Unlike in Hernandez where the robbery happened in a public utility, the
robbery in this case took place in the pawnshop which is under the Costs against petitioners.
control of petitioners. Petitioners had the means to screen the persons
who were allowed entrance to the premises and to protect itself from SO ORDERED.
unlawful intrusion. Petitioners had failed to exercise precautionary
measures in ensuring that the robbers were prevented from entering the
pawnshop and for keeping the vault open for the day, which paved the
way for the robbers to easily cart away the pawned articles.

In Cruz, Dr. Filonila O. Cruz, Camanava District Director of

Technological Education and Skills Development Authority (TESDA),
boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to
Monumento when her handbag was slashed and the contents were stolen
by an unidentified person. Among those stolen were her wallet and the
government-issued cellular phone. She then reported the incident to the
police authorities; however, the thief was not located, and the cellphone
was not recovered. She also reported the loss to the Regional Director of
TESDA, and she requested that she be freed from accountability for the
cellphone. The Resident Auditor denied her request on the ground that
she lacked the diligence required in the custody of government property
and was ordered to pay the purchase value in the total amount
of P4,238.00. The COA found no sufficient justification to grant the
request for relief from accountability. We reversed the ruling and found
that riding the LRT cannot per se be denounced as a negligent act more
so because Cruz’s mode of transit was influenced by time and money
considerations; that she boarded the LRT to be able to arrive in Caloocan
in time for her 3 pm meeting; that any prudent and rational person under
similar circumstance can reasonably be expected to do the same; that
possession of a cellphone should not hinder one from boarding the LRT
coach as Cruz did considering that whether she rode a jeep or bus, the
risk of theft would have also been present; that because of her relatively
low position and pay, she was not expected to have her own vehicle or to
ride a taxicab; she did not have a government assigned vehicle; that
placing the cellphone in a bag away from covetous eyes and holding on to
that bag as she did is ordinarily sufficient care of 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 and they were negligent in not exercising the precautions
justly demanded of a pawnshop.
G.R. No. L-47379 May 16, 1988
NATIONAL POWER CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS and ENGINEERING
CONSTRUCTION, INC., respondents.
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner,
vs.
COUTRT OF APPEALS and NATIONAL POWER
CORPORATION, respondents.
Raymundo A. Armovit for private respondent in L-47379.
The Solicitor General for petitioner.
Civil Law; Torts and Damages; Negligence; NPC cannot escape
liability because its negligence was the proximate cause of the loss and
damage even though the typhoon was an act of God.—It is clear from the
appellate court’s decision that based on its findings of fact and that of the
trial court’s, petitioner NPC was undoubtedly negligent because it opened
the spillway gates of the Angat Dam only at the height of typhoon
“Welming” when it knew very well that it was safer to have opened the
same gradually and earlier, as it was also undeniable that NPC knew of
the coming typhoon at least four days before it actually struck. And even
though the typhoon was an act of God or what we may call force majeure,
NPC cannot escape liability because its negligence was the proximate
cause of the loss and damage. As we have ruled in Juan F. Nakpil & Sons
v. Court of Appeals (144 SCRA 596, 606–607): Thus, if upon the happening
of a fortuitous event or an act of God, there concurs a corresponding fraud,
negligence, delay or violation or contravention in any manner of the tenor
of the obligation as provided for in Article 1170 of the Civil Code, which
results in loss or damage, the obligor cannot escape liability. The principle
embodied in the act of God doctrine strictly requires that the act must be
one occasioned exclusively by the violence of nature and human agencies
are to be excluded from creating or entering into the cause of the mischief.
When the effect, the cause of which is to be considered, is found to be in
part the result of the participation of man, whether it be from active
intervention or neglect, or failure to act, the whole occurrence is thereby
humanized, as it was, and removed from the rules applicable to the acts of
God. (1 Corpus Juris, pp. 1174–1175). Thus, it has been held that when the
negligence of a person concur s with an act of God in producing a loss, such
person is not exempt from liability by showing that the immediate cause of
the damage was the act of God. To be exempt from liability for loss because
of an act of God, he must be free from any previous negligence or
misconduct by which the loss
_______________
*THIRD DIVISION.
335
VOL. 161, MAY 16, 1988 335
National Power Corporation vs. Court of Appeals
or damage may have been occasioned. (Fish & Elective Co. v. Phil.
Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco &Sons v.
Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657)."
Same; Same; Same; Same; The question of whether or not there was
negligence on the part of NPC is a question of fact which falls within the
jurisdiction of the CA.—Furthermore, the question of whether or not there
was negligence on the part of NPC is a question of fact which properly falls
within the jurisdiction of the Court of Appeals and will not be disturbed by
this Court unless the same is clearly unfounded, Thus, in Tolentino v.
Court of Appeals,(150 SCRA 26, 36) we ruled: “Moreover, the findings of
fact of the Court of Appeals are generally final and conclusive upon the
Supreme Court (Leonardo v. Court of Appeals, 120 SCRA 890 [1983]. In
fact it is settled that the Supreme Court is not supposed to weigh evidence
but only to determine its substantially (Nunez v. Sandiganbayan, 100
SCRA 433 [1982] and will generally not disturb said findings of fact when
supported by substantial evidence (Aytona v. Court of appeals, 113 SCRA
575 [1985]; Collector of Customs of Manila v. Intermediate Appellate
Court, 137 SCRA 3 [1985]. On the other hand substantial evidence is
defined as such relevant evidence as a reasonable mind might accept as
adequate to support a conclusion (Philippine Metal Products, Inc. v. Court
of Industrial Relations, 90 SCRA 135 [1979]; Police Commission v. Lood,
127 SCRA 757 [1984]; Canete v. WCC, 136 SCRA 302 [1985])."
Same; Same; Same; Same; Consequential damages; Court of Ap-peals
did not err in reducing the consequential damages from P333,200.00 to
P19,000.00; Reasons.—Likewise, it did not err in re-ducing the
consequential damages from P333,200.00 to P19,000.00. As shown by the
records, while there was no categorical statement or admission on the part
of ECI that it bought a new crane to replace the damaged one, a sales
contract was presented to the effect that the new crane would be delivered
to it by Asian Enterprises within 60 days from the opening of the letter of
credit at the cost of P1 06,336.75. The offer was made by Asian Enterprises
a few days after the flood. As compared to the amount of P106,336.75 for a
brand new crane and paying the alleged amount of P4,000.00 a day as
rental for the use of a temporary crane, which use petitioner ECI alleged
to have lasted for a period of one year, thus, totalling P1 20,000.00, plus
the fact that there was already a sales contract between it and Asian
Enterprises, there is no reason why ECI should opt to rent a temporary
crane for a period of one year. The appellate court also found that the
damaged crane was subsequently repaired and re-activated and the cost of
repair was
336
336 SUPREME COURT REPORTS ANNOTATED
National Power Corporation us. Court of Appeals
P77,000.00. Therefore, it included the said amount in the award of
compensatory damages, but not the value of the new crane. We do not find
anything erroneous in the decision of the appellate court that the
consequential damages should represent only the service of the temporary
crane for one month. A contrary ruling would result in the unjust
enrichment of ECI.
Same; Same; Same; Same; Exemplary Damages; Appellate court is
correct in eliminating exemplary damages since there was no bad faith and
gross negligence on the part of NPC.—As to the question of exemplary
damages, we sustain the appellate court in eliminating the same since it
found that there was no bad faith on the part of NPC and that neither can
the latter’s negligence be considered gross. In Dee Hua Liong Electrical
Equipment Corp. v. Reyes, (145 SCRA 713, 719) we ruled: “Neither may
private respondent recover exemplary damages since he is not entitled to
moral or compensatory damages, and again because the petitioner is not
shown to have acted in a wanton, fraudulent, reckless or oppressive
manner (Art. 2234, Civil Code; Yutuk v. Manila Electric Co., 2 SCRA 377;
Francisco v. Government Service Insurance System, 7 SCRA 577;
Gutierrez v. Villegas, 8 SCRA 527; Air France v. Carrascoso, 18 SCRA 155;
Pan Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977; Marchan v.
Mendoza, 24 SCRA 888)."
PETITIONS to review the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Raymundo A. Armovit for private respondent in L-47379.
The Solicitor General for petitioner.
GUTIERREZ, JR., J.:
These consolidated petitions seek to set aside the decision of the
respondent Court of Appeals which adjudged the National Power
Corporation liable for damages against Engineering Construction, Inc.
The appellate court, however, reduced the amount of damages awarded
by the trial court. Hence, both parties filed their respective petitions: the
National Power Corporation (NPC) in G.R. No. 47379, questioning the
decision of the Court of Appeals for holding it liable for damages and the
Engineering Construction, Inc. (ECI) in G.R. No. 47481, questioning the
same decision for reducing the consequential damages and attorney's fees
and for eliminating the exemplary damages.
The facts are succinctly summarized by the respondent Court of Appeals,
as follows:
On August 4, 1964, plaintiff Engineering Construction,
Inc., being a successful bidder, executed a contract in
Manila with the National Waterworks and Sewerage
Authority (NAWASA), whereby the former undertook to
furnish all tools, labor, equipment, and materials (not
furnished by Owner), and to construct the proposed 2nd
lpo-Bicti Tunnel, Intake and Outlet Structures, and
Appurtenant Structures, and Appurtenant Features, at
Norzagaray, Bulacan, and to complete said works within
eight hundred (800) calendar days from the date the
Contractor receives the formal notice to proceed (Exh. A).
The project involved two (2) major phases: the first phase
comprising, the tunnel work covering a distance of seven
(7) kilometers, passing through the mountain, from the
Ipo river, a part of Norzagaray, Bulacan, where the Ipo
Dam of the defendant National Power Corporation is
located, to Bicti; the other phase consisting of the
outworks at both ends of the tunnel.
By September 1967, the plaintiff corporation already had
completed the first major phase of the work, namely, the
tunnel excavation work. Some portions of the outworks at
the Bicti site were still under construction. As soon as the
plaintiff corporation had finished the tunnel excavation
work at the Bicti site, all the equipment no longer needed
there were transferred to the Ipo site where some projects
were yet to be completed.
The record shows that on November 4,1967, typhoon
'Welming' hit Central Luzon, passing through defendant's
Angat Hydro-electric Project and Dam at lpo, Norzagaray,
Bulacan. Strong winds struck the project area, and heavy
rains intermittently fell. Due to the heavy downpour, the
water in the reservoir of the Angat Dam was rising
 perilously at the rate of sixty (60) centimeters per hour.
