Republic of the Philippines suffered injuries on his left arm, right thigh and on his back.
SUPREME COURT (Exh. "D"). Because of his shock and injuries, he went back to
Manila
FIRST DIVISION
G.R. No. L-45637 May 31, 1985
ROBERTO JUNTILLA, petitioner, 
vs.
CLEMENTE FONTANAR, FERNANDO BANZON and BERFOL
CAMORO, respondents.
Valentin A. Zozobrado for petitioner.
Ruperto N. Alfarara for respondents.
GUTIERREZ, JR., J.:
This is a petition for review, on questions of law, of the decision of the Court of
First Instance of Cebu which reversed the decision of the City Court of Cebu and
exonerated the respondents from any liability arising from a vehicular accident.
The background facts which led to the filing of a complaint for breach of contract
and damages against the respondents are summarized by the Court of First Instance
of Cebu as follows:
The facts established after trial show that the plaintiff was a
passenger of the public utility jeepney bearing plate No. PUJ-71-
7 on the course of the trip from Danao City to Cebu City. The
jeepney was driven by defendant Berfol Camoro. It was
registered under the franchise of defendant Clemente Fontanar
but was actually owned by defendant Fernando Banzon. When
the jeepney reached Mandaue City, the right rear tire exploded
causing the vehicle to turn turtle. In the process, the plaintiff
who was sitting at the front seat was thrown out of the vehicle.
Upon landing on the ground, the plaintiff momentarily lost
consciousness. When he came to his senses, he found that he
had a lacerated wound on his right palm. Aside from this, he
Danao City but on the way, he discovered that his "Omega"
wrist watch was lost. Upon his arrival in Danao City, he
immediately entered the Danao City Hospital to attend to his
injuries, and also requested his father-in-law to proceed
immediately to the place of the accident and look for the watch.
In spite of the efforts of his father-in-law, the wrist watch, which
he bought for P 852.70 (Exh. "B") could no longer be found.
xxx xxx xxx
Petitioner Roberto Juntilla filed Civil Case No. R-17378 for breach of contract with
damages before the City Court of Cebu City, Branch I against Clemente Fontanar,
Fernando Banzon and Berfol Camoro.
The respondents filed their answer, alleging inter alia that the accident that caused
losses to the petitioner was beyond the control of the respondents taking into
account that the tire that exploded was newly bought and was only slightly used at
the time it blew up.
After trial, Judge Romulo R. Senining of the Civil Court of Cebu rendered judgment
in favor of the petitioner and against the respondents. The dispositive portion of the
decision reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendants and the latter are hereby
ordered, jointly and severally, to pay the plaintiff the sum of
P750.00 as reimbursement for the lost Omega wrist watch, the
sum of P246.64 as unrealized salary of the plaintiff from his
employer, the further sum of P100.00 for the doctor's fees and
medicine, an additional sum of P300.00 for attorney's fees and
the costs.
The respondents appealed to the Court of First Instance of Cebu, Branch XIV.
Judge Leonardo B. Canares reversed the judgment of the City Court of Cebu upon a
finding that the accident in question was due to a fortuitous event. The dispositive
portion of the decision reads:
 WHEREFORE, judgment is hereby rendered exonerating the
defendants from any liability to the plaintiff without
pronouncement as to costs.
A motion for reconsideration was denied by the Court of First Instance.
The petitioner raises the following alleged errors committed by the Court of First
Instance of Cebu on appeal—
a. The Honorable Court below committed grave abuse of
discretion in failing to take cognizance of the fact that
defendants and/or their employee failed to exercise "utmost
and/or extraordinary diligence" required of common carriers
contemplated under Art. 1755 of the Civil Code of the
Philippines.
b. The Honorable Court below committed grave abuse of
discretion by deciding the case contrary to the doctrine laid
down by the Honorable Supreme Court in the case of Necesito
et al. v. Paras, et al.
We find the petition impressed with merit.
The City Court and the Court of First Instance of Cebu found that the right rear tire
of the passenger jeepney in which the petitioner was riding blew up causing the
vehicle to fall on its side. The petitioner questions the conclusion of the respondent
court drawn from this finding of fact.
The Court of First Instance of Cebu erred when it absolved the carrier from any
liability upon a finding that the tire blow out is a fortuitous event. The Court of First
Instance of Cebu ruled that:
After reviewing the records of the case, this Court finds that the
accident in question was due to a fortuitous event. A tire blow-
out, such as what happened in the case at bar, is an inevitable
accident that exempts the carrier from liability, there being
absence of a showing that there was misconduct or negligence
on the part of the operator in the operation and maintenance of
the vehicle involved. The fact that the right rear tire exploded,
despite being brand new, constitutes a clear case of caso fortuito
which can be a proper basis for exonerating the defendants from
liability. ...
The Court of First Instance relied on the ruling of the Court of Appeals in Rodriguez
v. Red Line Transportation Co., CA G.R. No. 8136, December 29, 1954, where the
Court of Appeals ruled that:
A tire blow-out does not constitute negligence unless the tire
was already old and should not have been used at all. Indeed,
this would be a clear case of fortuitous event.
The foregoing conclusions of the Court of First Instance of Cebu are based on a
misapprehension of overall facts from which a conclusion should be drawn. The
reliance of the Court of First Instance on the Rodriguez case is not in order. In La
Mallorca and Pampanga Bus Co. v. De Jesus, et al. (17 SCRA 23), we held that:
Petitioner maintains that a tire blow-out is a fortuitous event and
gives rise to no liability for negligence, citing the rulings of the
Court of Appeals in Rodriguez v. Red Line Transportation Co.,
CA G.R. No. 8136, December 29, 1954, and People v. Palapad,
CA-G.R. No. 18480, June 27, 1958. These rulings, however, not
only are not binding on this Court but were based on
considerations quite different from those that obtain in the case
at bar. The appellate court there made no findings of any
specific acts of negligence on the part of the defendants and
confined itself to the question of whether or not a tire blow-out,
by itself alone and without a showing as to the causative factors,
would generate liability. ...
In the case at bar, there are specific acts of negligence on the part of the respondents.
The records show that the passenger jeepney turned turtle and jumped into a ditch
immediately after its right rear tire exploded. The evidence shows that the passenger
jeepney was running at a very fast speed before the accident. We agree with the
observation of the petitioner that a public utility jeep running at a regular and safe
speed will not jump into a ditch when its right rear tire blows up. There is also
evidence to show that the passenger jeepney was overloaded at the time of the
accident. The petitioner stated that there were three (3) passengers in the front seat
and fourteen (14) passengers in the rear.
While it may be true that the tire that blew-up was still good because the grooves of
the tire were still visible, this fact alone does not make the explosion of the tire a
fortuitous event. No evidence was presented to show that the accident was due to
adverse road conditions or that precautions were taken by the jeepney driver to
compensate for any conditions liable to cause accidents. The sudden blowing-up,
therefore, could have been caused by too much air pressure injected into the tire
coupled by the fact that the jeepney was overloaded and speeding at the time of the
accident.
