Obligations and Contracts Cases

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION,

G.R. No. 116896 May 5, 1997
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner,

vs.
COURT OF APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S.
RAYMUNDO, ANTONIO S. RAYMUNDO, RENE S. RAYMUNDO, and AMADOR S.
RAYMUNDO, respondents.
DAVIDE, JR., J.:
This petition for review on certiorari has its roots in Civil Case No. 53444, which was
sparked by petitioner's refusal to pay the rentals as stipulated in the contract of lease 1
on an undivided portion of 30,000 square meters of a parcel of land owned by private
respondents.
The lease contract, executed on 18 November 1985, reads in part as follows:
1. TERM OF LEASE — This lease shall be for a period of five (5) years, commencing on
the date of issuance of the industrial clearance by the Ministry of Human Settlements,
renewable for a like or other period at the option of the LESSEE under the same terms
and conditions.
2. RATE OF RENT — LESSEE shall pay to the LESSOR rent at the monthly rate of
TWENTY THOUSAND PESOS (P20,000.00), Philippine Currency, in the manner set
forth in Paragraph 3 below. This rate shall be increased yearly by Five Percent (5%)
based on the agreed monthly rate of P20,000.00 as follows:
Monthly Rate Period Applicable
P21,000.00 Starting on the 2nd year
P22,000.00 Starting on the 3rd year
P23,000.00 Starting on the 4th year
P24,000.00 Starting on the 5th year
3. TERMS OF PAYMENT — The rent stipulated in Paragraph 2 above shall be paid

yearly in advance by the LESSEE. The first annual rent in the amount of TWO
HUNDRED FORTY THOUSAND PESOS (P240,000.00), Philippine currency, shall be
due and payable upon the execution of this Agreement and the succeeding annual rents
shall be payable every twelve (12) months thereafter during the effectivity of this
Agreement.
4. USE OF LEASED PROPERTY — It is understood that the Property shall be used by

the LESSEE as the site, grounds and premises of a rock crushing plant and field office,
sleeping quarters and canteen/mess hall. The LESSORS hereby grant to the LESSEE
the right to erect on the Leased Property such structure(s) and/or improvement(s)
necessary for or incidental to the LESSEE's purposes.
xxx xxx xxx
11. TERMINATION OF LEASE — This Agreement may be terminated by mutual

agreement of the parties. Upon the termination or expiration of the period of lease without
the same being renewed, the LESSEE shall vacate the Leased Property at its expense.
On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a

Temporary Use Permit 2 for the proposed rock crushing project. The permit was to be
valid for two years unless sooner revoked by the Ministry.
On 16 January 1986, private respondents wrote petitioner requesting payment of the

first annual rental in the amount of P240,000 which was due and payable upon the
execution of the contract. They also assured the latter that they had already stopped
considering the proposals of other aggregates plants to lease the property because of
the existing contract with petitioner. 3
In its reply-letter, petitioner argued that under paragraph 1 of the lease contract,
payment of rental would commence on the date of the issuance of an industrial
clearance by the Ministry of Human Settlements, and not from the date of signing of the
contract. It then expressed its intention to terminate the contract, as it had decided to
cancel or discontinue with the rock crushing project "due to financial, as well as
technical, difficulties." 4
Private respondents refused to accede to petitioner's request for the pretermination of