To prevent an overflow of water from the dam, since the
water level had reached the danger height of 212 meters
above sea level, the defendant corporation caused the
opening of the spillway gates." (pp. 45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial court that the
evidence preponlderantly established the fact that due to the negligent
manner with which the spillway gates of the Angat Dam were opened, an
extraordinary large volume of water rushed out of the gates, and hit the
installations and construction works of ECI at the lpo site with terrific
impact, as a result of which the latter's stockpile of materials and
supplies, camp facilities and permanent structures and accessories either
washed away, lost or destroyed.
The appellate court further found that:
It cannot be pretended that there was no negligence or
that the appellant exercised extraordinary care in the
opening of the spillway gates of the Angat Dam.
Maintainers of the dam knew very well that it was far
more safe to open them gradually. But the spillway gates
were opened only when typhoon Welming was already at
its height, in a vain effort to race against time and
prevent the overflow of water from the dam as it 'was
rising dangerously at the rate of sixty centimeters per
hour. 'Action could have been taken as early as November
3, 1967, when the water in the reservoir was still low. At
that time, the gates of the dam could have been opened in
a regulated manner. Let it be stressed that the appellant
knew of the coming of the typhoon four days before it
actually hit the project area. (p. 53, L-47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The appellee
submitted a list of estimated losses and damages to the
tunnel project (Ipo side) caused by the instant flooding of
the Angat River (Exh. J-1). The damages were itemized in
four categories, to wit: Camp Facilities P55,700.00;
Equipment, Parts and Plant — P375,659.51; Materials
P107,175.80; and Permanent Structures and accessories
— P137,250.00, with an aggregate total amount of
P675,785.31. The list is supported by several vouchers
which were all submitted as Exhibits K to M-38 a, N to O,
P to U-2 and V to X- 60-a (Vide: Folders Nos. 1 to 4). The
appellant did not submit proofs to traverse the
aforementioned documentary evidence. We hold that the
lower court did not commit any error in awarding P
675,785.31 as actual or compensatory damages.
However, We cannot sustain the award of P333,200.00 as
consequential damages. This amount is broken down as
follows: P213,200.00 as and for the rentals of a crane to
temporarily replace the one "destroyed beyond repair,"
and P120,000.00 as one month bonus which the appellee
failed to realize in accordance with the contract which the
appellee had with NAWASA. Said rental of the crane
allegedly covered the period of one year at the rate of
P40.00 an hour for 16 hours a day. The evidence, however,
shows that the appellee bought a crane also a crawler
type, on November 10, 1967, six (6) days after the incident
in question (Exh N) And according to the lower court,
which finding was never assailed, the appellee resumed
its normal construction work on the Ipo- Bicti Project
after a stoppage of only one month. There is no evidence
when the appellee received the crane from the seller,
Asian Enterprise Limited. But there was an agreement
that the shipment of the goods would be effected within 60
days from the opening of the letter of credit (Exh.
N).<äre||anº•1àw> It appearing that the contract of sale
was consummated, We must conclude or at least assume
that the crane was delivered to the appellee within 60
days as stipulated. The appellee then could have availed
of the services of another crane for a period of only one
month (after a work stoppage of one month) at the rate of
P 40.00 an hour for 16 hours a day or a total of P
19,200.00 as rental.
But the value of the new crane cannot be included as part
of actual damages because the old was reactivated after it
was repaired. The cost of the repair was P 77,000.00 as
shown in item No. 1 under the Equipment, Parts and
Plants category (Exh. J-1), which amount of repair was
already included in the actual or compensatory damages.
(pp. 54-56, L-47379, Rollo)
The appellate court likewise rejected the award of unrealized bonus from
NAWASA in the amount of P120,000.00 (computed at P4,000.00 a day in
case construction is finished before the specified time, i.e., within 800
calendar days), considering that the incident occurred after more than
three (3) years or one thousand one hundred seventy (1,170) days. The
court also eliminated the award of exemplary damages as there was no
gross negligence on the part of NPC and reduced the amount of attorney's
fees from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the appellate court's decision
as being erroneous on the ground that the destruction and loss of the
ECI's equipment and facilities were due to force majeure. It argues that
the rapid rise of the water level in the reservoir of its Angat Dam due to
heavy rains brought about by the typhoon was an extraordinary
occurrence that could not have been foreseen, and thus, the subsequent
release of water through the spillway gates and its resultant effect, if any,
on ECI's equipment and facilities may rightly be attributed to force
majeure.
On the other hand, ECI assails the reduction of the consequential
damages from P333,200.00 to P19,000.00 on the grounds that the
appellate court had no basis in concluding that ECI acquired a new
Crawler-type crane and therefore, it only can claim rentals for the
temporary use of the leased crane for a period of one month; and that the
award of P4,000.00 a day or P120,000.00 a month bonus is justified since
the period limitation on ECI's contract with NAWASA had dual effects,
i.e., bonus for earlier completion and liquidated damages for delayed
performance; and in either case at the rate of P4,000.00 daily. Thus, since
NPC's negligence compelled work stoppage for a period of one month, the
said award of P120,000.00 is justified. ECI further assailes the reduction
of attorney's fees and the total elimination of exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on its findings of
fact and that of the trial court's, petitioner NPC was undoubtedly
negligent because it opened the spillway gates of the Angat Dam only at
the height of typhoon "Welming" when it knew very well that it was safer
to have opened the same gradually and earlier, as it was also undeniable
that NPC knew of the coming typhoon at least four days before it actually
struck. And even though the typhoon was an act of God or what we may
call force majeure, NPC cannot escape liability because its negligence was
the proximate cause of the loss and damage. As we have ruled in Juan F.
Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act
of God, there concurs a corresponding fraud, negligence,
delay or violation or contravention in any manner of the
tenor of the obligation as provided for in Article 1170 of
the Civil Code, which results in loss or damage, the
obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned exclusively
by the violence of nature and human agencies are to be
excluded from creating or entering into the cause of the
mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the
participation of man, whether it be from active
intervention or neglect, or failure to act, the whole
occurrence is thereby humanized, as it was, and removed
from the rules applicable to the acts of God. (1 Corpus
Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a
person concurs with an act of God in producing a loss,
such person is not exempt from liability by showing that
the immediate cause of the damage was the act of God. To
be exempt from liability for loss because of an act of God,
he must be free from any previous negligence or
misconduct by which the loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil.
129; Tucker v. Milan 49 O.G. 4379; Limpangco & Sons v.
Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith,
45 Phil. 657).
Furthermore, the question of whether or not there was negligence on the
part of NPC is a question of fact which properly falls within the
jurisdiction of the Court of Appeals and will not be disturbed by this
Court unless the same is clearly unfounded. Thus, in Tolentino v. Court of
appeals, (150 SCRA 26, 36) we ruled:
Moreover, the findings of fact of the Court of Appeals are
generally final and conclusive upon the Supreme Court
(Leonardo v. Court of Appeals, 120 SCRA 890 [1983]. In
fact it is settled that the Supreme Court is not supposed
to weigh evidence but only to determine its substantially
(Nuñez v. Sandiganbayan, 100 SCRA 433 [1982] and will
generally not disturb said findings of fact when supported
 by substantial evidence (Aytona v. Court of Appeals, 113
SCRA 575 [1985]; Collector of Customs of Manila v.
Intermediate Appellate Court, 137 SCRA 3 [1985]. On the
other hand substantial evidence is defined as such
relevant evidence as a reasonable mind might accept as
adequate to support a conclusion (Philippine Metal
Products, Inc. v. Court of Industrial Relations, 90 SCRA
135 [1979]; Police Commission v. Lood, 127 SCRA 757
[1984]; Canete v. WCC, 136 SCRA 302 [1985])
Therefore, the respondent Court of Appeals did not err in holding the
NPC liable for damages.
Likewise, it did not err in reducing the consequential damages from
P333,200.00 to P19,000.00. As shown by the records, while there was no
categorical statement or admission on the part of ECI that it bought a
new crane to replace the damaged one, a sales contract was presented to
the effect that the new crane would be delivered to it by Asian
Enterprises within 60 days from the opening of the letter of credit at the
cost of P106,336.75. The offer was made by Asian Enterprises a few days
after the flood. As compared to the amount of P106,336.75 for a brand
new crane and paying the alleged amount of P4,000.00 a day as rental for
the use of a temporary crane, which use petitioner ECI alleged to have
lasted for a period of one year, thus, totalling P120,000.00, plus the fact
that there was already a sales contract between it and Asian Enterprises,
there is no reason why ECI should opt to rent a temporary crane for a
period of one year. The appellate court also found that the damaged crane
was subsequently repaired and reactivated and the cost of repair was
P77,000.00. Therefore, it included the said amount in the award of of
compensatory damages, but not the value of the new crane. We do not
find anything erroneous in the decision of the appellate court that the
consequential damages should represent only the service of the
temporary crane for one month. A contrary ruling would result in the
unjust enrichment of ECI.
presented in the records of these petitions. It is not shown that NAWASA
imposed them.
As to the question of exemplary damages, we sustain the appellate court
in eliminating the same since it found that there was no bad faith on the
part of NPC and that neither can the latter's negligence be considered
gross. In Dee Hua Liong Electrical Equipment Corp. v. Reyes, (145 SCRA
713, 719) we ruled:
Neither may private respondent recover exemplary
damages since he is not entitled to moral or compensatory
damages, and again because the petitioner is not shown to
have acted in a wanton, fraudulent, reckless or oppressive
manner (Art. 2234, Civil Code; Yutuk v. Manila Electric
Co., 2 SCRA 377; Francisco v. Government Service
Insurance System, 7 SCRA 577; Gutierrez v. Villegas, 8
SCRA 527; Air France v. Carrascoso, 18 SCRA 155; Pan
Pacific (Phil.) v. Phil. Advertising Corp., 23 SCRA 977;
Marchan v. Mendoza, 24 SCRA 888).
We also affirm the reduction of attorney's fees from P50,000.00 to
P30,000.00. There are no compelling reasons why we should set aside the
appellate court's finding that the latter amount suffices for the services
rendered by ECI's counsel.
WHEREFORE, the petitions in G.R. No. 47379 and G.R. No. 47481 are
both DISMISSED for LACK OF MERIT. The decision appealed from is
AFFIRMED.
SO ORDERED.