In Lasam v. Smith (45 Phil. 657), we laid down the following essential
characteristics of caso fortuito:
xxx xxx xxx
... In a legal sense and, consequently, also in relation to
contracts, a caso fortuito presents the following essential
characteristics: (1) The cause of the unforeseen and unexpected
occurrence, or of the failure of the debtor to comply with his
obligation, must be independent of the human will. (2) It must
be impossible to foresee the event which constitutes the caso
fortuito, or if it can be foreseen, it must be impossible to avoid.
(3) The occurrence must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner. And (4)
the obligor (debtor) must be free from any participation in the
aggravation of the injury resulting to the creditor.
(5 Encyclopedia Juridica Espanola, 309.)
In the case at bar, the cause of the unforeseen and unexpected occurrence was not
independent of the human will. The accident was caused either through the
negligence of the driver or because of mechanical defects in the tire. Common
carriers should teach their drivers not to overload their vehicles, not to exceed safe
and legal speed limits, and to know the correct measures to take when a tire blows
up thus insuring the safety of passengers at all times. Relative to the contingency of
mechanical defects, we held in Necesito, et al. v. Paras, et al. (104 Phil. 75), that:
... The preponderance of authority is in favor of the doctrine that
a passenger is entitled to recover damages from a carrier for an
injury resulting from a defect in an appliance purchased from a
manufacturer, whenever it appears that the defect would have
been discovered by the carrier if it had exercised the degree of
care which under the circumstances was incumbent upon it, with
regard to inspection and application of the necessary tests. For
the purposes of this doctrine, the manufacturer is considered as
being in law the agent or servant of the carrier, as far as regards
the work of constructing the appliance. According to this theory,
the good repute of the manufacturer will not relieve the carrier
from liability' (10 Am. Jur. 205, s, 1324; see also Pennsylvania
R. Co. v. Roy, 102 U.S. 451; 20 L. Ed. 141; Southern R. Co. v.
Hussey, 74 ALR 1172; 42 Fed. 2d 70; and Ed Note, 29 ALR
788.: Ann. Cas. 1916E 929).
The rationale of the carrier's liability is the fact that the
passenger has neither choice nor control over the carrier in the
selection and use of the equipment and appliances in use by the
carrier. Having no privity whatever with the manufacturer or
vendor of the defective equipment, the passenger has no remedy
against him, while the carrier usually has. It is but logical,
therefore, that the carrier, while not an insurer of the safety of
his passengers, should nevertheless be held to answer for the
flaws of his equipment if such flaws were at all discoverable. ...
It is sufficient to reiterate that the source of a common carrier's legal liability is the
contract of carriage, and by entering into the said contract, it binds itself to carry the
passengers safely as far as human care and foresight can provide, using the utmost
diligence of a very cautious person, with a due regard for all the circumstances. The
records show that this obligation was not met by the respondents.
The respondents likewise argue that the petitioner cannot recover any amount for
failure to prove such damages during the trial. The respondents submit that if the
petitioner was really injured, why was he treated in Danao City and not in Mandaue
City where the accident took place. The respondents argue that the doctor who
issued the medical certificate was not presented during the trial, and hence not cross-
examined. The respondents also claim that the petitioner was not wearing any wrist
watch during the accident.
It should be noted that the City Court of Cebu found that the petitioner had a
lacerated wound on his right palm aside from injuries on his left arm, right thigh and
on his back, and that on his way back to Danao City, he discovered that his "Omega"
wrist watch was lost. These are findings of facts of the City Court of Cebu which we
find no reason to disturb. More so when we consider the fact that the Court of First
Instance of Cebu impliedly concurred in these matters when it confined itself to the
question of whether or not the tire blow out was a fortuitous event.
WHEREFORE, the decision of the Court of First Instance of Cebu, Branch IV
appealed from is hereby REVERSED and SET ASIDE, and the decision of the City
Court of Cebu, Branch I is REINSTATED, with the modification that the damages
shall earn interest at 12% per annum and the attorney's fees are increased to SIX
HUNDRED PESOS (P600.00). Damages shall earn interests from January 27, 1975.
SO ORDERED.
 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
Republic of the Philippines National Waterworks and Sewerage Authority (NAWASA),
SUPREME COURT whereby the former undertook to furnish all tools, labor,
Manila equipment, and materials (not furnished by Owner), and to
construct the proposed 2nd lpo-Bicti Tunnel, Intake and Outlet
THIRD DIVISION 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
G.R. No. L-47379 May 16, 1988 Contractor receives the formal notice to proceed (Exh. A).

NATIONAL POWER CORPORATION, petitioner,  The project involved two (2) major phases: the first phase
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.
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 577; Gutierrez v. Villegas, 8 SCRA 527; Air France v.
damages. Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil.
Advertising Corp., 23 SCRA 977; Marchan v. Mendoza, 24
Likewise, it did not err in reducing the consequential damages from P333,200.00 to SCRA 888).
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, We also affirm the reduction of attorney's fees from P50,000.00 to P30,000.00.
a sales contract was presented to the effect that the new crane would be delivered to There are no compelling reasons why we should set aside the appellate court's
it by Asian Enterprises within 60 days from the opening of the letter of credit at the finding that the latter amount suffices for the services rendered by ECI's counsel.
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 WHEREFORE, the petitions in G.R. No. 47379 and G.R. No. 47481 are both
the alleged amount of P4,000.00 a day as rental for the use of a temporary crane, DISMISSED for LACK OF MERIT. The decision appealed from is AFFIRMED.
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 SO ORDERED.
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.

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
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

THIRD DIVISION
[G.R. No. 138123. March 12, 2002]
MINDEX RESOURCES DEVELOPMENT, petitioner, vs. EPHRAIM
MORILLO, respondent.
DECISION
PANGANIBAN, J.:
Attorneys fees cannot be granted simply because one was compelled to sue to
protect and enforce ones right. The grant must be proven by facts; it cannot depend
on mere speculation or conjecture -- its basis must be stated in the text of the
decision.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court,
assailing the March 26, 1999 Decision [1] of the Court of Appeals (CA) in CA-GR
CV No. 46967. The dispositive portion of the challenged Decision reads as follows:
WHEREFORE, the appealed decision is AFFIRMED with MODIFICATION that
the legal interest to be paid on the rentals of P76,000.00 and costs of repair in the
amount of P132,750.00 is six (6%) percent per annum from June 22, 1994, the date
of the decision of the court a quo to the date of its finality. Thereafter, if the amounts
adjudged remain unpaid, the interest rate shall be twelve (12%) percent per
annum from the date of finality of the decision until fully paid. [2]
The Facts
The factual antecedents of the case are summarized by the CA in this wise:
On February 1991, a verbal agreement was entered into between Ephraim Morillo
and Mindex Resources Corporation (MINDEX for brevity) for the lease of the
formers 6 x 6 ten-wheeler cargo truck for use in MINDEXs mining operations in
Binaybay, Bigaan, San Teodoro, Oriental Mindoro, at the stipulated rental
of P300.00 per hour for a minimum of eight hours a day or a total of P2,400.00
daily. MINDEX had been paying the rentals until April 10, 1991.