the lease contract. They insisted on the performance of petitioner's obligation and
reiterated their demand for the payment of the first annual rental. 5
Petitioner objected to private respondents' claim and argued that it was "only obligated
to pay . . . the amount of P20,000.00 as rental payments for the one-month period of
lease, counted from 07 January 1986 when the Industrial Permit was issued by the
Ministry of Human Settlements up to 07 February 1986 when the Notice of Termination
was served" 6 on private respondents.
On 19 May 1986, private respondents instituted with the Regional Trial Court of Pasig
an action against petitioner for Specific Performance with Damages. 7 The case was
docketed as Civil Case No. 53444 at Branch 160 of the said court. After the filing by
petitioner of its Answer with Counterclaim, the case was set for trial on the merits.
What transpired next was summarized by the trial court in this wise:
Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). Defendant asked for
postponement of the reception of its evidence scheduled on August 10, 1988 and as
prayed for, was reset to August 25, 1988 (p. 91 rec.) Counsel for defendant again asked
for postponement, through representative, as he was presently indisposed. The case was
reset, intransferable to September 15 and 26, 1988 (p. 94 rec.) On September 2, 1988,
the office of the Government Corporate Counsel entered its appearance for defendant (p.
95, rec.) and the original counsel later withdrew his appearance. On September 15, 1988
the Government Corporate Counsel asked for postponement, represented by Atty.
Elpidio de Vega, and with his conformity in open court, the hearing was reset,
intransferable to September 26 and October 17, 1988, (p. 98, rec.) On September 26,
1988 during the hearing, defendant's counsel filed a motion for postponement (urgent) as
he had "sore eyes", a medical certificate attached.
Counsel for plaintiffs objected to the postponement and the court considered the
evidence of the government terminated or waived. The case was deemed submitted for
decision upon the filing of the memorandum. Plaintiffs filed their memorandum on
October 26, 1988. (p. 111, rec.).
On October 18, 1988 in the meantime, the defendant filed a motion for reconsideration of
the order of the court on September 26, 1988 (p. 107, rec.) The motion was not asked to
be set for hearing (p. 110 rec.) There was also no proof of notice and service to counsel
for plaintiff . The court in the interest of justice set the hearing on the motion on
November 29, 1988. (p. 120, rec.) but despite notice, again defendant's counsel was
absent (p. 120-A, dorsal side, rec.) without reason. The court reset the motion to
December 16, 1988, in the interest of justice. The motion for reconsideration was denied
by the court. A second motion for reconsideration was filed and counsel set for hearing
the motion on January 19, 1989. During the hearing, counsel for the government was
absent. The motion was deemed abandoned but the court at any rate, after a review of
the incidents and the grounds relied upon in the earlier motion of defendant, found no
reason to disturb its previous order. 8
On 12 April 1989, the trial court rendered a decision ordering petitioner to pay private
respondents the amount of P492,000 which represented the rentals for two years, with
legal interest from 7 January 1986 until the amount was fully paid, plus attorney's fees in
the amount of P20,000 and costs. 9
Petitioner then appealed to the Court of Appeals alleging that the trial court erred in
ordering it to pay private respondent the amount of P492,000 and in denying it the right
to be heard.
Upon the affirmance of the trial court's decision 10 and the denial of its motion for
reconsideration, petitioner came to this Court ascribing to respondent Court of Appeals
the same alleged errors and reiterating their arguments.
First. Petitioner invites the attention of this Court to paragraph 1 of the lease contract,
which reads: "This lease shall be for a period of five (5) years, commencing on the date
of issuance of the industrial clearance by the Ministry of Human Settlements. . . ." It then
submits that the issuance of an industrial clearance is a suspensive condition without
which the rights under the contract would not be acquired. The Temporary Use Permit is
not the industrial clearance referred to in the contract; for the said permit requires that a
clearance from the National Production Control Commission be first secured, and
besides, there is a finding in the permit that the proposed project does not conform to
the Zoning Ordinance of Rodriguez, (formerly Montalban), Rizal, where the leased
property is located. Without the industrial clearance the lease contract could not
become effective and petitioner could not be compelled to perform its obligation under
the contract.
Petitioner is now estopped from claiming that the Temporary Use Permit was not the
industrial clearance contemplated in the contract. In its letter dated 24 April 1986,
petitioner states:
We wish to reiterate PNCC Management's previous stand that it is only obligated to pay
your clients the amount of P20,000.00 as rental payments for the one-month period of the
lease, counted from 07 January 1986 when the Industrial Permit was issued by the
Ministry of Human Settlements up to 07 February 1986 when the Notice of Termination
was served on your clients. 11 (Emphasis Supplied).
The "Industrial Permit" mentioned in the said letter could only refer to the
Temporary Use Permit issued by the Ministry of Human Settlements on 7
January 1986. And it can be gleaned from this letter that petitioner has
considered the permit as industrial clearance; otherwise, petitioner could have
simply told private respondents that its obligation to pay rentals has not yet
arisen because the Temporary Use Permit is not the industrial clearance
contemplated by them. Instead, petitioner recognized its obligation to pay rentals
counted from the date the permit was issued.
Also worth noting is petitioner's earlier letter, thus:
[P]lease be advised of PNCC Management's decision to cancel or discontinue with the