The P120,000.00 bonus was also properly eliminated as the same was
granted by the trial court on the premise that it represented ECI's lost
opportunity "to earn the one month bonus from NAWASA ... ." As stated
earlier, the loss or damage to ECI's equipment and facilities occurred long
after the stipulated deadline to finish the construction. No bonus,
therefore, could have been possibly earned by ECI at that point in time.
The supposed liquidated damages for failure to finish the project within
the stipulated period or the opposite of the claim for bonus is not clearly
No. L-44748. August 29, 1986
RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI),
petitioner, vs. COURT OF APPEALS and LORETO DIONELA,
respondents.
Civil Law; Damages; Breach of contract; Inclusion of extraneous and
libelous matter in telegraphic message constitutes breach of contract.—
Petitioner is a domestic corporation engaged in the business of receiving
and transmitting messages. Everytime a person transmits a message
through the facilities of the petitioner, a contract is entered into. Upon
receipt of the rate or fee fixed, the petitioner undertakes to transmit the
message accurately. There is no question that in the case at bar, libelous
matters were included in the message transmitted, without the consent or
knowledge of the
_________________
*SECOND DIVISION.
658
658 SUPREME COURT REPORTS ANNOTATED
Radio Communications of the Philippines, Inc. vs. Court of
Appeals
sender. There is a clear case of breach of contract by the petitioner in
adding extraneous and libelous matters in the message sent to the private
respondent.
Same; Same; Same; Same; Telegraph corporation, as employer is
liable directly for the acts of its employees; Action based on Arts. 19 and 20
of the Civil Code, not on subsidiary liability of corporation under Article
1161, New Civil Code.—As a corporation, the petitioner can act only
through its employees. Hence the acts of its employees in receiving and
transmitting messages are the acts of the petitioner. To hold that the
petitioner is not liable directly for the acts of its employees in the pursuit
of petitioner’s business is to deprive the general public availing of the
services of the petitioner of an effective and adequate remedy. The action
for damages was filed in the lower court directly against respondent
corporation not as an employer subsidiarily liable under the provisions of
Article 1161 of the New Civil Code in relation to Art. 103 of the Revised
Penal Code. The cause of action of the private respondent is based on Arts.
19 and 20 of the New Civil Code (supra). As well as on respondent’s breach
of contract thru the negligence of its own employees.
Same; Same; Same; Same; Res ipsa loquitur; Since negligence may be
hard to substantiate in some cases, the application of the doctrine of res ipsa
loquitur is proper; Case at bar.—In most cases, negligence must be proved
in order that plaintiff may recover. However, since negligence may be hard
to substantiate in some cases, we may apply the doctrine of RES IPSA
LOQUITUR (the thing speaks for itself), by considering the presence of
facts or circumstances surrounding the injury.
PETITION for review by certiorari of the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
O. Pythogoras Oliver for respondents.
PARAS, J.:
Before Us, is a Petition for Review by certiorari of the decision of the
Court of Appeals, modifying the decision of the trial court in a civil case
for recovery of damages against petitioner corporation by reducing the
award to private respondent Loreto Dionela of moral damages from
P40,000 to Pl5,000, and attorney's fees from P3,000 to P2,000.
The basis of the complaint against the defendant corporation is a
telegram sent through its Manila Office to the offended party, Loreto
Dionela, reading as follows:
176 AS JR 1215PM 9 PAID MANDALUYONG JUL 22-66
LORETO DIONELA CABANGAN LEGASPI CITY
WIRE ARRIVAL OF CHECK FER
LORETO DIONELA-CABANGAN-WIRE ARRIVAL OF
CHECK-PER
115 PM
SA IYO WALANG PAKINABANG DUMATING KA
DIYAN-WALA-KANG PADALA DITO KAHIT BULBUL
MO
(p. 19, Annex "A")
Plaintiff-respondent Loreto Dionela alleges that the defamatory words on
the telegram sent to him not only wounded his feelings but also caused
him undue embarrassment and affected adversely his business as well
because other people have come to know of said defamatory words.
Defendant corporation as a defense, alleges that the additional words in
Tagalog was a private joke between the sending and receiving operators
and that they were not addressed to or intended for plaintiff and
therefore did not form part of the telegram and that the Tagalog words
are not defamatory. The telegram sent through its facilities was received
in its station at Legaspi City. Nobody other than the operator manned the
teletype machine which automatically receives telegrams being
transmitted. The said telegram was detached from the machine and
placed inside a sealed envelope and delivered to plaintiff, obviously as is.
The additional words in Tagalog were never noticed and were included in
the telegram when delivered.
The trial court in finding for the plaintiff ruled as follows:
There is no question that the additional words in Tagalog
are libelous. They clearly impute a vice or defect of the
plaintiff. Whether or not they were intended for the
plaintiff, the effect on the plaintiff is the same. Any
person reading the additional words in Tagalog will
naturally think that they refer to the addressee, the
plaintiff. There is no indication from the face of the
telegram that the additional words in Tagalog were sent
as a private joke between the operators of the defendant.
The defendant is sued directly not as an employer. The
business of the defendant is to transmit telegrams. It will
open the door to frauds and allow the defendant to act
with impunity if it can escape liability by the simple
expedient of showing that its employees acted beyond the
scope of their assigned tasks.
The liability of the defendant is predicated not only on
Article 33 of the Civil Code of the Philippines but on the
following articles of said Code:
ART. 19.- Every person must, in the exercise of his rights
and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.
ART. 20.-Every person who, contrary to law, wilfully or
negligently causes damage to another, shall indemnify the
latter for the same.
There is sufficient publication of the libelous Tagalog
words. The office file of the defendant containing copies of
telegrams received are open and held together only by a
metal fastener. Moreover, they are open to view and
inspection by third parties.
It follows that the plaintiff is entitled to damages and
attorney's fees. The plaintiff is a businessman. The
libelous Tagalog words must have affected his business
and social standing in the community. The Court fixes the
amount of P40,000.00 as the reasonable amount of moral
damages and the amount of P3,000.00 as attorney's fee
which the defendant should pay the plaintiff. (pp. 15-16,
Record on Appeal)
The respondent appellate court in its assailed decision confirming the
aforegoing findings of the lower court stated:
The proximate cause, therefore, resulting in injury to
appellee, was the failure of the appellant to take the
necessary or precautionary steps to avoid the occurrence
of the humiliating incident now complained of. The
company had not imposed any safeguard against such
eventualities and this void in its operating procedure does
not speak well of its concern for their clientele's interests.
Negligence here is very patent. This negligence is
imputable to appellant and not to its employees.
The claim that there was no publication of the libelous
words in Tagalog is also without merit. The fact that a
carbon copy of the telegram was filed among other
telegrams and left to hang for the public to see, open for
inspection by a third party is sufficient publication. It
would have been otherwise perhaps had the telegram
been placed and kept in a secured place where no one may
have had a chance to read it without appellee's
permission.
The additional Tagalog words at the bottom of the
telegram are, as correctly found by the lower court,
libelous per se, and from which malice may be presumed
in the absence of any showing of good intention and
justifiable motive on the part of the appellant. The law
implies damages in this instance (Quemel vs. Court of
Appeals, L-22794, January 16, 1968; 22 SCRA 44). The
award of P40,000.00 as moral damages is hereby reduced
 to P15,000.00 and for attorney's fees the amount of
P2,000.00 is awarded. (pp. 22-23, record)
After a motion for reconsideration was denied by the appellate court,
petitioner came to Us with the following:
ASSIGNMENT OF ERRORS
I
The Honorable Court of Appeals erred in holding that
Petitioner-employer should answer directly and primarily
for the civil liability arising from the criminal act of its
employee.
II
The Honorable Court of Appeals erred in holding that
there was sufficient publication of the alleged libelous
telegram in question, as contemplated by law on libel.
III
The Honorable Court of Appeals erred in holding that the
liability of petitioner-company-employer is predicated on
Articles 19 and 20 of the Civil Code, Articles on Human
Relations.
Petitioner is a domestic corporation engaged in the business of receiving
and transmitting messages. Everytime a person transmits a message
through the facilities of the petitioner, a contract is entered into. Upon
receipt of the rate or fee fixed, the petitioner undertakes to transmit the
message accurately. There is no question that in the case at bar, libelous
matters were included in the message transmitted, without the consent
or knowledge of the sender. There is a clear case of breach of contract by
the petitioner in adding extraneous and libelous matters in the message
sent to the private respondent. As a corporation, the petitioner can act
only through its employees. Hence the acts of its employees in receiving
and transmitting messages are the acts of the petitioner. To hold that the
petitioner is not liable directly for the acts of its employees in the pursuit
of petitioner's business is to deprive the general public availing of the
services of the petitioner of an effective and adequate remedy. In most
cases, negligence must be proved in order that plaintiff may recover.
However, since negligence may be hard to substantiate in some cases, we
may apply the doctrine of RES IPSA LOQUITUR (the thing speaks for
itself), by considering the presence of facts or circumstances surrounding
the injury.
WHEREFORE, premises considered, the judgment of the appellate court
is hereby AFFIRMED.
SO ORDERED.