Unknown to Morillo, on April 11, 1991, the truck was burned by unidentified
persons while it was parked unattended at Sitio Aras, Bigaan, San Teodoro, Oriental
Mindoro, due to mechanical trouble. The findings of the Mindoro Oriental
Integrated National Police in their investigation report read:
3. On 121005H April 1991, Mr Alexander Roxas, project coordinator of MINDEX
MINING CORP. reported to this office that on the morning of 12 April 1991 while
he was supposed to report for his Work at their office at Sitio Tibonbon, Bigaan, San
Teodoro, Oriental Mindoro, he x x x noticed that their hired 6 x 6 Ten wheeler
Cargo Truck temporarily parked at Sitio Aras, Bigaan, San Teodoro, Oriental
Mindoro for aplha Engine Trouble was burned on the night of April 11, 1991 by still
unidentified person.
x x x x x x x x x
5. x x x Based also on the facts gathered and incident scene searched it was also
found out that said 6 x 6 Ten Wheeler Cargo Truck was burned by means of using
coconut leaves and as a result of which said 6 x 6 was totally burned excluding the
engine which was partially damaged by still undetermined amount.
Upon learning of the burning incident, Morillo offered to sell the truck to MINDEX
but the latter refused. Instead, it replaced the vehicles burned tires and had it towed
to a shop for repair and overhauling.
On April 15, 1991, Morillo sent a letter to Mr. Arni Isberg, the Finance Manager of
MINDEX, thru Mr. Ramoncito Gozar, Project Manager, proposing the following:
x x x x x x x x x
I have written to let you know that I am entrusting to you the said vehicle in the
amount of P275,000.00 which is its cost price. I will not charge your company for
the encumbrance of P76,800+ since you used it as my friendly gesture on account of
the unforeseen adversity.
In view of the tragic happening, I am asking you to pay us, in a way which will not
be hard for you to settle to pay us in four installment monthly as follows:
First payment - April 25/91 P[1]50,000.00
Second payment - May 15/91 50,000.00
Third payme(n)t - June 15/91 50,000.00
Fourth payme(n)t - July 15/91 25,000.00
TOTAL P275,000.00
I promise to relinquish all the necessary documents upon full payment of said
account.
x x x x x x x x x
Through Mr. Gozar, MINDEX responded by a handwritten letter to his cousin
Malou (wife of Ephraim Morillo), expressing their reservations on the above
demands due to their tight financial situation. However, he made the following
counter offers:
a) Pay the rental of the 6 x 6 truck (actual) in the amount of P76,000.00.
b) Repair and overhaul the truck on our own expenses and;
c) Return it to you on (A1) good running condition after repair.
Morillo replied on April 18, 1991, (1) that he will relinquish to MINDEX the
damaged truck; (2) that he is amenable to receive the rental in the amount
of P76,000.00; and (3) that MINDEX will pay fifty thousand pesos (P50,000.00)
monthly until the balance of P275,000.00 is fully paid. It is noteworthy that except
for his acceptance of the proffered P76,000.00 unpaid rentals, Morillos stand has
virtually not been changed as he merely lowered the first payment on
the P275,000.00 valuation of the truck from P150,000.00 to P50,000.00.
The parties had since remained intransigent and so on August 1991, Morillo pulled
out the truck from the repair shop of MINDEX and had it repaired elsewhere for
which he spent the total amount of P132,750.00.[3] (Citations omitted)
Ruling of the Trial Court
After evaluating the evidence adduced by both parties, the Regional Trial
Court (RTC) found petitioner responsible for the destruction or loss of the leased 6 x
6 truck and ordered it to pay respondent (1) P76,000 as balance of the unpaid rental
for the 6 x 6 truck with interest of 12 percent from June 22, 1994 (the rendition of
the judgment) up to the payment of the amount; (2) P132,750 representing the costs
of repair and overhaul of the said truck, with interest rate of 12 percent until fully
paid; and (3) P20,000 as attorneys fees for compelling respondent to secure the
services of counsel in filing his Complaint.
Ruling of the Court of Appeals
The appellate court sustained the RTCs finding that petitioner was not without
fault for the loss and destruction of the truck and, thus, liable therefor. The CA said:
The burning of the subject truck was impossible to foresee, but not impossible to
avoid. MINDEX could have prevented the incident by immediately towing the truck
to a motor shop for the needed repair or by having it guarded day and night. Instead,
the appellant just left the vehicle where its transfer case broke down. The place was
about twelve (12) kilometers away from the camp site of the appellant corporation
and was sparsely populated. It was guarded only during daytime. It stayed in that
place for two (2) weeks until it was burned on April 11, 1991 while its transfer case
was being repaired elsewhere. It was only after it had been burned that the appellant
had it towed to a repair shop.
The appellant [respondent] was thus not free from fault for the burning of the truck.
It miserably failed to overcome the presumption of negligence against it. Neither did
it rescind the lease over the truck upon its burning. On the contrary, it offered to
pay P76,000.00 as rentals. It did not also complete the needed repair. Hence, the
appellee was forced to pull out the truck and had it repaired at his own expense.
Since under the law, the lessee shall return the thing leased, upon the termination of
the lease, just as he receive it, the appellant stands liable for the expenses incurred
for the repair in the aggregate amount of P132,750.00.[4]
Nevertheless, the appellate court modified the Decision of the trial court. The
12 percent interest rate on the P76,000 rentals and the P132,750 repair costs,
imposed by the RTC, was changed by the CA to 6 percent per annum from June 22,
1994 to the date of finality of the said Decision; and 12 percent per annum
thereafter, if the amounts adjudged would remain unpaid from such date of finality
until the rentals and the repair costs were fully paid. It affirmed the award of
attorneys fees.
Hence, this Petition.[5]
Issues
In its Memorandum, petitioner raises the following issues for the Courts
consideration:
4.1. Whether or not the Court of Appeals gravely erred in finding that petitioner
failed to overcome the presumption of negligence against it considering that the
facts show, as admitted by the respondent, that the burning of the truck was a
fortuitous event.
4.2. Whether or not the Court of Appeals gravely erred in affirming the decision of
the trial court finding petitioner liable to pay unpaid rentals and cost of repairs.
4.3. Whether or not the Court of Appeals also erred in affirming the decision of the
trial court finding petitioner liable to pay attorneys fees. [6]
This Courts Ruling
The Petition is partly meritorious; the award of attorneys fees should be
deleted.
First Issue:
Petitioners Negligence
Petitioner claims that the burning of the truck was a fortuitous event, for which
it should not be held liable pursuant to Article 1174 [7] of the Civil Code. Moreover,
the letter of respondent dated April 15, 1991, stating that the burning of the truck
was an unforeseen adversity, was an admission that should exculpate the former
from liability.