IV

The Honorable Court of Appeals erred in awarding Atty's.

fees. (p. 4, Record)

Petitioner's contentions do not merit our consideration. The action for

damages was filed in the lower court directly against respondent
corporation not as an employer subsidiarily liable under the provisions of
Article 1161 of the New Civil Code in relation to Art. 103 of the Revised
Penal Code. The cause of action of the private respondent is based on
Arts. 19 and 20 of the New Civil Code (supra). As well as on respondent's
breach of contract thru the negligence of its own employees. 1
No. L-37120. April 20, 1983.
VICTORINO D. MAGAT, petitioner, vs. HON. LEO D. MEDIALDEA
and SANTIAGO A. GUERRERO, respondents.
Action; Contracts; A complaint that alleges that the defendant violated
his prestations under a contract such that by reason thereof the plaintiff
will suffer damages, sufficiently states a valid cause of action.—After a
thorough examination of the complaint at bar, We find the test of legal
sufficiency of the cause of action adequately satisfied. In a methodical and
logical sequence, the complaint recites the circumstances that led to the
perfection of the contract entered into by the parties. It further avers that
while petitioner had fulfilled his part of the bargain [paragraph 8 of the
Complaint], private respondent failed to comply with his correlative
obligation by refusing to open a letter of credit to cover payment of the
goods ordered by him [paragraphs 11 & 12 of the Complaint], and that
consequently, petitioner suffered not only loss of his expected profits, but
moral and exemplary damages as well. From these allegations, the
essential elements of a cause of action are present, to wit: [1] the existence
of a legal right to the plaintiff; [2] a correlative duty of the defendant and
[3] an act or omission of the defendant in violation of the plaintiff’s right,
with consequent injury or damage to the latter for which he may maintain
an action for recovery of damages or other appropriate relief.
Same; Same; Same.—Indisputably, the parties, both businessmen,
entered into the aforesaid contract with the evident intention of deriving
some profits therefrom. Upon breach of the contract by either of them, the
other would necessarily suffer loss of his expected profits. Since the loss
comes into being at the very moment of breach, such loss is real, “fixed and
vested” and, therefore, recoverable under the law.
Same; Same; Damages; Damages cover not only actual loss (daño
emergente), but also profits that may be lost (lucro cesante). An averment
that plaintiff stand, to lose expected profits, goodwill, etc. due to defendant’s
breach of contract sufficiently states a cause of action.—The damages which
the obligor is liable for includes not only the value of the loss suffered by
the obligee [daño emergente] but also
________________
*SECOND DIVISION.
419
VOL. 121, APRIL 20, 1983 419
Magat vs. Medialdea
the profits which the latter failed to obtain [lucro cesante]. If the
obligor acted in good faith, he shall be liable for those damages that are the
natural and probable consequences of the breach of the obligation and
which the parties have foreseen or could have reasonably foreseen at the
time the obligation was constituted; and in case of fraud, bad faith, malice
or wanton attitude, he shall be liable for all damages which may be
reasonably attributed to the non-performance of the obligation.
PETITION for certiorari to review the order of the Court of First Instance
of Rizal. Medialdea, J.
The facts are stated in the opinion of the Court.
Sinesio S. Vergara tor petitioner.
Eladio B. Samson for respondents.
ESCOLIN, J.:
Put to test in this petition for review on certiorari is the sufficiency of the
averments contained in the complaint for alleged breach of contract filed
by petitioner Victorino D. Magat against respondent Santiago A.
Guerrero in Civil Case No. 17827 of the Court of First Instance of Rizal,
presided by respondent Judge Leo D. Medialdea, now Deputy Judicial
Administrator, which complaint was dismissed for failure to state a cause
of action.
The pertinent allegations in the complaint, subject of inquiry, are as
follows: 1
3. That sometime in September 1972, the defendant
entered into a contract with the U.S. Navy Exchange,
Subic Bay, Philippines, for the operation of a fleet of
taxicabs, each taxicab to be provided with the necessary
taximeter and a radio transceiver for receiving and
sending of messages from mobile taxicab to fixed base
stations within the Naval Base at Subic Bay, Philippines;
4. That Isidro Q. Aligada, acting as agent of the defendant
herein conducted the necessary project studies on how
best the defendant may meet the requirements of his
contract with the U.S. Navy Exchange, Subic Bay,
Philippines, and because of the experience of the plaintiff
in connection with his various, contracts with the U.S.
Navy, Subic Bay, Philippines, and his goodwill already
established with the Naval personnel of Subic Bay,
Philippines, especially in providing the U.S. Navy with
needed materials or goods on time as specified by the U.S.
Navy, be they of local origin or imported either from the
United States or from Japan, the said Isidro Q. Aligada
approached the plaintiff herein in behalf of the defendant
and proposed to import from Japan thru the plaintiff
herein or thru plaintiff's Japanese business associates, all
taximeters and radio transceivers needed by the
defendant in connection with his contract with the U.S.
Navy Exchange, Subic Bay, Philippines;
5. That the defendant herein and his aforesaid agent
Isidro Q. Aligada were able to import from Japan with the
assistance of the plaintiff and his Japanese business
associates the necessary taximeters for defendant's
taxicabs in partial fulfillment of defendant's commitments
with the U.S. Navy Exchange, Subic Bay, Philippines, the
plaintiff's assistance in this matter having been given to
the defendant gratis et amore;
6. That Isidro Q. Aligada, also acting as agent of the
defendant, made representations with the plaintiff herein
to the effect that defendant desired to procure from Japan
thru the plaintiff herein the needed radio transceivers
and to this end, Isidro Q. Aligada secured a firm offer in
writing dated September 25, 1972, a copy of which is
hereto attached marked as Annex 'A' and made an
integral part of this complaint, wherein the plaintiff
quoted in his offer a total price of $77,620.59 [U.S. dollars]
FOB Yokohama, the goods or articles therein offered for
sale by the plaintiff to the defendant to be delivered sixty
to ninety [60-90] days after receipt of advice from the
defendant of the radio frequency assigned to the
defendant by the proper authorities;
7. That the plaintiff received notice of the fact that the
defendant accepted plaintiff's offer to sell to the defendant
the items specified in Annex 'A', as well as the terms and
conditions of said offer, as shown by the signed conformity
of the defendant appearing on Annex 'A' which was duly
delivered by the defendant's agent to the plaintiff herein,
whereupon all that the plaintiff had to do in the
meantime was to await advice from the defendant as to
the radio frequency to be assigned by the proper
authorities to the defendant;
8. That believing that the defendant would faithfully
fulfill his contract with the plaintiff herein, considering
his signed conformity appearing in Annex 'A' hereof as
well as the letter dated October 4, 1972, of his agent
aforementioned which is attached hereto and marked as
Annex 'B' and made an integral part of this complaint,
and in order that plaintiff's promised delivery would not
be delayed, the plaintiff herein took steps to advise the
Japanese entity entrusted with the manufacture of the
items listed in Annex 'A' to the effect that the contract
between the defendant herein and the plaintiff has been
perfected and that advice with regards to radio frequency
would follow as soon as same is received by the plaintiff
from the defendant;
9. That in his letter dated October 6, 1972, a copy of which
is hereto attached marked as Annex 'C', the defendant
advised his aforementioned agent to the effect that the
U.S. Navy provided him with the radio frequency of 34.2
MHZ [Megahertz] and defendant requested his said agent
to proceed with his order placed with the plaintiff herein,
which fact was duly communicated to the plaintiff by the
defendant's aforementioned agent;
10. That by his letter dated October 7, 1972, addressed to
the plaintiff by the defendant's agent, a copy of which is
hereto attached and marked as Annex 'D', defendant's
agent qualified defendant's instructions contained in his
letter of October 6, 1972 [Annex 'C'] in the sense that
plaintiff herein should proceed to fulfill defendant's order
only upon receipt by the plaintiff of the defendant's letter
of credit;
11. That it being normal business practice in case of
foreign importation that the buyer opens a letter of credit
in favor of the foreign supplier before delivery of the goods
sold, the plaintiff herein awaited the opening of such a
letter of credit by the defendant;
12. That the defendant and his agent have repeatedly
assured plaintiff herein of the defendant's financial
capabilities to pay for the goods ordered by him and in
fact he accomplished the necessary application for a letter
of credit with his banker, but he subsequently instructed
his banker not to give due course to his application for a
letter of credit and that for reasons only known to the
defendant, he fails and refuses to open the necessary
letter of credit to cover payment of the goods ordered by
him;
13. That it has come to the knowledge of the plaintiff
herein that the defendant has been operating his taxicabs
without the required radio transceivers and when the
U.S. Navy Authorities of Subic Bay, Philippines, were
pressing defendant for compliance with his commitments
with respect to the installations of radio transceivers on
his taxicabs, he impliedly laid the blame for the delay
upon the plaintiff herein, thus destroying the reputation
of the plaintiff herein with the said Naval Authorities of
Subic Bay, Philippines, with whom plaintiff herein
transacts business;
14. That on March 27, 1973, plaintiff wrote a letter thru
his counsel, copy attached marked as Annex 'E', to
ascertain from the defendant as to whether it is his
intention to fulfill his part of the agreement with the
plaintiff herein or whether he desired to have the contract
between them definitely cancelled, but defendant did not
even have the courtesy to answer plaintiff's demand;
15. That the defendant herein entered into a contract with
the plaintiff herein as set forth in Annex 'A' without the
least intention of faithfully complying with his obligation
is thereunder, but he did so only in order to obtain the
concession from the U.S. Navy Exchange, Subic Bay,
Philippines, of operating a fleet of taxicabs inside the U.S.
Naval Base to his financial benefit and at the expense and
prejudice of third parties such as the plaintiff herein;
16. That in view of the defendant's failure to fulfill his
contractual obligations with the plaintiff herein, the
plaintiff will suffer the following damages:
[a] As the radio transceivers ordered by
the defendant are now in the hands of the
plaintiff's Japanese representative, the
plaintiff will have to pay for them, thus he
will have to suffer as total loss to him the
amount of P523,938.98 (converting the
amount of $77,620.59 to pesos at the rate
of P6.75 to the dollar) as said radio
transceivers were purposely made or
manufactured solely for the use of the
defendant herein and cannot possibly be
marketed by the plaintiff herein to the
general public;
[b] The amount of P 52,393.89 or 10% of
the purchase price by way of loss of
expected profits from the transaction or
contract between plaintiff and the
defendant;
[c] Loss of confidence in him and goodwill
of the plaintiff which will result in the
impairment of his business dealings with
Japanese firms, thereby resulting also in
loss of possible profits in the future which
plaintiff assess at no less than
P200,000.00;
[d] That in view of the defendant's bad
faith in inducing plaintiff to enter into the
contract with him as set forth
hereinabove, defendant should be assessed
by his Honorable Court in favor of the
plaintiff the sum of P200,000.00 as moral
and exemplary damages;
[e] That in view of the defendant's fault
and to protect his interests, plaintiff
herein is constrained to retain the services
of counsel with whom he agreed to pay by
way of attorney's fees the sum of
P50,000.00".
Respondent Guerrero filed a motion to dismiss said complaint for lack of
cause of action, which ground is propounded by respondent's counsel
thus: 2
... it is clear that plaintiff was merely anticipating his loss
or damage which might result from the alleged failure of
defendant to comply with the terms of the alleged
contract. Hence, plaintiff's right of recovery under his
 cause of action is premised not on any loss or damage
actually suffered by him but on a non-existing loss or
damage which he is expecting to incur in the near future.
Plaintiff's right therefore under his cause of action is not
yet fixed or vested.
Inasmuch as there is no other allegation in the present
Complaint wherein the same could be maintained against
defendant, the present Complaint should be dismissed for
its failure to state a cause of action against defendant.
The respondent judge, over petitioner's opposition, issued a minute order
dismissing the complaint as follows:3
Acting upon the 'Motion to Dismiss' filed by the
defendant, through counsel, dated June 7, 1973, as well as
the opposition thereto filed by the plaintiff, through
counsel, dated June 14, 1973, for the reasons therein
alleged, this Court hereby grants said motion and, as
prayed for, the complaint in the above-entitled case is
dismissed.
SO ORDERED.
Both parties are in accord with the view that when a motion to dismiss is
based on the ground of lack of cause of action, the sufficiency of the case
of action can only be determined on the basis of the facts alleged in the
complaint 4 ; that the facts alleged are deemed hypothetically admitted,
including those which are fairly deducible therefrom 5 ; and that,
admitting the facts as alleged, whether or not the Court can render a
valid judgment against the defendant upon said facts in accordance with
the prayer in the complaint 6.
After a thorough examination of the complaint at bar, We find the test of
legal sufficiency of the cause of action adequately satisfied. In a
methodical and logical sequence, the complaints recites the circumstances
that led to the perfection of the contract entered into by the parties. It
further avers that while petitioner had fulfilled his part of the bargain
[paragraph 8 of the Complaint], private respondent failed to comply with
his correlative obligation by refusing to open a letter of credit to cover
payment of the goods ordered by him [paragraphs 11 & 12 of the
Complaint], and that consequently, petitioner suffered not only loss of his
expected profits, but moral and exemplary damages as well. From these
allegations, the essential elements of a cause of action are present, to wit:
[1] the existence of a legal right to the plaintiff; [2] a correlative duty of
the defendant and [3] an act or omission of the defendant in violation of
the plaintiff's right, with consequent injury or damage to the latter for
which he may maintain an action for recovery of damages or other
appropriate relief. 7
Indisputably, the parties, both businessmen, entered into the aforesaid
contract with the evident intention of deriving some profits therefrom.
Upon breach of the contract by either of them, the other would
necessarily suffer loss of his expected profits. Since the loss comes into
being at the very moment of breach, such loss is real, "fixed and vested"
and, therefore, recoverable under the law.
Article 1170 of the Civil Code provides:
Those who in the performance of their obligation are
guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof are liable for
damages.
The phrase "in any manner contravene the tenor" of the obligation
includes any ilicit act or omission which impairs the strict and faithful
fulfillment of the obligation and every kind of defective performance. 8
The damages which the obligor is liable for includes not only the value of
the loss suffered by the obligee [daño emergente] but also the profits
which the latter failed to obtain [lucro cesante] 9. If the obligor acted in
good faith, he shall be liable for those damages that are the natural and
probable consequences of the breach of the obligation and which the
parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted; and in case of fraud, bad faith, malice or
wanton attitude, he shall be liable for all damages which may be
reasonably attributed to the non-performance of the obligation 10.
The same is true with respect to moral and exemplary damages. The
applicable legal provisions on the matter, Articles 2220 and 2232 of the
Civil Code, allow the award of such damages in breaches of contract
where the defendant acted in bad faith. To Our mind, the complaint
sufficiently alleges bad faith on the part of the defendant.
In fine, We hold that on the basis of the facts alleged in the complaint, the
court could render a valid judgment in accordance with the prayer
thereof.
ACCORDINGLY, the questioned order of dismissal is hereby set aside
and the case ordered remanded to the court of origin for further
proceedings. No costs.
SO ORDERED.
G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION
COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE BAR
ASSOCIATION, respondents.
G.R. No. L-47863 October 3, 1986
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents.
Obligations and Contracts; Damages; Requisites for exemption from
liability due to an “act of God.”—To exempt the obligor from liability under
Article 1174 of the Civil Code, for a breach of an obligation due to an “act
of God,’ the following must concur: (a) the cause of the breach of the
obligation must be independent of the will of the debtor; (b) the event must
be either unforseeable or unavoidable; (c) the event must be such as to
render it impossible for the debtor to fulfill his obligation in a normal
manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor.
Same; Same; Having made substantial deviations from plans and
specifications, having failed to observe requisite workmanship in
construction, and the architect made plans that contain defects and
inadequacies, both contractor and architect cannot escape liability for
damages sustained by the building that collapsed in the wake of an
earthquake on Aug. 2, 1968.—The negligence of the defendant and the
third-party defendants petitioners was established beyond dispute both in
the lower court and in the Intermediate Appellate Court. Defendant United
Construction Co., Inc. was found to have made substantial deviations from
the plans and specifications, and to have failed to observe the requisite
workmanship in the construction as well as to exercise the requisite degree
of supervision; while the
_______________
*SECOND DIVISION.
597
VOL. 144, OCTOBER 3, 1986 597
Juan F. Nakpil & Sons vs. Court of Appeals
third-party defendants were found to have inadequacies or defects in
the plans and specifications prepared by them. As correctly assessed by
both courts, the defects in the construction and in the plans and
specifications were the proximate causes that rendered the PBA building
unable to withstand the earthquake of August 2, 1968. For this reason the
defendant and third-party defendants cannot claim exemption from
liability.
Same; Same; Fact that all other buildings withstood the earthquake,
except the one at bar, cannot be ignored.—In any event, the relevant and
logical observations of the trial court as affirmed by the Court of Appeals
that “while it is not possible to state with certainty that the building would
not have collapsed were those defects not present, the fact remains that
several buildings in the same area withstood the earthquake to which the
building of the plaintiff was similarly subjected,” cannot be ignored.
Same; Same; The lower courts found, among others, that spirals in
column A5, ground floor were cut.—The cutting of the spirals in column A5,
ground floor is the subject of great contention between the parties and
deserves special consideration. The proper placing of the main
reinforcements and spirals in column A5, ground floor, is the responsibility
of the general contractor which is the UCCI. The burden of proof, therefore,
that this cutting was done by others is upon the defendants. Other than a
strong allegation and assertion that it is the plumber or his men who may
have done the cutting (and this was flatly denied by the plumber) no
conclusive proof was presented. The engineering experts for the defendants
asserted that they could have no motivation for cutting the bar because
they can simply replace the spirals by wrapping around a new set of spirals.
This is not quite correct. There is evidence to show that the pouring of
concrete for columns was sometimes done through the beam and girder
reinforcements which were already in place as in the case of column A4
second floor. If the reinforcement for the girder and column is to
subsequently wrap around the spirals, this would not do for the elasticity
of steel would prevent the making of tight column spirals and loose or
improper spirals would result. The proper way is to produce correct spirals
down from the top of the main column bars, a procedure which can not be
done if either the beam or girder reinforcement is already in place. The
engineering experts for the defendants strongly assert and apparently
believe that the cutting of the spirals did not materially diminish the
strength of the column. This belief together with the difficulty of slipping
the spirals on the
598
598 SUPREME COURT REPORTS ANNOTATED
Juan F. Nakpil & Sons vs. Court of Appeals
top of the column once the beam reinforcement is in place may be a
sufficient motivation for the cutting of the spirals themselves. The
defendants, therefore, should be held responsible for the consequences
arising from the loss of strength or ductility in column A5 which may have
contributed to the damages sustained by the building.
Same; Same; One who creates a dangerous condition cannot escape
liability although an act of God may have intervened.—Relative thereto,
the ruling of the Supreme Court in Tucker v. Milan (49 O.G. 4379, 4380)
which may be in point in this case, reads: “One who negligently creates a
dangerous condition cannot escape liability for the natural and probable
consequences thereof, although the act of a third person, or an act of God
for which he is not responsible, intervenes to precipitate the loss.” As
already discussed, the destruction was not purely an act of God. Truth to
tell hundreds of ancient buildings in the vicinity were hardly affected by
the earthquake. Only one thing spells out the fatal difference; gross
negligence and evident bad faith, without which the damage would not
have occurred.
Same: Same; Liability of architect and contractor for collapse of
building is solidary.—WHEREFORE, the decision appealed from is hereby
MODIFIED and considering the special and environmental circumstances
of this case, We deem it reasonable to render a decision imposing, as We do
hereby impose, upon the defendant and the third-party defendants (with
the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p.
10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception of attorney’s
fees) occasioned by the loss of the building (including interest charges and
lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney’s fees, the total sum being payable
upon the finality of this decision. Upon failure to pay on such finality,
twelve (12%) per cent interest per annum shall be imposed upon afore-
mentioned amounts from finality until paid. Solidary costs against the
defendant and third-party defendants (except Roman Ozaeta).
PETITIONS for certiorari to review the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
PARAS, J.:
These are petitions for review on certiorari of the November 28, 1977
decision of the Court of Appeals in CA-G.R. No. 51771-R modifying the
decision of the Court of First Instance of Manila, Branch V, in Civil Case
No. 74958 dated September 21, 1971 as modified by the Order of the
lower court dated December 8, 1971. The Court of Appeals in modifying
the decision of the lower court included an award of an additional amount
of P200,000.00 to the Philippine Bar Association to be paid jointly and
severally by the defendant United Construction Co. and by the third-
party defendants Juan F. Nakpil and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower court reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and
third-party defendants (except Roman Ozaeta) to pay the
plaintiff, jointly and severally, the sum of P989,335.68
with interest at the legal rate from November 29, 1968,
the date of the filing of the complaint until full payment;
(b) Dismissing the complaint with respect to defendant
Juan J. Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendant's and third-party
defendants' counterclaims for lack of merit;
(e) Ordering defendant United Construction Co., Inc. and
third-party defendants (except Roman Ozaeta) to pay the
costs in equal shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851,
p. 169).
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, the judgment appealed from is modified to
include an award of P200,000.00 in favor of plaintiff-
appellant Philippine Bar Association, with interest at the
legal rate from November 29, 1968 until full payment to
be paid jointly and severally by defendant United
Construction Co., Inc. and third party defendants (except
Roman Ozaeta). In all other respects, the judgment dated
September 21, 1971 as modified in the December 8, 1971
Order of the lower court is hereby affirmed with COSTS
to be paid by the defendant and third party defendant
(except Roman Ozaeta) in equal shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction
Co., Inc. and Juan J. Carlos in L-47863 seek the reversal of the decision of
the Court of Appeals, among other things, for exoneration from liability
while petitioner Philippine Bar Association in L-47896 seeks the
modification of aforesaid decision to obtain an award of P1,830,000.00 for
the loss of the PBA building plus four (4) times such amount as damages
resulting in increased cost of the building, P100,000.00 as exemplary
damages; and P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of First
Instance of Manila were consolidated by this Court in the resolution of
May 10, 1978 requiring the respective respondents to comment. (Rollo, L-
47851, p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958; Record on
Appeal, pp. 269-348; pp. 520-521; Rollo, L-47851, p. 169) and affirmed by
the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit association,
incorporated under the Corporation Law, decided to construct an office
building on its 840 square meters lot located at the comer of Aduana and
Arzobispo Streets, Intramuros, Manila. The construction was undertaken
by the United Construction, Inc. on an "administration" basis, on the
suggestion of Juan J. Carlos, the president and general manager of said
corporation. The proposal was approved by plaintiff's board of directors
and signed by its president Roman Ozaeta, a third-party defendant in
this case. The plans and specifications for the building were prepared by
the other third-party defendants Juan F. Nakpil & Sons. The building
was completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong earthquake
hit Manila and its environs and the building in question sustained major
damage. The front columns of the building buckled, causing the building
to tilt forward dangerously. The tenants vacated the building in view of
its precarious condition. As a temporary remedial measure, the building
was shored up by United Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the
recovery of damages arising from the partial collapse of the building
against United Construction, Inc. and its President and General Manager
Juan J. Carlos as defendants. Plaintiff alleges that the collapse of the
building was accused by defects in the construction, the failure of the
contractors to follow plans and specifications and violations by the
defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects
who prepared the plans and specifications, alleging in essence that the
collapse of the building was due to the defects in the said plans and
specifications. Roman Ozaeta, the then president of the plaintiff Bar
Association was included as a third-party defendant for damages for
having included Juan J. Carlos, President of the United Construction Co.,
Inc. as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F.
Nakpil & Sons and Juan F. Nakpil presented a written stipulation which
reads:
1. That in relation to defendants' answer with
counterclaims and third- party complaints and the third-
party defendants Nakpil & Sons' answer thereto, the
plaintiff need not amend its complaint by including the
said Juan F. Nakpil & Sons and Juan F. Nakpil
personally as parties defendant.
2. That in the event (unexpected by the undersigned) that
the Court should find after the trial that the above-named
defendants Juan J. Carlos and United Construction Co.,
Inc. are free from any blame and liability for the collapse
of the PBA Building, and should further find that the
collapse of said building was due to defects and/or
 inadequacy of the plans, designs, and specifications p by
the third-party defendants, or in the event that the Court
may find Juan F. Nakpil and Sons and/or Juan F. Nakpil
contributorily negligent or in any way jointly and
solidarily liable with the defendants, judgment may be
rendered in whole or in part. as the case may be, against
Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of
the plaintiff to all intents and purposes as if plaintiff's
complaint has been duly amended by including the said
Juan F. Nakpil & Sons and Juan F. Nakpil as parties
defendant and by alleging causes of action against them
including, among others, the defects or inadequacy of the
plans, designs, and specifications prepared by them
and/or failure in the performance of their contract with
plaintiff.
3. Both parties hereby jointly petition this Honorable
Court to approve this stipulation. (Record on Appeal, pp.
274-275; Rollo, L-47851,p.169).
Upon the issues being joined, a pre-trial was conducted on March 7, 1969,
during which among others, the parties agreed to refer the technical
issues involved in the case to a Commissioner. Mr. Andres O. Hizon, who
was ultimately appointed by the trial court, assumed his office as
Commissioner, charged with the duty to try the following issues:
1. Whether the damage sustained by the PBA building
during the August 2, 1968 earthquake had been caused,
directly or indirectly, by:
(a) The inadequacies or defects in the plans and
specifications prepared by third-party defendants;
(b) The deviations, if any, made by the defendants from
said plans and specifications and how said deviations
contributed to the damage sustained;
(c) The alleged failure of defendants to observe the
requisite quality of materials and workmanship in the
construction of the building;
(d) The alleged failure to exercise the requisite degree of
supervision expected of the architect, the contractor
and/or the owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building
arose from a combination of the above-enumerated
factors, the degree or proportion in which each individual
factor contributed to the damage sustained;
3. Whether the building is now a total loss and should be
completely demolished or whether it may still be repaired
and restored to a tenantable condition. In the latter case,
the determination of the cost of such restoration or repair,
and the value of any remaining construction, such as the
foundation, which may still be utilized or availed of
(Record on Appeal, pp. 275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues and non-
technical issues. As aforestated the technical issues were referred to the
Commissioner. The non-technical issues were tried by the Court.
Meanwhile, plaintiff moved twice for the demolition of the building on the
ground that it may topple down in case of a strong earthquake. The
motions were opposed by the defendants and the matter was referred to
the Commissioner. Finally, on April 30, 1979 the building was authorized
to be demolished at the expense of the plaintiff, but not another
earthquake of high intensity on April 7, 1970 followed by other strong
earthquakes on April 9, and 12, 1970, caused further damage to the
property. The actual demolition was undertaken by the buyer of the
damaged building. (Record on Appeal, pp. 278-280; Ibid.)
After the protracted hearings, the Commissioner eventually submitted
his report on September 25, 1970 with the findings that while the damage
sustained by the PBA building was caused directly by the August 2, 1968
earthquake whose magnitude was estimated at 7.3 they were also caused
by the defects in the plans and specifications prepared by the third-party
defendants' architects, deviations from said plans and specifications by
the defendant contractors and failure of the latter to observe the requisite
workmanship in the construction of the building and of the contractors,
architects and even the owners to exercise the requisite degree of
supervision in the construction of subject building.
All the parties registered their objections to aforesaid findings which in
turn were answered by the Commissioner.
The trial court agreed with the findings of the Commissioner except as to
the holding that the owner is charged with full nine supervision of the
construction. The Court sees no legal or contractual basis for such
conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed
decision which was modified by the Intermediate Appellate Court on
November 28, 1977.
All the parties herein appealed from the decision of the Intermediate
Appellate Court. Hence, these petitions.
On May 11, 1978, the United Architects of the Philippines, the
Association of Civil Engineers, and the Philippine Institute of Architects
filed with the Court a motion to intervene as amicus curiae. They
proposed to present a position paper on the liability of architects when a
building collapses and to submit likewise a critical analysis with
computations on the divergent views on the design and plans as
submitted by the experts procured by the parties. The motion having
been granted, the amicus curiae were granted a period of 60 days within
which to submit their position.
After the parties had all filed their comments, We gave due course to the
petitions in Our Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on November 24,
1978) were duly noted.
The amicus curiae gave the opinion that the plans and specifications of
the Nakpils were not defective. But the Commissioner, when asked by Us
to comment, reiterated his conclusion that the defects in the plans and
specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as the
Manila Code (Ord. No. 4131) and the 1966 Asep Code, the Commissioner
added that even if it can be proved that the defects in
the constructionalone (and not in the plans and design) caused the
damage to the building, still the deficiency in the original design and jack
of specific provisions against torsion in the original plans and the
overload on the ground floor columns (found by an the experts including
the original designer) certainly contributed to the damage which
occurred. (Ibid, p. 174).
In their respective briefs petitioners, among others, raised the following
assignments of errors: Philippine Bar Association claimed that the
measure of damages should not be limited to P1,100,000.00 as estimated
cost of repairs or to the period of six (6) months for loss of rentals while
United Construction Co., Inc. and the Nakpils claimed that it was an act
of God that caused the failure of the building which should exempt them
from responsibility and not the defective construction, poor workmanship,
deviations from plans and specifications and other imperfections in the
case of United Construction Co., Inc. or the deficiencies in the design,
plans and specifications prepared by petitioners in the case of the
Nakpils. Both UCCI and the Nakpils object to the payment of the
additional amount of P200,000.00 imposed by the Court of Appeals. UCCI
also claimed that it should be reimbursed the expenses of shoring the
building in the amount of P13,661.28 while the Nakpils opposed the
payment of damages jointly and solidarity with UCCI.
The pivotal issue in this case is whether or not an act of God-an
unusually strong earthquake-which caused the failure of the building,
exempts from liability, parties who are otherwise liable because of their
negligence.
The applicable law governing the rights and liabilities of the parties
herein is Article 1723 of the New Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the
plans and specifications for a building is liable for
damages if within fifteen years from the completion of the
structure the same should collapse by reason of a defect in
those plans and specifications, or due to the defects in the
ground. The contractor is likewise responsible for the
damage if the edifice fags within the same period on
account of defects in the construction or the use of
materials of inferior quality furnished by him, or due to
any violation of the terms of the contract. If the engineer
or architect supervises the construction, he shall be
solidarily liable with the contractor.
 Acceptance of the building, after completion, does not
imply waiver of any of the causes of action by reason of
any defect mentioned in the preceding paragraph.