We are not convinced. Both the RTC and the CA found petitioner negligent
and thus liable for the loss or destruction of the leased truck. True, both parties may
have suffered from the burning of the truck; however, as found by both lower courts,
the negligence of petitioner makes it responsible for the loss. Well-settled is the rule
that factual findings of the trial court, particularly when affirmed by the Court of
Appeals, are binding on the Supreme Court. Contrary to its allegations, petitioner
has not adequately shown that the RTC and the CA overlooked or disregarded
significant facts and circumstances that, when considered, would alter the outcome
of the disposition.[8] Article 1667 of the Civil Code [9] holds lessees responsible for
the deterioration or loss of the thing leased, unless they prove that it took place
without their fault.
Fortuitous Event
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.
[10]
 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. Ones 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 persons 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.[11]
 This often-invoked doctrine of fortuitous event or caso fortuito has become a
convenient and easy defense to exculpate an obligor from liability. 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. [12]
Article 1174 of the Civil Code states that no person shall be responsible for a
fortuitous event that could not be foreseen or, though foreseen, was inevitable. In
other words, there must be an exclusion of human intervention from the cause of
injury or loss.[13]
A review of the records clearly shows that petitioner failed to exercise
reasonable care and caution that an ordinarily prudent person would have used in the
same situation. Witness Alexander Roxas testified how petitioner fell short of
ordinary diligence in safeguarding the leased truck against the accident, which could
have been avoided in the first place. Pertinent portions of his testimony are
reproduced hereunder:
ATTY. ACERON
Q Now, this Barangay Aras where the 6 x 6 truck had transmission trouble, how
far is it from the camp site of the defendant corporation?
ALEXANDER ROXAS
A Twelve (12) kilometers, more or less, sir.
Q Is this Barangay Aras populated?
A Not so many, sir.
Q The place where the 6 x 6 truck had transmission trouble, how far is the
nearest house from it?
A Perhaps three hundred meters, sir.
Q And how many houses are within the three hundred meter radius from the
place where the truck had engine trouble?
A Ten, more or less, in scattered.
Q You said that after hauling several sand to be used in the camp site the 6 x 6
truck had transmission trouble, what did the company do after the truck
had that engine trouble?
A For at least two weeks the truck was installed in the place where the said truck
had engine trouble.
Q Meaning in Barangay Aras?
A Yes, sir.
Q Was there any guard in that place by the company during the time that the
truck was in that place?
A Yes, sir, during daytime but at nighttime, there was no guard.
Q What happened to that 6 x 6 truck?
A In the month of March, 1991, the company dismissed thirteen (13) to
seventeen (17) employees and these employees came from Barangays
Aras, Botolan, Calsapa, Camatis and Tibonbon and on Aril 11, 1991, the 6
x 6 truck was burned.
Q How did you come to know that the 6 x 6 truck was burned on April 11,
1991?
A I together with my daughter, I met the service of the company near the
ORMECO and I was informed by the Project Engineer that the 6 x 6 truck
was burned, so, we returned to San Teodoro and have the incident
blottered at the police station.
Q Aside from that, what other action did you undertake in connection with the
burning of the 6 x 6 truck?
A When we were at the police station, the Project Manager of the company
arrived and from the police station we proceeded to the place where the 6
x 6 truck was burned and the Project Manager took pictures of the 6 x 6
truck.
Q Now, did you come to know who was responsible or who were responsible
for the burning of the 6 x 6 truck?
A The responsible is the Mindex Resources Development Corporation, and as
far as I know, the persons who actually burned the said 6 x 6 truck were
the dismissed employees of the Mindex Resources Development
Corporation.
Q These dismissed employees of the corporation, why were they employed by
the corporation?
A Because we have to make a road going to the mining site and in the process of
opening the road these dismissed employees happened to be the owners of
 the land where the road will pass, so, we paid the land. The corporation
likewise gave jobs to the owners of the land.[14]
As can be gleaned from the foregoing testimony, petitioner failed to employ
reasonable foresight, diligence and care that would have exempted it from liability
resulting from the burning of the truck. Negligence, as commonly understood, is that
conduct that naturally or reasonably creates undue risk or harm to others. It may be a
failure to observe that degree of care, precaution or vigilance that the circumstances
justly demand;[15] or to do any other act that would be done by a prudent and
reasonable person, who is guided by considerations that ordinarily regulate the
conduct of human affairs.[16]
Second Issue:
Unpaid Rentals and Cost of Repairs
Petitioner proceeds to argue that it should be deemed to have already paid the
unpaid rentals in the amount of P76,000.00, and that it should not be made to pay
the P132,750 repair and overhaul costs. Nothing in the records, not even in the
documentary evidence it presented, would show that it already paid the aforesaid
amounts. In fact, it seeks to avoid payment of the rental by alleging that respondent
already condoned it in his letter dated April 15, 1991. However, a perusal of the
letter would show that his offer not to charge petitioner for the P76,000 rental was
premised on the condition that it would buy the truck. [17]
Moreover, the RTC based the P76,000 rental and the costs of repair and
overhaul on Exhibit B, wherein Chito Gozar, the Project Manager of Mindex
Resources Development Corporation, proposed through a letter dated April 17,
1991, the following: (1) to pay the P76,000 rental, (2) to repair the truck at the
expense of petitioner, and (3) to return the truck in good running condition after the
repair.
Likewise, the nonpayment of the said amount was corroborated by Roxas thus:
Q During that time when the 6 x 6 truck was already burned and when you went
to the Petron Gasoline Station to inform plaintiff about the burning, was
the plaintiff paid any amount for the rental of the 6 x 6 truck?
A :Before the burning of the 6 x 6 truck, the plaintiff Morillo was already paid
partially and there was a balance of P76,000.00. [18]
The P132,750 repair and overhaul costs was correctly granted by the lower
courts. Article 1667 of the Civil Code holds the lessee responsible for the
deterioration or loss of the thing leased. In addition, Article 1665 of the same Code
provides that the lessee shall return the thing leased, upon the termination of the
lease, just as he received it, save what has been lost or impaired by the lapse of time,
or by ordinary wear and tear, or from an inevitable cause.
Courts begin with the assumption that compensatory damages are for
pecuniary losses that result from an act or omission of the defendant. Having been
found to be negligent in safeguarding the leased truck, petitioner must shoulder its
repair and overhaul costs to make it serviceable again. Such expenses are duly
supported by receipts; thus, the award of P132,750 is definitely in order.
Third Issue:
Attorneys Fees
We find the award of attorneys fees to be improper. The reason which the
RTC gave -- because petitioner had compelled respondent to file an action against it
-- falls short of our requirement in Scott Consultants and Resource Development v.
CA,[19] from which we quote:
It is settled that the award of attorneys fees is the exception rather than the rule and
counsels fees are not to be awarded every time a party wins suit. The power of the
court to award attorneys fees under Article 2208 of the Civil Code demands factual,
legal, and equitable justification; its basis cannot be left to speculation or conjecture.
Where granted, the court must explicitly state in the body of the decision, and not
only in the dispositive portion thereof, the legal reason for the award of attorneys
fees.
Moreover, a recent case[20] ruled that in the absence of stipulation, a winning
party may be awarded attorneys fees only in case plaintiffs action or defendants
stand is so untenable as to amount to gross and evident bad faith.