The action must be brought within ten years following the
collapse of the building.
On the other hand, the general rule is that no person shall be responsible
for events which could not be foreseen or which though foreseen, were
inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and
exclusively to natural causes without human intervention, which by no
amount of foresight, pains or care, reasonably to have been expected,
could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a fortuitous
event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil Code,
for a breach of an obligation due to an "act of God," the following must
concur: (a) the cause of the breach of the obligation must be independent
of the will of the debtor; (b) the event must be either unforseeable or
unavoidable; (c) the event must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner; and (d) the debtor
must be free from any participation in, or aggravation of the injury to the
creditor. (Vasquez v. Court of Appeals, 138 SCRA 553; Estrada v.
Consolacion, 71 SCRA 423; Austria v. Court of Appeals, 39 SCRA 527;
Republic of the Phil. v. Luzon Stevedoring Corp., 21 SCRA 279; Lasam v.
Smith, 45 Phil. 657).
Thus, if upon the happening of a fortuitous event or an act of God, there
concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided for
in Article 1170 of the Civil Code, which results in loss or damage, the
obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires that
the act must be one occasioned exclusively by the violence of nature and
all human agencies are to be excluded from creating or entering into the
cause of the mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the participation of man,
whether it be from active intervention or neglect, or failure to act, the
whole occurrence is thereby humanized, as it were, and removed from the
rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs with
an act of God in producing a loss, such person is not exempt from liability
by showing that the immediate cause of the damage was the act of God.
To be exempt from liability for loss because of an act of God, he must be
free from any previous negligence or misconduct by which that loss or
damage may have been occasioned. (Fish & Elective Co. v. Phil. Motors,
55 Phil. 129; Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants
petitioners was established beyond dispute both in the lower court and in
the Intermediate Appellate Court. Defendant United Construction Co.,
Inc. was found to have made substantial deviations from the plans and
specifications. and to have failed to observe the requisite workmanship in
the construction as well as to exercise the requisite degree of supervision;
while the third-party defendants were found to have inadequacies or
defects in the plans and specifications prepared by them. As correctly
assessed by both courts, the defects in the construction and in the plans
and specifications were the proximate causes that rendered the PBA
building unable to withstand the earthquake of August 2, 1968. For this
reason the defendant and third-party defendants cannot claim exemption
from liability. (Decision, Court of Appeals, pp. 30-31).
It is well settled that the findings of facts of the Court of Appeals are
conclusive on the parties and on this court (cases cited in Tolentino vs. de
Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17, 1985, 134
SCRA 105, 121), unless (1) the conclusion is a finding grounded entirely
on speculation, surmise and conjectures; (2) the inference made is
manifestly mistaken; (3) there is grave abuse of discretion; (4) the
judgment is based on misapprehension of facts; (5) the findings of fact are
conflicting , (6) the Court of Appeals went beyond the issues of the case
and its findings are contrary to the admissions of both appellant and
appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8, 1967, 19 SCRA
289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the
findings of facts of the Court of Appeals are contrary to those of the trial
court; (8) said findings of facts are conclusions without citation of specific
evidence on which they are based; (9) the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not disputed by the
respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-Bett vs.
Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10) the finding of
fact of the Court of Appeals is premised on the supposed absence of
evidence and is contradicted by evidence on record (Salazar vs. Gutierrez,
May 29, 1970, 33 SCRA 243, 247; Cited in G.R. No. 66497-98, Sacay v.
Sandiganbayan, July 10, 1986).
It is evident that the case at bar does not fall under any of the exceptions
above-mentioned. On the contrary, the records show that the lower court
spared no effort in arriving at the correct appreciation of facts by the
referral of technical issues to a Commissioner chosen by the parties
whose findings and conclusions remained convincingly unrebutted by the
intervenors/amicus curiae who were allowed to intervene in the Supreme
Court.
In any event, the relevant and logical observations of the trial court as
affirmed by the Court of Appeals that "while it is not possible to state
with certainty that the building would not have collapsed were those
defects not present, the fact remains that several buildings in the same
area withstood the earthquake to which the building of the plaintiff was
similarly subjected," cannot be ignored.
The next issue to be resolved is the amount of damages to be awarded to
the PBA for the partial collapse (and eventual complete collapse) of its
building.
The Court of Appeals affirmed the finding of the trial court based on the
report of the Commissioner that the total amount required to repair the
PBA building and to restore it to tenantable condition was P900,000.00
inasmuch as it was not initially a total loss. However, while the trial
court awarded the PBA said amount as damages, plus unrealized rental
income for one-half year, the Court of Appeals modified the amount by
awarding in favor of PBA an additional sum of P200,000.00 representing
the damage suffered by the PBA building as a result of another
earthquake that occurred on April 7, 1970 (L-47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be
P1,830,000.00 representing the total value of the building (L-47896,
PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS and
UNITED question the additional award of P200,000.00 in favor of the
PBA (L- 47851, NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as
Petitioner, p. 25). The PBA further urges that the unrealized rental
income awarded to it should not be limited to a period of one-half year but
should be computed on a continuing basis at the rate of P178,671.76 a
year until the judgment for the principal amount shall have been
satisfied L- 47896, PBA's No. 11 Assignment of Errors, p. 19).
The collapse of the PBA building as a result of the August 2, 1968
earthquake was only partial and it is undisputed that the building could
then still be repaired and restored to its tenantable condition. The PBA,
however, in view of its lack of needed funding, was unable, thru no fault
of its own, to have the building repaired. UNITED, on the other hand,
spent P13,661.28 to shore up the building after the August 2, 1968
earthquake (L-47896, CA Decision, p. 46). Because of the earthquake on
April 7, 1970, the trial court after the needed consultations, authorized
the total demolition of the building (L-47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are liable
for the damage resulting from the partial and eventual collapse of the
PBA building as a result of the earthquakes.
We quote with approval the following from the erudite decision penned by
Justice Hugo E. Gutierrez (now an Associate Justice of the Supreme
Court) while still an Associate Justice of the Court of Appeals:
There is no question that an earthquake and other forces
of nature such as cyclones, drought, floods, lightning, and
perils of the sea are acts of God. It does not necessarily
follow, however, that specific losses and suffering
resulting from the occurrence of these natural force are
also acts of God. We are not convinced on the basis of the
evidence on record that from the thousands of structures
in Manila, God singled out the blameless PBA building in
Intramuros and around six or seven other buildings in
various parts of the city for collapse or severe damage and
that God alone was responsible for the damages and
losses thus suffered.
The record is replete with evidence of defects and
deficiencies in the designs and plans, defective
construction, poor workmanship, deviation from plans and
specifications and other imperfections. These deficiencies
are attributable to negligent men and not to a perfect
God.
The act-of-God arguments of the defendants- appellants
and third party defendants-appellants presented in their
briefs are premised on legal generalizations or
speculations and on theological fatalism both of which
ignore the plain facts. The lengthy discussion of United on
ordinary earthquakes and unusually strong earthquakes
and on ordinary fortuitous events and extraordinary
fortuitous events leads to its argument that the August 2,
1968 earthquake was of such an overwhelming and
destructive character that by its own force and
independent of the particular negligence alleged, the
injury would have been produced. If we follow this line of
speculative reasoning, we will be forced to conclude that
under such a situation scores of buildings in the vicinity
and in other parts of Manila would have toppled down.
Following the same line of reasoning, Nakpil and Sons
alleges that the designs were adequate in accordance with
pre-August 2, 1968 knowledge and appear inadequate
only in the light of engineering information acquired after
the earthquake. If this were so, hundreds of ancient
buildings which survived the earthquake better than the
two-year old PBA building must have been designed and
constructed by architects and contractors whose
knowledge and foresight were unexplainably auspicious
and prophetic. Fortunately, the facts on record allow a
more down to earth explanation of the collapse. The
failure of the PBA building, as a unique and distinct
construction with no reference or comparison to other
buildings, to weather the severe earthquake forces was
traced to design deficiencies and defective construction,
factors which are neither mysterious nor esoteric. The
theological allusion of appellant United that God acts in
mysterious ways His wonders to perform impresses us to
be inappropriate. The evidence reveals defects and
deficiencies in design and construction. There is no
mystery about these acts of negligence. The collapse of the
PBA building was no wonder performed by God. It was a
result of the imperfections in the work of the architects
and the people in the construction company. More
relevant to our mind is the lesson from the parable of the
wise man in the Sermon on the Mount "which built his
house upon a rock; and the rain descended and the floods
came and the winds blew and beat upon that house; and it
fen not; for it was founded upon a rock" and of the "foolish
upon the sand. And the rain descended and man which
built his house the floods came, and the winds blew, and
beat upon that house; and it fell and great was the fall of
it. (St. Matthew 7: 24-27)." The requirement that a
building should withstand rains, floods, winds,
earthquakes, and natural forces is precisely the reason
why we have professional experts like architects, and
engineers. Designs and constructions vary under varying
circumstances and conditions but the requirement to
design and build well does not change.
The findings of the lower Court on the cause of the
collapse are more rational and accurate. Instead of laying
the blame solely on the motions and forces generated by
the earthquake, it also examined the ability of the PBA
building, as designed and constructed, to withstand and
successfully weather those forces.
The evidence sufficiently supports a conclusion that the
negligence and fault of both United and Nakpil and Sons,
not a mysterious act of an inscrutable God, were
responsible for the damages. The Report of the
Commissioner, Plaintiff's Objections to the Report, Third
Party Defendants' Objections to the Report, Defendants'
Objections to the Report, Commissioner's Answer to the
various Objections, Plaintiffs' Reply to the
Commissioner's Answer, Defendants' Reply to the
Commissioner's Answer, Counter-Reply to Defendants'
Reply, and Third-Party Defendants' Reply to the
Commissioner's Report not to mention the exhibits and
the testimonies show that the main arguments raised on
appeal were already raised during the trial and fully
considered by the lower Court. A reiteration of these same
arguments on appeal fails to convince us that we should
reverse or disturb the lower Court's factual findings and
its conclusions drawn from the facts, among them:
The Commissioner also found merit in the allegations of
the defendants as to the physical evidence before and
after the earthquake showing the inadequacy of design, to
wit:
Physical evidence before the earthquake providing (sic)
inadequacy of design;
1. inadequate design was the cause of the failure of the
building.
2. Sun-baffles on the two sides and in front of the
building;
a. Increase the inertia forces that move the building
laterally toward the Manila Fire Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all
exterior columns reduces the cross-sectional area of each
of the columns and the strength thereof.
4. Two front corners, A7 and D7 columns were very much
less reinforced.
Physical Evidence After the Earthquake, Proving
Inadequacy of design;
1. Column A7 suffered the severest fracture and
maximum sagging. Also D7.
2. There are more damages in the front part of the
building than towards the rear, not only in columns but
also in slabs.
3. Building leaned and sagged more on the front part of
the building.
4. Floors showed maximum sagging on the sides and
toward the front corner parts of the building.
5. There was a lateral displacement of the building of
about 8", Maximum sagging occurs at the column A7
where the floor is lower by 80 cm. than the highest slab
level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were deficiencies
or defects in the design, plans and specifications of the
PBA building which involved appreciable risks with
respect to the accidental forces which may result from
earthquake shocks. He conceded, however, that the fact
that those deficiencies or defects may have arisen from an
obsolete or not too conservative code or even a code that
does not require a design for earthquake forces mitigates
in a large measure the responsibility or liability of the
architect and engineer designer.
The Third-party defendants, who are the most concerned
with this portion of the Commissioner's report, voiced
opposition to the same on the grounds that (a) the finding
is based on a basic erroneous conception as to the design
concept of the building, to wit, that the design is
essentially that of a heavy rectangular box on stilts with
shear wan at one end; (b) the finding that there were
defects and a deficiency in the design of the building
would at best be based on an approximation and,
therefore, rightly belonged to the realm of speculation,
rather than of certainty and could very possibly be
outright error; (c) the Commissioner has failed to back up
or support his finding with extensive, complex and highly
specialized computations and analyzes which he himself
emphasizes are necessary in the determination of such a
highly technical question; and (d) the Commissioner has
analyzed the design of the PBA building not in the light of
existing and available earthquake engineering knowledge
at the time of the preparation of the design, but in the
light of recent and current standards.
The Commissioner answered the said objections alleging
that third-party defendants' objections were based on
estimates or exhibits not presented during the hearing
that the resort to engineering references posterior to the
date of the preparation of the plans was induced by the
third-party defendants themselves who submitted
computations of the third-party defendants are
erroneous.
The issue presently considered is admittedly a technical
one of the highest degree. It involves questions not within
the ordinary competence of the bench and the bar to
resolve by themselves. Counsel for the third-party
defendants has aptly remarked that "engineering,
although dealing in mathematics, is not an exact science
and that the present knowledge as to the nature of
earthquakes and the behaviour of forces generated by violations or deviations from the plans and specifications.
them still leaves much to be desired; so much so "that the All these may be summarized as follows:
experts of the different parties, who are all engineers,
cannot agree on what equation to use, as to what a. Summary of alleged defects as reported by Engineer
earthquake co-efficients are, on the codes to be used and Mario M. Bundalian.
even as to the type of structure that the PBA building (is)
was (p. 29, Memo, of third- party defendants before the (1) Wrongful and defective placing of reinforcing bars.
Commissioner).
(2) Absence of effective and desirable integration of the 3
The difficulty expected by the Court if tills technical bars in the cluster.
matter were to be tried and inquired into by the Court
itself, coupled with the intrinsic nature of the questions
(3) Oversize coarse aggregates: 1-1/4 to 2" were used.
involved therein, constituted the reason for the reference
Specification requires no larger than 1 inch.
of the said issues to a Commissioner whose qualifications
and experience have eminently qualified him for the task,
and whose competence had not been questioned by the (4) Reinforcement assembly is not concentric with the
parties until he submitted his report. Within the column, eccentricity being 3" off when on one face the
pardonable limit of the Court's ability to comprehend the main bars are only 1 1/2' from the surface.
meaning of the Commissioner's report on this issue, and
the objections voiced to the same, the Court sees no (5) Prevalence of honeycombs,
compelling reasons to disturb the findings of the
Commissioner that there were defects and deficiencies in (6) Contraband construction joints,
the design, plans and specifications prepared by third-
party defendants, and that said defects and deficiencies (7) Absence, or omission, or over spacing of spiral hoops,
involved appreciable risks with respect to the accidental
forces which may result from earthquake shocks. (8) Deliberate severance of spirals into semi-circles in
noted on Col. A-5, ground floor,
(2) (a) The deviations, if any, made by the defendants
from the plans and specifications, and how said deviations (9) Defective construction joints in Columns A-3, C-7, D-7
contributed to the damage sustained by the building. and D-4, ground floor,