Indeed, respondent was compelled to file this suit to vindicate his rights.
However, such fact by itself will not justify an award of attorneys fees, when there is
no sufficient showing of petitioners bad faith in refusing to pay the said rentals as
well as the repair and overhaul costs.[21]
WHEREFORE, the Petition is DENIED, but the assailed CA Decision
is MODIFIED by DELETING the award of attorneys fees. Costs against petitioner.
SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 177921               December 4, 2013

METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S.

DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO AND MERCEDES
DYCHIAO, AND SPOUSES VICENTE AND FILOMENA
DYCHIAO, Petitioners, 
vs.
ALLIED BANK CORPORATION, Respondent.

RESOLUTION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari 1 are the Decision2 dated February
12, 2007 and the Resolution3dated May 10, 2007 of the Court of Appeals (CA) in
CA-G.R. CV No. 86896 which reversed and set aside the Decision 4 dated January
17, 2006 of the Regional Trial Court of Makati, Branch 57 (RTC) in Civil Case No.
00-1563, thereby ordering petitioners Metro Concast Steel Corporation (Metro
Concast), Spouses Jose S. Dychiao and Tiu Oh Yan, Spouses Guillermo and
Mercedes Dychiao, and Spouses Vicente and Filomena Duchiao (individual
petitioners) to solidarily pay respondent Allied Bank Corporation (Allied Bank) the note and trust receipts, hence, Allied Bank, through counsel, sent them demand
aggregate amount of ₱51,064,094.28, with applicable interests and penalty charges. letters,20 all dated December 10, 1998, seeking payment of the total amount of
₱51,064,093.62, but to no avail. Thus, Allied Bank was prompted to file a complaint
The Facts for collection of sum of money 21 (subject complaint) against petitioners before the
RTC, docketed as Civil Case No. 00-1563. In their second 22 Amended
Answer,23petitioners admitted their indebtedness to Allied Bank but denied liability
On various dates and for different amounts, Metro Concast, a corporation duly for the interests and penalties charged, claiming to have paid the total sum of
organized and existing under and by virtue of Philippine laws and engaged in the ₱65,073,055.73 by way of interest charges for the period covering 1992 to 1997. 24
business of manufacturing steel,5 through its officers, herein individual petitioners,
obtained several loans from Allied Bank. These loan transactions were covered by a
promissory note and separate letters of credit/trust receipts, the details of which are They also alleged that the economic reverses suffered by the Philippine economy in
as follows: 1998 as well as the devaluation of the peso against the US dollar contributed greatly
to the downfall of the steel industry, directly affecting the business of Metro Concast
and eventually leading to its cessation. Hence, in order to settle their debts with
Date Document Amount Allied Bank, petitioners offered the sale of Metro Concast’s remaining assets,
consisting of machineries and equipment, to Allied Bank, which the latter, however,
December 13, 1996 Promissory Note No. 96-213016 ₱2,000,000.00 refused. Instead, Allied Bank advised them to sell the equipment and apply the
7 proceeds of the sale to their outstanding obligations. Accordingly, petitioners offered
November 7, 1995 Trust Receipt No. 96-202365 ₱608,603.04
the equipment for sale, but since there were no takers, the equipment was reduced
May 13, 1996 Trust Receipt No. 96-9605228 ₱3,753,777.40 into ferro scrap or scrap metal over the years. In 2002, Peakstar Oil Corporation
(Peakstar), represented by one Crisanta Camiling (Camiling), expressed interest in
9
May 24, 1996 Trust Receipt No. 96-960524 ₱4,602,648.08 buying the scrap metal. During the negotiations with Peakstar, petitioners claimed
that Atty. Peter Saw (Atty. Saw), a member of Allied Bank’s legal department, acted
March 21, 1997 Trust Receipt No. 97-20472410 ₱7,289,757.79 as the latter’s agent. Eventually, with the alleged conformity of Allied Bank, through
11 Atty. Saw, a Memorandum of Agreement 25 dated November 8, 2002 (MoA) was
June 7, 1996 Trust Receipt No. 96-203280 ₱17,340,360.73
drawn between Metro Concast, represented by petitioner Jose Dychiao, and
July 26, 1995 Trust Receipt No. 95-20194312 ₱670,709.24 Peakstar, through Camiling, under which Peakstar obligated itself to purchase the
scrap metal for a total consideration of ₱34,000,000.00, payable as follows:
13
August 31, 1995 Trust Receipt No. 95-202053 ₱313,797.41
November 16, 1995 Trust Receipt No. 96-20243914 ₱13,015,109.87 (a) ₱4,000,000.00 by way of earnest money – ₱2,000,000.00 to be paid in
cash and the other ₱2,000,000.00 to be paid in two (2) post-dated checks
July 3, 1996 Trust Receipt No. 96-20355215 ₱401,608.89 of ₱1,000,000.00 each;26 and
June 20, 1995 Trust Receipt No. 95-20171016 ₱750,089.25
(b) the balance of ₱30,000,000.00 to be paid in ten (10) monthly
December 13, 1995 Trust Receipt No. 96-379089 17
₱92,919.00 installments of ₱3,000,000.00, secured by bank guarantees from
Bankwise, Inc. (Bankwise) in the form of separate post-dated checks. 27
December 13, 1995 Trust Receipt No. 96/20258118 ₱224,713.58
Unfortunately, Peakstar reneged on all its obligations under the MoA.1âwphi1 In
The interest rate under Promissory Note No. 96-21301 was pegged at 15.25% per this regard, petitioners asseverated that:
annum (p.a.), with penalty charge of 3% per month in case of default; while the
twelve (12) trust receipts uniformly provided for an interest rate of 14% p.a. and 1% (a) their failure to pay their outstanding loan obligations to Allied Bank
penalty charge. By way of security, the individual petitioners executed several must be considered as force majeure ; and
Continuing Guaranty/Comprehensive Surety Agreements19 in favor of Allied Bank.
Petitioners failed to settle their obligations under the aforementioned promissory
 (b) since Allied Bank was the party that accepted the terms and conditions
of payment proposed by Peakstar, petitioners must therefore be deemed to
have settled their obligations to Allied Bank. To bolster their defense,
petitioner Jose Dychiao (Jose Dychiao) testified 28 during trial that it was
Atty. Saw himself who drafted the MoA and subsequently received 29 the
₱2,000,000.00 cash and the two (2) Bankwise post-dated checks worth
₱1,000,000.00 each from Camiling. However, Atty. Saw turned over only
the two (2) checks and ₱1,500,000.00 in cash to the wife of Jose
Dychiao.30
Claiming that the subject complaint was falsely and maliciously filed, petitioners
prayed for the award of moral damages in the amount of ₱20,000,000.00 in favor of
Metro Concast and at least ₱25,000,000.00 for each individual petitioner,
₱25,000,000.00 as exemplary damages, ₱1,000,000.00 as attorney’s fees,
₱500,000.00 for other litigation expenses, including costs of suit.
The RTC Ruling
After trial on the merits, the RTC, in a Decision 31 dated January 17, 2006, dismissed
the subject complaint, holding that the "causes of action sued upon had been paid or
otherwise extinguished." It ruled that since Allied Bank was duly represented by its
agent, Atty. Saw, in all the negotiations and transactions with Peakstar – considering
that Atty. Saw
(a) drafted the MoA,
(b) accepted the bank guarantee issued by Bankwise, and
(c) was apprised of developments regarding the sale and disposition of the
scrap metal – then it stands to reason that the MoA between Metro
Concast and Peakstar was binding upon said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a Decision 32 dated February 12, 2007,
reversed and set aside the ruling of the RTC, ratiocinating that there was "no legal
basis in fact and in law to declare that when Bankwise reneged its guarantee under
the [MoA], herein [petitioners] should be deemed to be discharged from their
obligations lawfully incurred in favor of [Allied Bank]." 33
The CA examined the MoA executed between Metro Concast, as seller of the ferro
scrap, and Peakstar, as the buyer thereof, and found that the same did not indicate
that Allied Bank intervened or was a party thereto. It also pointed out the fact that
the post-dated checks pursuant to the MoA were issued in favor of Jose Dychiao.
Likewise, the CA found no sufficient evidence on record showing that Atty. Saw
was duly and legally authorized to act for and on behalf of Allied Bank, opining that
the RTC was "indulging in hypothesis and speculation" 34 when it made a contrary
pronouncement. While Atty. Saw received the earnest money from Peakstar, the
receipt was signed by him on behalf of Jose Dychiao. 35
It also added that "[i]n the final analysis, the aforesaid checks and receipts were
signed by [Atty.] Saw either as representative of [petitioners] or as partner of the
latter’s legal counsel, and not in anyway as representative of [Allied Bank]." 36
Consequently, the CA granted the appeal and directed petitioners to solidarily pay
Allied Bank their corresponding obligations under the aforementioned promissory
note and trust receipts, plus interests, penalty charges and attorney’s fees. Petitioners
sought reconsideration37 which was, however, denied in a Resolution 38 dated May
10, 2007. Hence, this petition.
The Issue Before the Court
At the core of the present controversy is the sole issue of whether or not the loan
obligations incurred by the petitioners under the subject promissory note and various
trust receipts have already been extinguished.
The Court’s Ruling
Article 1231 of the Civil Code states that obligations are extinguished either by
payment or performance, the loss of the thing due, the condonation or remission of
the debt, the confusion or merger of the rights of creditor and debtor, compensation
or novation.
In the present case, petitioners essentially argue that their loan obligations to Allied
Bank had already been extinguished due to Peakstar’s failure to perform its own
obligations to Metro Concast pursuant to the MoA. Petitioners classify Peakstar’s
default as a form of force majeure in the sense that they have, beyond their control,
lost the funds they expected to have received from the Peakstar (due to the MoA)
which they would, in turn, use to pay their own loan obligations to Allied Bank.
They further state that Allied Bank was equally bound by Metro Concast’s MoA
with Peakstar since its agent, Atty. Saw, actively represented it during the
negotiations and execution of the said agreement. Petitioners’ arguments are
untenable. At the outset, the Court must dispel the notion that the MoA would have of the applicable interests and penalty charges should be reckoned only from such
any relevance to the performance of petitioners’ obligations to Allied Bank. The date.
MoA is a sale of assets contract, while petitioners’ obligations to Allied Bank arose
from various loan transactions. Absent any showing that the terms and conditions of WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and
the latter transactions have been, in any way, modified or novated by the terms and Resolution dated May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896
conditions in the MoA, said contracts should be treated separately and distinctly are hereby AFFIRMED with MODIFICATION reckoning the applicable interests
from each other, such that the existence, performance or breach of one would not and penalty charges from the date of the extrajudicial demand or on December 10,
depend on the existence, performance or breach of the other. In the foregoing 1998. The rest of the appellate court’s dispositions stand.
respect, the issue on whether or not Allied Bank expressed its conformity to the
assets sale transaction between Metro Concast and Peakstar (as evidenced by the
MoA) is actually irrelevant to the issues related to petitioners’ loan obligations to the SO ORDERED.
bank. Besides, as the CA pointed out, the fact of Allied Bank’s representation has
not been proven in this case and hence, cannot be deemed as a sustainable defense to
exculpate petitioners from their loan obligations to Allied Bank. Now, anent
petitioners’ reliance on force majeure, suffice it to state that Peakstar’s breach of its
obligations to Metro Concast arising from the MoA cannot be classified as a
fortuitous event under jurisprudential formulation. As discussed in Sicam v. Jorge: 39

Fortuitous events by definition are extraordinary events not foreseeable or

avoidable.1âwphi1 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 Republic of the Philippines
render it impossible for the debtor to fulfill obligations in a normal SUPREME COURT
manner; and (d) the obligor must be free from any participation in the aggravation Manila
of the injury or loss.40(Emphases supplied)
SECOND DIVISION
While it may be argued that Peakstar’s breach of the MoA was unforseen by
petitioners, the same us clearly not "impossible"to foresee or even an event which is G.R. No. L-47851 April 15, 1988
independent of human will." Neither has it been shown that said occurrence
rendered it impossible for petitioners to pay their loan obligations to Allied Bank
JUAN F. NAKPIL & SONS and JUAN F. NAKPIL, petitioners, 
and thus, negates the former’s force majeure theory altogether. In any case, as
vs.
earlier stated, the performance or breach of the MoA bears no relation to the
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC.,
performance or breach of the subject loan transactions, they being separate and
JUAN J. CARLOS, and the PHILIPPINE BAR ASSOCIATION, respondents.
distinct sources of obligations. The fact of the matter is that petitioners’ loan
obligations to Allied Bank remain subsisting for the basic reason that the former has
not been able to prove that the same had already been paid 41 or, in any way, G.R. No. L-47863 April 15, 1988
extinguished. In this regard, petitioners’ liability, as adjudged by the CA, must
perforce stand. Considering, however, that Allied Bank’s extra-judicial demand on THE UNITED CONSTRUCTION CO., INC. and JUAN J.
petitioners appears to have been made only on December 10, 1998, the computation CARLOS, petitioners, 
 vs.
THE COURT OF APPEALS, THE PHILIPPINE BAR ASSOCIATION, JUAN
F. NAKPIL & SONS, and JUAN F. NAKPIL, respondents.
G.R. No. L-47896 April 15, 1988
PHILIPPINE BAR ASSOCIATION, petitioner, 
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC.,
and JUAN J. CARLOS, and JUAN F. NAKPIL & SONS and JUAN F.
NAKPIL, respondents.
RESOLUTION
PARAS, J.:
This is a motion for reconsideration of the October 3, 1986 decision of this Court,
filed by the United Construction Co., Inc., the decretal portion of which reads:
WHEREFORE, the decision appealed from is hereby
MODIFIED and considering the special and environmental
circumstances of this case, we deem it reasonable to render a
decision imposing, as We do hereby impose, upon the defendant
and the third-party defendants (with the exception of Roman
Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p. 10)
indemnity in favor of the Philippine Bar Association of FIVE
MILLION (P5,000,000.00) Pesos to cover all damages (with the
exception of attorney's fees) occasioned by the loss of the
building (including interest charges and lost rentals) and an
additional ONE HUNDRED THOUSAND (P100,000.00) Pesos
as and for attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such finality,
twelve (12%) per cent interest per annum shall be imposed upon
aforementioned amounts from finality until paid. Solidary costs
against the defendant and third-party defendants (except Roman
Ozaeta).