(b) The alleged failure of defendants to observe the (10) Undergraduate concrete is evident,
requisite quality of materials and workmanship in the
construction of the building.
(11) Big cavity in core of Column 2A-4, second floor,

These two issues, being interrelated with each other, will

(12) Columns buckled at different planes. Columns
be discussed together.
buckled worst where there are no spirals or where spirals
are cut. Columns suffered worst displacement where the
The findings of the Commissioner on these issues were as eccentricity of the columnar reinforcement assembly is
follows: more acute.

We now turn to the construction of the PBA Building and b. Summary of alleged defects as reported by Engr.
the alleged deficiencies or defects in the construction and Antonio Avecilla.
Columns are first (or ground) floor, unless otherwise
stated.
(1) Column D4 — Spacing of spiral is changed from 2" to
5" on centers,
(2) Column D5 — No spiral up to a height of 22" from the
ground floor,
(3) Column D6 — Spacing of spiral over 4 l/2,
(4) Column D7 — Lack of lateral ties,
(5) Column C7 — Absence of spiral to a height of 20" from
the ground level, Spirals are at 2" from the exterior
column face and 6" from the inner column face,
(6) Column B6 — Lack of spiral on 2 feet below the floor
beams,
(7) Column B5 — Lack of spirals at a distance of 26' below
the beam,
(8) Column B7 — Spirals not tied to vertical reinforcing
bars, Spirals are uneven 2" to 4",
(9) Column A3 — Lack of lateral ties,
(10) Column A4 — Spirals cut off and welded to two
separate clustered vertical bars,
(11) Column A4 — (second floor Column is completely
hollow to a height of 30"
(12) Column A5 — Spirals were cut from the floor level to
the bottom of the spandrel beam to a height of 6 feet,
(13) Column A6 — No spirals up to a height of 30' above
the ground floor level,
(14) Column A7— Lack of lateralties or spirals,
c. Summary of alleged defects as reported by the experts
of the Third-Party defendants.
Ground floor columns.
(1) Column A4 — Spirals are cut,
(2) Column A5 — Spirals are cut,
(3) Column A6 — At lower 18" spirals are absent,
(4) Column A7 — Ties are too far apart,
(5) Column B5 — At upper fourth of column spirals are
either absent or improperly spliced,
(6) Column B6 — At upper 2 feet spirals are absent,
(7) Column B7 — At upper fourth of column spirals
missing or improperly spliced.
(8) Column C7— Spirals are absent at lowest 18"
(9) Column D5 — At lowest 2 feet spirals are absent,
(10) Column D6 — Spirals are too far apart and
apparently improperly spliced,
(11) Column D7 — Lateral ties are too far apart, spaced
16" on centers.
There is merit in many of these allegations. The
explanations given by the engineering experts for the
defendants are either contrary to general principles of
engineering design for reinforced concrete or not
applicable to the requirements for ductility and strength
of reinforced concrete in earthquake-resistant design and
construction.
We shall first classify and consider defects which may
have appreciable bearing or relation to' the earthquake-
resistant property of the building.
As heretofore mentioned, details which insure ductility at
or near the connections between columns and girders are
desirable in earthquake resistant design and construction.
The omission of spirals and ties or hoops at the bottom
and/or tops of columns contributed greatly to the loss of
earthquake-resistant strength. The plans and
specifications required that these spirals and ties be
carried from the floor level to the bottom reinforcement of
the deeper beam (p. 1, Specifications, p. 970, Reference
11). There were several clear evidences where this was
not done especially in some of the ground floor columns
which failed.
There were also unmistakable evidences that the spacings
of the spirals and ties in the columns were in many cases
greater than those called for in the plans and
specifications resulting again in loss of earthquake-
resistant strength. The assertion of the engineering
experts for the defendants that the improper spacings and
the cutting of the spirals did not result in loss of strength
in the column cannot be maintained and is certainly
contrary to the general principles of column design and
construction. And even granting that there be no loss in
strength at the yield point (an assumption which is very
doubtful) the cutting or improper spacings of spirals will
certainly result in the loss of the plastic range or ductility
in the column and it is precisely this plastic range or
ductility which is desirable and needed for earthquake-
resistant strength.
There is no excuse for the cavity or hollow portion in the
column A4, second floor, and although this column did not
fail, this is certainly an evidence on the part of the
contractor of poor construction.
The effect of eccentricities in the columns which were
measured at about 2 1/2 inches maximum may be
approximated in relation to column loads and column and
beam moments. The main effect of eccentricity is to
change the beam or girder span. The effect on the
measured eccentricity of 2 inches, therefore, is to increase
or diminish the column load by a maximum of about 1%
and to increase or diminish the column or beam
movements by about a maximum of 2%. While these can
certainly be absorbed within the factor of safety, they
nevertheless diminish said factor of safety.
The cutting of the spirals in column A5, ground floor is
the subject of great contention between the parties and
deserves special consideration.
The proper placing of the main reinforcements and spirals
in column A5, ground floor, is the responsibility of the
general contractor which is the UCCI. The burden of
proof, therefore, that this cutting was done by others is
upon the defendants. Other than a strong allegation and
assertion that it is the plumber or his men who may have
done the cutting (and this was flatly denied by the
plumber) no conclusive proof was presented. The
engineering experts for the defendants asserted that they
could have no motivation for cutting the bar because they
can simply replace the spirals by wrapping around a new
set of spirals. This is not quite correct. There is evidence
to show that the pouring of concrete for columns was
sometimes done through the beam and girder
reinforcements which were already in place as in the case
of column A4 second floor. If the reinforcement for the
girder and column is to subsequently wrap around the
spirals, this would not do for the elasticity of steel would
prevent the making of tight column spirals and loose or
improper spirals would result. The proper way is to
produce correct spirals down from the top of the main
column bars, a procedure which can not be done if either
the beam or girder reinforcement is already in place. The
engineering experts for the defendants strongly assert
and apparently believe that the cutting of the spirals did
not materially diminish the strength of the column. This
belief together with the difficulty of slipping the spirals on
the top of the column once the beam reinforcement is in
place may be a sufficient motivation for the cutting of the
spirals themselves. The defendants, therefore, should be
held responsible for the consequences arising from the
loss of strength or ductility in column A5 which may have
contributed to the damages sustained by the building.
The lack of proper length of splicing of spirals was also
proven in the visible spirals of the columns where spalling
of the concrete cover had taken place. This lack of proper
splicing contributed in a small measure to the loss of
strength.
The effects of all the other proven and visible defects
although nor can certainly be accumulated so that they
can contribute to an appreciable loss in earthquake-
resistant strength. The engineering experts for the
defendants submitted an estimate on some of these
defects in the amount of a few percent. If accumulated,
therefore, including the effect of eccentricity in the column
the loss in strength due to these minor defects may run to
as much as ten percent.
To recapitulate: the omission or lack of spirals and ties at
the bottom and/or at the top of some of the ground floor
columns contributed greatly to the collapse of the PBA
building since it is at these points where the greater part
of the failure occurred. The liability for the cutting of the
spirals in column A5, ground floor, in the considered
opinion of the Commissioner rests on the shoulders of the
defendants and the loss of strength in this column
contributed to the damage which occurred.
It is reasonable to conclude, therefore, that the proven
defects, deficiencies and violations of the plans and
specifications of the PBA building contributed to the
damages which resulted during the earthquake of August
2, 1968 and the vice of these defects and deficiencies is
that they not only increase but also aggravate the
weakness mentioned in the design of the structure. In
other words, these defects and deficiencies not only tend
to add but also to multiply the effects of the shortcomings
in the design of the building. We may say, therefore, that
the defects and deficiencies in the construction
contributed greatly to the damage which occurred.
Since the execution and supervision of the construction
work in the hands of the contractor is direct and positive,
the presence of existence of all the major defects and
deficiencies noted and proven manifests an element of
negligence which may amount to imprudence in the
construction work. (pp. 42-49, Commissioners Report).
As the parties most directly concerned with this portion of the
Commissioner's report, the defendants voiced their objections to the same
on the grounds that the Commissioner should have specified the defects
found by him to be "meritorious"; that the Commissioner failed to indicate
the number of cases where the spirals and ties were not carried from the
floor level to the bottom reinforcement of the deeper beam, or where the
spacing of the spirals and ties in the columns were greater than that
called for in the specifications; that the hollow in column A4, second floor,
the eccentricities in the columns, the lack of proper length of splicing of
spirals, and the cut in the spirals in column A5, ground floor, did not
aggravate or contribute to the damage suffered by the building; that the
defects in the construction were within the tolerable margin of safety; and
that the cutting of the spirals in column A5, ground floor, was done by the
plumber or his men, and not by the defendants.
Answering the said objections, the Commissioner stated that, since many
of the defects were minor only the totality of the defects was considered.
As regards the objection as to failure to state the number of cases where
the spirals and ties were not carried from the floor level to the bottom
reinforcement, the Commissioner specified groundfloor columns B-6 and
C-5 the first one without spirals for 03 inches at the top, and in the latter,
there were no spirals for 10 inches at the bottom. The Commissioner
likewise specified the first storey columns where the spacings were
greater than that called for in the specifications to be columns B-5, B-6,
C-7, C-6, C-5, D-5 and B-7. The objection to the failure of the
Commissioner to specify the number of columns where there was lack of
proper length of splicing of spirals, the Commissioner mentioned
groundfloor columns B-6 and B-5 where all the splices were less than 1-
1/2 turns and were not welded, resulting in some loss of strength which
could be critical near the ends of the columns. He answered the
supposition of the defendants that the spirals and the ties must have
been looted, by calling attention to the fact that the missing spirals and
ties were only in two out of the 25 columns, which rendered said
supposition to be improbable.
The Commissioner conceded that the hollow in column A-4, second floor,
did not aggravate or contribute to the damage, but averred that it is
"evidence of poor construction." On the claim that the eccentricity could
be absorbed within the factor of safety, the Commissioner answered that,
while the same may be true, it also contributed to or aggravated the
damage suffered by the building.
The objection regarding the cutting of the spirals in Column A-5,
groundfloor, was answered by the Commissioner by reiterating the
observation in his report that irrespective of who did the cutting of the
spirals, the defendants should be held liable for the same as the general
contractor of the building. The Commissioner further stated that the loss
of strength of the cut spirals and inelastic deflections of the supposed
lattice work defeated the purpose of the spiral containment in the column
and resulted in the loss of strength, as evidenced by the actual failure of
this column.
Again, the Court concurs in the findings of the Commissioner on these
issues and fails to find any sufficient cause to disregard or modify the
same. As found by the Commissioner, the "deviations made by the
defendants from the plans and specifications caused indirectly the
damage sustained and that those deviations not only added but also
aggravated the damage caused by the defects in the plans and
specifications prepared by third-party defendants. (Rollo, Vol. I, pp. 128-
142)
MILLION (P5,000,000.00) Pesos to cover all damages (with the exception
of attorney's fees) occasioned by the loss of the building (including
interest charges and lost rentals) and an additional ONE HUNDRED
THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum
being payable upon the finality of this decision. Upon failure to pay on
such finality, twelve (12%) per cent interest per annum shall be imposed
upon afore-mentioned amounts from finality until paid. Solidary costs
against the defendant and third-party defendants (except Roman
Ozaeta).
SO ORDERED.

The afore-mentioned facts clearly indicate the wanton negligence of both

the defendant and the third-party defendants in effecting the plans,
designs, specifications, and construction of the PBA building and We hold
such negligence as equivalent to bad faith in the performance of their
respective tasks.

Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49
O.G. 4379, 4380) which may be in point in this case reads:

One who negligently creates a dangerous condition cannot escape liability

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

As already discussed, the destruction was not purely an act of God. Truth
to tell hundreds of ancient buildings in the vicinity were hardly affected
by the earthquake. Only one thing spells out the fatal difference; gross
negligence and evident bad faith, without which the damage would not
have occurred.