SO ORDERED. (G.R. No. 47851, Rollo, p. 635)
Plaintiff-appellant Philippine Bar Association (PBA for short) decided to construct
an office building on its 840 square meters lot located at the corner of Aduana and
Arzobispo Streets, Intramuros, Manila. For the plans, specifications and design,
PBA contracted the services of third-party defendants-appellants Juan F. Nakpil &
Sons and Juan F. Nakpil (NAKPILS for short). For the construction of the building,
PBA contracted the services of United Construction Company, Inc. (UNITED for
short) on an administration basis. The building was completed in June 1966.
On August 2, 1968, an unusually strong earthquake hit Manila and its environs and
the building in question sustained major damage. The front columns of the building
buckled causing the building to tilt forward dangerously. As a temporary remedial
measure, the building was shored up by UCCI at the expense of P13,661.28.
On November 29, 1968, PBA commenced this action for recovery of damages
against UCCI and its President and General Manager Juan J. Carlos, claiming that
the collapse of the building was caused by defects in the construction. UNITED, in
turn, filed a third-party complaint against the NAKPILS, alleging in essence that the
collapse of the building was due to the defects in the architects" plans, specifications
and design. Roman Ozaeta, the then President of PBA, was included as a third-party
defendant for damages for having included Juan J. Carlos, President of UNITED as
party defendant.
At the pre-trial, the parties agreed to refer the technical issues in the case to a
commissioner. Andres O. Hizon, a lawyer and structural engineer, was appointed by
the Court as commissioner.
Meanwhile, PBA moved twice for the demolition of the building on the ground that
it might topple down in case of a strong earthquake. The motions were opposed by
the defendants and the matter was referred to the Commissioner. Finally, on April
30, 1979, the building was authorized to be demolished at the expense of PBA, but
not before another earthquake of high intensity on April 7, 1970 followed by other
strong earthquakes on April 9 and 12, 1970, caused further damage to the property.
The actual demolition was undertaken by the buyer of the damaged buiding.
After the protracted hearings, the Commissioner eventually submitted his report on
September 25, 1970 with the findings that while the damage sustained by the PBA
building was caused directly by the August 2, 1968 earthquake, they were also
caused by the defects in the plans and specifications prepared by the NAKPILS;
UNITED"s deviations from said plans and specifications and its failure to observe
the requisite workmanship in the construction of the building; and failure of PBA to
exercise the requisite degree of supervision in the construction of the building.
All the parties registered their objections to aforesaid findings which in turn were
answered by the Commissioner.
The court agreed with the findings of the Commissioner except as to the holding that
the owner is charged with full time supervision of the construction. The court saw
no legal or contractual basis for such conclusion. Thus, on September 21, 1971, the
lower court rendered a decision, the decretal portion of which, reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-
party defendants (except Roman Ozaeta), the sum of
P989,335.68 with interest at the legal rate from November 29,
1968, the date of the filing of the complaint until full payment;
(b) Dismissing the complaint with respect to defendant Juan J.
Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendants" and third-party defendants"
counterclaim for lack of merit;
(e) Ordering defendant United Construction Co., Inc. and third-
party defendants (except Roman Ozaeta) to pay the cost in equal
shares.
SO ORDERED.
On appeal, the Court of Appeals modified the abovesaid decision of the lower court.
The dispositive portion of the decision of the Court of Appeals, reads:
WHEREFORE, the judgment appealed from is modified to
include an award of P200,000.00 in favor of plaintiff-appellant
Philippine Bar Association, with interest at the legal rate from
November 29, 1968 until full payment to be paid jointly and
severally by defendant United Construction Co., Inc. and third-
party defendants (except Roman Ozaeta). In all other respects,
the judgment dated September 21,1971 as modified in the
December 8, 1971 Order of the lower court is hereby dated with
COSTS to be paid by the defendant and third Patty defendant
(except Roman Ozaeta) in equal shares.
SO ORDERED.
All the parties herein appealed the aforestated decision of the Court of Appeals.
This Court promulgated on October 3, 1986 a decision in favor of the Philippine Bar
Association which modified the appealed decision of the Court of Appeals, as
abovequoted (Rollo of G.R. No. L-47851, pp. 634-662).
On December 24,1986, UNITED filed a Motion for Reconsideration (Rollo of L-
47863, pp. 683-707). On the other hand, on January 15,1987, the NAKPILS filed a
Motion to Refer Case to Supreme Court En Banc and for Reconsideration of
aforesaid decision (Rollo of L-47851, pp. 717-751).
On February 11, 1987, UNITED filed a Manifestation (Rollo of L-47863, pp. 796-
797) that it is joining the NAKPILS in regard to their prayer to refer the present case
to the Court En Banc.
The Second Division of this Court, in a Resolution dated April 1, 1987 (Rollo of L-
47851, p. 788) denied the NAKPILS" Motion for Reconsideration.
On April 15, 1987, PBA filed its Comment to UNITED's Motion for
Reconsideration (Rollo of L-47896, pp. 828-835) while on April 24, 1987, the
NAKPILS filed a Motion For Leave To File Second Motion For Reconsideratio (En
Banc) (Rollo of L-47851, pp. 791-797). On May 7, 1987, PBA filed its Comment to
the NAKPILS" Motion for Leave To File Second Motion For Reconsideration (En
Banc) (Rollo of L-47851, pp. 790-795). On May 14,1987, UNITED filed a Reply to
PBA's comment (Rollo of L-47863, pp. 844-853), while the NAKPILS filed a Reply
to the same comment on May 22,1987 (Rollo of L-47851, pp. 798-801).
The issues raised in subject motion for reconsideration of UCCI of the decision of
this Court of October 3, 1986, are as follows:
I
THE FINDINGS OF THE COMMISSIONER, AS ADOPTED BY THE TRIAL
COURT, AND AFFIRMED BOTH BY THE COURT OF APPEALS AND THIS
HONORABLE COURT NEGATE THE PREMISE THAT, THE SUBJECT
BUILDING COLLAPSED; HENCE, ARTICLE 1723 DOES NOT APPLY.
II
THE LEGAL DUTY OF PBA TO PROVIDE FULLTIME AND ACTIVE
SUPERVISION IN THE CONSTRUCTION OF THE SUBJECT BUILDING IS
IMIPOSED BY PUBLIC INTTEREST USAGE AND CUSTOM; FAILING IN
THAT DUTY, PBA MUST BEAR AND/OR SHARE IN ANY LIABILITY FOR
DAMAGES IN THE PREMISES.
III
LIABILITY, IF ANY, FOR THE DAMAGE OF THE SUBJECT BUILDING
MUST BE BORNE BY ALL THE PARTIES IN ACCORDANCE WITH THE
COMMISSIONER'S FINDINGS AND WITH DUE REGARD TO THE
CONDITION OF THE BUILDING PRIOR TO PBA'S DEMOLITION THEREOF.
IV
THE FINDING OF BAD FAITH IS NOT WARRANTED IN FACT AND IS
WITHOUT BASIS IN LAW.
V
THE AWARD OF DAMAGES COUCHED IN GENERAL TERMS IS
DEFECTIVE; MOREOVER IT IS UNWARRANTED BY THE FACTS AND THE
LAW.
VI
THE AWARD OF ATTORNEYS FEES IN THE AMOUNT OF P100,000.00 IS
UWARRANTED.
VII
THE INTEREST OF TWELVE PER CENT (12%) PER ANNUM IMPOSED ON
THE TOTAL AMOUNT OF THE MONETARY AWARD IS IN
CONTRAVENTION OF LAW.
It will be noted that not unlike the motion for reconsideration filed by petitioner Juan
F. Nakpil and Sons, which was denied in the resolution of April 1, 1987, there is
nothing in the motion for reconsideration filed by the United Construction Co., Inc.
that was not fully discussed in the assailed decision of October 3, 1986.
I
United Construction Co., Inc. (UNITED for short), gave considerable emphasis on
the fact that the PBA building did not collapse as found by the trial court and
affirmed by the Court of Appeals. Otherwise stated, UNITED wishes to stress that
subject building did not disintegrate completely as the term "collapse" is supposed to
connote.
Be that as it may, it will be observed that in the assasiled decision, this Court is in
complete accord with the findings of the trial court and affirmed by the Court of
Appeals, that after the April 2, 1968 earthquake the building in question was not
totally lost, the collapse was only partial and the building could still be restored at
the expense of P900,000.00. But after the subsequent earthquake on April 7, 9, and
12, 1970 there was no question that further damage was caused to the property
resulting in an eventual and unavoidable collapse or demolition (compete collapse).
In fact, on April 30, 1970 the building was authorized by the trial court to be
demolished at the expense of the plaintiff. Note that a needed demolition is in fact a
form of "collapse".
The bone of contention is therefore, not on the fact of collapse but on who should
shoulder the damages resulting from the partial and eventual collapse. As ruled by
this Court in said decision, there should be no question that the NAKPILS and
UNITED are liable for the damage.
Citing the case of Tucker v. Milan (49 O.G. 4379, 4380) as the case in point, the
pertinent portion of the decision reads:
One who negligently creates a dangerous condition cannot
escape hability for the natural and probable consequences
thereof, although the act of a third person, or an act of God for
which he is not responsible, intervenes to precipitate the loss.
II
UNITED argues that it is the legal duty of PBA to provide full-time and active
supervision in the co on of subject building. Failing to cite any provision of law to
support its arguments, UNITED insists on the inherent legal duty of the owner,
reinforced by practice, usage and custom, to exercise such supervision. Apart from
the fact that UNITED seems to have completely contradicted its own view that this
construction involves highly technical matters and therefore beyond the ambit of
ordinary understanding and experience, the contrary appears to be more in accord
with ordinary practice, which is to avail oneself of the services of architects and
engineers whose training and expertise make them more qualified to provide
effective supervision of the construction. In fact, it was on the suggestion of Juan F.
Nakpil, one of the petitioners herein, that the construction was undertaken on an
administration basis (Decision, p. 3). Thus, the trial court did not err in holding that
charging the owner with fun time supervision of the construction has no legal or
contractual basis (Decision, p. 7).
III
UNITED points out that bad faith is a question of fact which was not established.
The Commissioner, the trial court and the Court of Appeals, all of which are triers of
fact, allegedly concede that there was negligence but not bad faith.
A careful study of the decision will show that there is no contradiction between the
above finding of negligence by the trial court which was formed by the Court of
Appeals and the ruling of this Court. On the contrary, on the basis of such finding, it
was held that such wanton negligence of both the defendant and the third-party
defendants in effecting the plans, designs, specifications, and construction of the
PBA building is equivalent to bad faith in the performance of their respective tasks
(Decision, p. 28).
IV & V
UNITED takes exception to the five (5) fold increase in the award of damages from
P1,189,335.00 to P5 million pesos. It is claimed that the report of the Commissioner
speaks of only P1,100,000.00 so that there is no basis for such award. It will be
recalled that the estimate of the Commissioner was limited to P1,100,000.00 for cost
of repairs after the partial collapse of the building on April 2, 1968 but not after its
total collapse reswting from the subsequent earthquakes. It is therefore evident that
the actual cost of total reconstruction of the building him question was not
considered by the commissioner in the computation. Considering further the present
cost of reconstruction, the new amount (arrived at almost 20 years later) is far from
being excessive. It is indeed a very conservative estimate.
Any allegation that PBA could have mitigated its loss by executing an offer to
purchase the building prior to its complete demolition loses sight of the fact, that the
offer was very low, considering the combined value of the building and the lot.
In addition, there is merit in the PBA claim that the unrealized rental income
awarded to it should not be limited to a period of one-half year but should be
computed on a continuing basis at the rate of P178,671.76 a year until judgment for
the principal amount shag have been satisfied. Thus, this Court awarded an
"indemnity in favor of the Philippine Bar Assodation of FIVE MILLION
(P5,000,000.00) Pesos to cover damages (with the exception of attorney's fees)
occasioned by the loss of the building (including interest charges and lost rentals) ...
As for the award of attorney's fees, there is no question that the size of attorney's
fees as well as the amount of damages, is subject to the sound discretion of the court
(Magbanua v. IAC, 137 SCRA 332 [1985]). Earlier, this Court has ruled that an
award of 10% of the amount of total recovery, for attomey's fees, is reasonable.
(Central Bank of the Phil. v. Court of Appeals, 63 SCRA 435 (1975]).
VI
There should be no dispute that the imposition of 12% interest pursuant to Central
Bank Circular No. 416 (passed pursuant to the authority granted to the Central Bank
by P.D. No. 116 which amended Act No. 2655, otherwise known as the Usury Law)
is applicable only in the following: (1) loans; (2) forbearance of any money, goods
or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments
involving loans or forbearance of any money, goods or credits). (Philippine Rabbit
Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139
SCRA 260 (1985)). It is true that in the instant case, there is neither a loan or a
forbearance, but then no interest is actually being imposed provided the sums
referred to in the judgment are paid upon the finality of the judgment. It is delay in
the payment of such final judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed
on the total sum from the filing of the complaint until paid; in other words, as part of
the judgment for damages. Clearly they are not applicable to the instant case.
PREMISES CONSIDERED, UNITED's motion for reconsideration is hereby
DENIED; the NAKPILS" motion for leave to file second motion for reconsideration
is also DENIED, the latters" first motion on the same grounds having been already
denied with finality in the resolution of April 3, 1987. Needless to say, the Motion to
Refer this case to the Court En Banc is DENIED, in view of all the things stated in
this Resolution.
SO ORDERED.