WHEREFORE, the decision appealed from is hereby MODIFIED and

considering the special and environmental circumstances of this case, We
deem it reasonable to render a decision imposing, as We do hereby
impose, upon the defendant and the third-party defendants (with the
exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p.
10) indemnity in favor of the Philippine Bar Association of FIVE
G.R. No. 135645. March 8, 2002.*
THE PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC.,
petitioner, vs. MGG MARINE SERVICES, INC. and DOROTEO
GAERLAN, respondents.
Common Carriers; Owing to the high degree of diligence required of
them, common carriers, as a general rule, are presumed to have been at fault
or negligent if the goods transported by them are lost, destroyed or if the
same deteriorated.—Common carriers, from the nature of their business
and for reasons of public policy, are mandated to observe extraordinary
diligence in the vigilance over the goods and for the safety of the passengers
transported by them. Owing to this high degree of diligence required of
them, common carriers, as a general rule, are presumed to have been at
fault or negligent if the goods transported by them are lost, destroyed or if
the same deteriorated.
______________
*FIRST DIVISION.
651
VOL. 378, MARCH 8, 2002 651
Philippine American General Insurance Co., Inc. vs. MGG
Marine Services, Inc.
Same; In order that a common carrier may be absolved from liability
where the loss, destruction or deterioration of the goods is due to a natural
disaster or calamity, it must further be shown that such natural disaster or
calamity was the proximate and only cause of the loss; Even in cases where
a natural disaster is the proximate and only cause of the loss, a common
carrier is still required to exercise due diligence to prevent or minimize loss
before, during and after the occurrence of the natural disaster, for it to be
exempt from liability under the law for the loss of the goods.—In order that
a common carrier may be absolved from liability where the loss,
destruction or deterioration of the goods is due to a natural disaster or
calamity, it must further be shown that such natural disaster or calamity
was the proximate and only cause of the loss; there must be “an entire
exclusion of human agency from the cause of the injury or the loss.”
Moreover, even in cases where a natural disaster is the proximate and only
cause of the loss, a common carrier is still required to exercise due diligence
to prevent or minimize loss before, during and after the occurrence of the
natural disaster, for it to be exempt from liability under the law for the loss
of the goods. If a common carrier fails to exercise due diligence—or that
ordinary care which the circumstances of the particular case demand—to
preserve and protect the goods carried by it on the occasion of a natural
disaster, it will be deemed to have been negligent, and the loss will not be
considered as having been due to a natural disaster under Article 1734(1).
Same; Words and Phrases; A fortuitous event has been defined as one
which could not be foreseen, or which though foreseen, is inevitable.—The
findings of the Board of Marine Inquiry indicate that the attendance of
strong winds and huge waves while the M/V Peatheray Patrick-G was
sailing through Cortes, Surigao del Norte on March 3, 1987 was indeed
fortuitous. A fortuitous event has been defined as one which could not be
foreseen, or which though foreseen, is inevitable. An event is considered
fortuitous if the following elements concur: x x x (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtor to
comply with his obligations, must be independent of human will; (b) it must
be impossible to foresee the event which constitutes the caso fortuito,or if
it can be foreseen, it must be impossible to avoid; (c) the occurrence must
be such as to render it impossible for the debtor to fulfill his obligation in
a normal manner; and (d) the obligor must be free from any participation
in the aggravation of the injury resulting to the creditor. x x x
Same; Ships and Shipping; Administrative Law; Board of Marine
Inquiry; The Court of Appeals did not commit any error in relying on the
factual findings of the Board of Marine Inquiry, considering that said
administrative body is an expert in matters concerning marine casualties.—
Although the Board of Marine Inquiry ruled only on the administra-
652
652 SUPREME COURT REPORTS ANNOTATED
Philippine American General Insurance Co., Inc. vs. MGG
Marine Services, Inc.
tive liability of the captain and crew of the M/V Peatheray Patrick-G,
it had to conduct a thorough investigation of the circumstances
surrounding the sinking of the vessel and the loss of its cargo in order to
determine their responsibility, if any. The results of its investigation as
embodied in its decision on the administrative case clearly indicate that
the loss of the cargo was due solely to the attendance of strong winds and
huge waves which caused the vessel to accumulate water, tilt to the port
side and to eventually keel over. There was thus no error on the part of the
Court of Appeals in relying on the factual findings of the Board of Marine
Inquiry, for such factual findings, being supported by substantial evidence
are persuasive, considering that said administrative body is an expert in
matters concerning marine casualties.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Leaño & Leaño Law Office for petitioner.
Virgilio Y. Morales for private respondents.
KAPUNAN, J.:
This petition for review seeks the reversal of the Decision, dated
September 23, 1998, of the Court of Appeals in CA-G.R. CV No.
43915,1 which absolved private respondents MCG Marine Services, Inc.
and Doroteo Gaerlan of any liability regarding the loss of the cargo
belonging to San Miguel Corporation due to the sinking of the M/V
Peatheray Patrick-G owned by Gaerlan with MCG Marine Services, Inc.
as agent.
On March 1, 1987, San Miguel Corporation insured several beer bottle
cases with an aggregate value of P5,836,222.80 with petitioner Philippine
American General Insurance Company.2 The cargo were loaded on board
the M/V Peatheray Patrick-G to be transported from Mandaue City to
Bislig, Surigao del Sur.
After having been cleared by the Coast Guard Station in Cebu the
previous day, the vessel left the port of Mandaue City for Bislig, Surigao
del Sur on March 2, 1987. The weather was calm when the vessel started
its voyage.
The following day, March 3, 1987, M/V Peatheray Patrick-G listed and
subsequently sunk off Cawit Point, Cortes, Surigao del Sur. As a
consequence thereof, the cargo belonging to San Miguel Corporation was
lost.
Subsequently, San Miguel Corporation claimed the amount of its loss
from petitioner.
Upon petitioner's request, on March 18, 1987, Mr. Eduardo Sayo, a
surveyor from the Manila Adjusters and Surveyors Co., went to
Taganauan Island, Cortes, Surigao del Sur where the vessel was cast
ashore, to investigate the circumstances surrounding the loss of the
cargo. In his report, Mr. Sayo stated that the vessel was structurally
sound and that he did not see any damage or crack thereon. He concluded
that the proximate cause of the listing and subsequent sinking of the
vessel was the shifting of ballast water from starboard to portside. The
said shifting of ballast water allegedly affected the stability of the M/V
Peatheray Patrick-G.
Thereafter, petitioner paid San Miguel Corporation the full amount of
P5,836,222.80 pursuant to the terms of their insurance
contract.1âwphi1.nêt
On November 3, 1987, petitioner as subrogee of San Miguel Corporation
filed with the Regional Trial Court (RTC) of Makati City a case for
collection against private respondents to recover the amount it paid to
San Miguel Corporation for the loss of the latter's cargo.
Meanwhile, the Board of Marine Inquiry conducted its own investigation
of the sinking of the M/V Peatheray Patrick-G to determine whether or
not the captain and crew of the vessel should be held responsible for the
incident.3 On May 11, 1989, the Board rendered its decision exonerating
the captain and crew of the ill-fated vessel for any administrative
liability. It found that the cause of the sinking of the vessel was the
existence of strong winds and enormous waves in Surigao del Sur, a
fortuitous event that could not have been for seen at the time the M/V
Peatheray Patrick-G left the port of Mandaue City. It was further held by
the Board that said fortuitous event was the proximate and only cause of
the vessel's sinking.
On April 15, 1993, the RTC of Makati City, Branch 134, promulgated its
Decision finding private respondents solidarily liable for the loss of San
Miguel Corporation's cargo and ordering them to pay petitioner the full
amount of the lost cargo plus legal interest, attorney's fees and costs of
suit.4
Private respondents appealed the trial court's decision to the Court of
Appeals. On September 23, 1998, the appellate court issued the assailed
Decision, which reversed the ruling of the RTC. It held that private
respondents could not be held liable for the loss of San Miguel
Corporation's cargo because said loss occurred as a consequence of a
fortuitous event, and that such fortuitous event was the proximate and
only cause of the loss.5
Petitioner thus filed the present petition, contending that:
(A)
IN REVERSING AND SETTING ASIDE THE DECISION OF
RTC BR. 134 OF MAKATI CITY ON THE BASIS OF THE
FINDINGS OF THE BOARD OF MARINE INQUIRY,
APPELLATE COURT DECIDED THE CASE AT BAR NOT IN
ACCORD WITH LAW OR WITH THE APPLICABLE
DECISIONS OF THE HONORABLE COURT;
(B)
 IN REVERSING THE TRIAL COURT'S DECISION, THE
APPELLATE COURT GRAVELY ERRED IN CONTRADICTING
AND IN DISTURBING THE FINDINGS OF THE FORMER;
(C)
THE APPELLATE COURT GRAVELY ERRED IN REVERSING
THE DECISION OF THE TRIAL COURT AND IN DISMISSING
THE COMPLAINT.6
Common carriers, from the nature of their business and for reasons of
public policy, are mandated to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported
by them.7Owing to this high degree of diligence required of them, common
carriers, as a general rule, are presumed to have been at fault or
negligent if the goods transported by them are lost, destroyed or if the
same deteriorated.8
However, this presumption of fault or negligence does not arise in the
cases enumerated under Article 1734 of the Civil Code:
Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the
following causes only:
(1) Flood, storm, earthquake, lightning or other natural disaster
or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.
In order that a common carrier may be absolved from liability where the
loss, destruction or deterioration of the goods is due to a natural disaster
or calamity, it must further be shown that the such natural disaster or
calamity was the proximate and only cause of the loss;9 there must be "an
entire exclusion of human agency from the cause of the injury of the
loss."10
Moreover, even in cases where a natural disaster is the proximate and
only cause of the loss, a common carrier is still required to exercise due
diligence to prevent or minimize loss before, during and after the
occurrence of the natural disaster, for it to be exempt from liability under
the law for the loss of the goods.11 If a common carrier fails to exercise
due diligence--or that ordinary care which the circumstances of the
particular case demand12 -- to preserve and protect the goods carried by it
on the occasion of a natural disaster, it will be deemed to have been
negligent, and the loss will not be considered as having been due to a
natural disaster under Article 1734 (1).
In the case at bar, the issues may be narrowed down to whether the loss
of the cargo was due to the occurrence of a natural disaster, and if so,
whether such natural disaster was the sole and proximate cause of the
loss or whether private respondents were partly to blame for failing to
exercise due diligence to prevent the loss of the cargo.
The parties do not dispute that on the day the M/V Peatheray Patrick-G
sunk, said vessel encountered strong winds and huge waves ranging from
six to ten feet in height. The vessel listed at the port side and eventually
sunk at Cawit Point, Cortes, Surigao del Sur.
The Court of Appeals, citing the decision of the Board of Marine Inquiry
in the administrative case against the vessel's crew (BMI--646-87), found
that the loss of the cargo was due solely to the existence of a fortuitous
event, particularly the presence of strong winds and huge waves at
Cortes, Surigao del Sur on March 3, 1987:
xxx
III. WHAT WAS THE PROXIMATE CAUSE OF SINKING?
Evidence shows that when "LCT Peatheray Patrick-G" left the
port of Mandawe, Cebu for Bislig, Surigao del Sur on March 2,
1987 the Captain had observed the fair atmospheric condition of
the area of the pier and confirmed this good weather condition
with the Coast Guard Detachment of Mandawe City. However, on
March 3, 1987 at about 10:00 o'clock in the evening, when the
vessel had already passed Surigao Strait. the vessel started to
experience waves as high as 6 to 7 feet and that the Northeasterly
wind was blowing at about five (5) knot velocity. At about 11:00
o'clock P.M. when the vessel was already about 4.5 miles off
Cawit Point, Cortes, Surigao del Sur, the vessel was discovered to
 be listing 15 degrees to port side and that the strength of the
wind had increased to 15 knots and the waves were about ten (10)
feet high [Ramilo TSN 10-27-87 p. 32). Immediately thereafter,
emergency measures were taken by the crew. The officers had
suspected that a leak or crack might had developed at the bottom
hull particularly below one or two of the empty wing tanks at port
side serving as buoyancy tanks resulting in ingress of sea water
in the tanks was confirmed when the Captain ordered to use the
cargo pump. The suction valves to the said tanks of port side were
opened in order to suck or draw out any amount of water that
entered into the tanks. The suction pressure of the pump had
drawn out sea water in large quantity indicating therefore, that a
leak or crack had developed in the hull as the vessel was
continuously batted and pounded by the huge waves. Bailing out
of the water through the pump was done continuously in an effort
of the crew to prevent the vessel from sinking. but then efforts
were in vain. The vessel still continued to list even more despite
the continuous pumping and discharging of sea water from the
wing tanks indicating that the amount of the ingress of sea water
was greater in volume that that was being discharged by the
pump. Considering therefore, the location of the suspected source
of the ingress of sea water which was a crack or hole at the
bottom hull below the buoyancy tank's port side which was not
accessible (sic) for the crew to check or control the flow of sea
water into the said tank. The accumulation of sea water
aggravated by the continuous pounding, rolling and pitching of
the vessel against huge waves and strong northeasterly wind, the
Captain then had no other recourse except to order abandonship
to save their lives.13
The presence of a crack in the ill-fated vessel through which water seeped
in was confirmed by the Greutzman Divers who were commissioned by
the private respondents to conduct an underwater survey and inspection
of the vessel to determine the cause and circumstances of its sinking. In
its report, Greutzman Divers stated that "along the port side platings, a
small hole and two separate cracks were found at about midship."14
The findings of the Board of Marine Inquiry indicate that the attendance
of strong winds and huge waves while the M/V Peatheray Patrick-G was
sailing through Cortes, Surigao del Norte on March 3, 1987 was indeed
fortuitous. A fortuitous event has been defined as one which could not be
foreseen, or which though foreseen, is inevitable. 15 An event is considered
fortuitous if the following elements concur:
xxx (a) the cause of the unforeseen and unexpected occurrence, or
the failure of the debtor to comply with his obligations, must be
independent of human will; (b) it must be impossible to foresee
the event which constitutes the caso fortuito, or if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must
be such as to render it impossible for the debtor to fulfill his
obligation in a normal manner; and (d) the obligor must be free
from any participation in the aggravation of the injury resulting
to the creditor. xxx16
In the case at bar, it was adequately shown that before the M/V
Peatheray Patrick-G left the port of Mandaue City, the Captain
confirmed with the Coast Guard that the weather condition would permit
the safe travel of the vessel to Bislig, Surigao del Sur. Thus, he could not
be expected to have foreseen the unfavorable weather condition that
awaited the vessel in Cortes, Surigao del Sur. It was the presence of the
strong winds and enormous waves which caused the vessel to list, keel
over, and consequently lose the cargo contained therein. The appellate
court likewise found that there was no negligence on the part of the crew
of the M/V Peatheray Patrick-G, citing the following portion of the
decision of the Board of Marine Inquiry:
I. WAS LCT PEATHERAY PATRICK-G SEAWORTHY WHEN
SHE LEFT THE PORT OF MANDAWE, CEBU AND AT THE
TIME OF SINKING?
Evidence clearly shows that the vessel was propelled with three
(3) diesel engines of 250 BHP each or a total of 750 BHP. It had
three (3) propellers which were operating satisfactorily from the
time the vessel left the port of Mandawe up to the time when the
hull on the double bottom tank was heavily floaded (sic) by
uncontrollable entry of sea water resulting in the stoppage of
engines. The vessel was also equipped with operating generator
pumps for emergency cases. This equipment was also operating
satisfactorily up to the time when the engine room was heavily
floaded (sic) with sea water. Further, the vessel had undergone
emergency drydocking and repair before the accident occurred
(sic) on November 9, 1986 at Trigon Shipyard, San Fernando,
Cebu as shown by the billing for the Drydocking and Repair and
certificate of Inspection No. 2588-86 issued by the Philippine
coast Guard on December 5, 1986 which expired on November 8,
1987.
 LCT Peatheray Patrick-G was skippered by Mr. Manuel P.
Ramilo, competent and experienced licensed Major Patron who
had been in command of the vessel for more than three (3) years
from July 1984 up to the time of sinking March 3, 1987. His Chief
Mate Mr. Mariano Alalin also a licensed Major Patron had been
the Chief Mate of " LCT Peatheray Patrick-G" for one year and
three months at the time of the accident. Further Chief Mate
Alalin had commanded a tanker vessel named M/T Mercedes of
MGM Corporation for almost two (2) years from 1983-1985 (Alalin
TSN-4-13-88 pp. 32-33).
That the vessel was granted SOLAS clearance by the Philippine
Coast Guard on March 1, 1987 to depart from Mandawe City for
Bislig, Surigao del Sur as evidenced by a certification issued to
D.C. Gaerlan Oil Products by Coast Guard Station Cebu dated
December 23, 1987.1âwphi1.nêt
for such factual findings, being supported by substantial evidence are
persuasive, considering that said administrative body is an expert in
matters concerning marine casualties.19
Since the presence of strong winds and enormous waves at Cortes,
Surigao del Sur on March 3, 1987 was shown to be the proximate and
only cause of the sinking of the M/V Peatheray Patrick-G and the loss of
the cargo belonging to San Miguel Corporation, private respondents
cannot be held liable for the said loss.
WHEREFORE, the assailed Decision of the Court of Appeals is
hereby AFFIRMED and the petition is hereby DENIED.
SO ORDERED.

Based on the foregoing circumstances, "LCT Peatheray Patrick-G"

should be considered seaworthy vessel at the time she undertook
that fateful voyage on March 2, 1987.

To be seaworthy, a vessel must not only be staunch and fit in the

hull for the voyage to be undertaken but also must be properly
equipped and for that purpose there is a duty upon the owner to
provide a competent master and a crew adequate in number and
competent for their duty and equals in disposition and
seamanship to the ordinary in that calling. (Ralph 299 F-52, 1924
AMC 942). American President 2td v. Ren Fen Fed 629. AMC
1723 LCA 9 CAL 1924).17

Overloading was also eliminated as a possible cause of the sinking of the

vessel, as the evidence showed that its freeboard clearance was
substantially greater than the authorized freeboard clearance.18

Although the Board of Marine Inquiry ruled only on the administrative

liability of the captain and crew of the M/V Peatheray Patrick-G, it had to
conduct a thorough investigation of the circumstances surrounding the
sinking of the vessel and the loss of its cargo in order to determine their
responsibility, if any. The results of its investigation as embodied in its
decision on the administrative case clearly indicate that the loss of the
cargo was due solely to the attendance of strong winds and huge waves
which caused the vessel accumulate water, tilt to the port side and to
eventually keel over. There was thus no error on the part of the Court of
Appeals in relying on the factual findings of the Board of Marine Inquiry,