rock crushing project due to financial as well as technical difficulties. In view thereof, we
would like to terminate our Lease Contract dated 18 November, 1985. Should you agree
to the mutual termination of our Lease Contract, kindly indicate your conformity hereto by
affixing your signature on the space provided below. May we likewise request Messrs.
Rene, Jose and Antonio, all surnamed Raymundo and Mrs. Socorro A. Raymundo as
Attorney-in-Fact of Amador S. Raymundo to sign on the spaces indicated below. 12
It can be deduced from this letter that the suspensive condition — issuance of industrial
clearance — has already been fulfilled and that the lease contract has become
operative. Otherwise, petitioner did not have to solicit the conformity of private
respondents to the termination of the contract for the simple reason that no juridical
relation was created because of the non- fulfillment of the condition.
Moreover, the reason of petitioner in discontinuing with its project and in consequently
cancelling the lease contract was "financial as well as technical difficulties," not the
alleged insufficiency of the Temporary Use Permit.
Second. Invoking Article 1266 and the principle of rebus sic stantibus, petitioner asserts
that it should be released from the obligatory force of the contract of lease because the
purpose of the contract did not materialize due to unforeseen events and causes
beyond its control, i.e., due to the abrupt change in political climate after the EDSA
Revolution and financial difficulties.
It is a fundamental rule that contracts, once perfected, bind both contracting parties, and
obligations arising therefrom have the force of law between the parties and should be
complied with in good faith. 13 But the law recognizes exceptions to the principle of the
obligatory force of contracts. One exception is laid down in Article 1266 of the Civil
Code, which reads: "The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the obligor."
Petitioner cannot, however, successfully take refuge in the said article, since it is
applicable only to obligations "to do," and not to obligations "to give." 14 An obligation "to
do" includes all kinds of work or service; while an obligation "to give" is a prestation
which consists in the delivery of a movable or an immovable thing in order to create a
real right, or for the use of the recipient, or for its simple possession, or in order to return
it to its owner. 15
The obligation to pay rentals 16 or deliver the thing in a contract of

lease 17 falls within the prestation "to give"; hence, it is not covered within the scope of
Article 1266. At any rate, the unforeseen event and causes mentioned by petitioner are
not the legal or physical impossibilities contemplated in the said article. Besides,
petitioner failed to state specifically the circumstances brought about by "the abrupt
change in the political climate in the country" except the alleged prevailing uncertainties
in government policies on infrastructure projects.
The principle of rebus sic stantibus 18 neither fits in with the facts of the case. Under this
theory, the parties stipulate in the light of certain prevailing conditions, and once these
conditions cease to exist, the contract also ceases to exist. 19 This theory is said to be
the basis of Article 1267 of the Civil Code, which provides:
Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in
part.
This article, which enunciates the doctrine of unforeseen events, is not, however, an
absolute application of the principle of rebus sic stantibus, which would endanger the
security of contractual relations. The parties to the contract must be presumed to have
assumed the risks of unfavorable developments. It is therefore only in absolutely
exceptional changes of circumstances that equity demands assistance for the debtor. 20
In this case, petitioner wants this Court to believe that the abrupt change in the political
climate of the country after the EDSA Revolution and its poor financial condition
"rendered the performance of the lease contract impractical and inimical to the
corporate survival of the petitioner."
This Court cannot subscribe to this argument. As pointed out by private respondents: 21
It is a matter of record that petitioner PNCC entered into a contract with private
respondents on November 18, 1985. Prior thereto, it is of judicial notice that after the
assassination of Senator Aquino on August 21, 1983, the country has experienced
political upheavals, turmoils, almost daily mass demonstrations, unprecedented, inflation,
peace and order deterioration, the Aquino trial and many other things that brought about
the hatred of people even against crony corporations. On November 3, 1985, Pres.
Marcos, being interviewed live on U.S. television announced that there would be a snap
election scheduled for February 7, 1986.
On November 18, 1985, notwithstanding the above, petitioner PNCC entered into the
contract of lease with private respondents with open eyes of the deteriorating conditions
of the country.
Anent petitioner's alleged poor financial condition, the same will neither release
petitioner from the binding effect of the contract of lease. As held in Central Bank v.
Court of Appeals, 22 cited by private respondents, mere pecuniary inability to fulfill an
engagement does not discharge a contractual obligation, nor does it constitute a
defense to an action for specific performance.
With regard to the non-materialization of petitioner's particular purpose in entering into

the contract of lease, i.e., to use the leased premises as a site of a rock crushing plant,
the same will not invalidate the contract. The cause or essential purpose in a contract of
lease is the use or enjoyment of a thing. 23 As a general principle, the motive or
particular purpose of a party in entering into a contract does not affect the validity nor
existence of the contract; an exception is when the realization of such motive or
particular purpose has been made a condition upon which the contract is made to
depend. 24 The exception does not apply here.
Third. According to petitioner, the award of P492,000.00 representing the rent for two
years is excessive, considering that it did not benefit from the property. Besides, the
temporary permit, conformably with the express provision therein, was deemed
automatically revoked for failure of petitioner to use the same within one year from the
issuance thereof. Hence, the rent payable should only be for one year.
Petitioner cannot be heard to complain that the award is excessive. The temporary
permit was valid for two years but was automatically revoked because of its non-use
within one year from its issuance. The non-use of the permit and the non-entry into the
property subject of the lease contract were both imputable to petitioner and cannot,
therefore, be taken advantage of in order to evade or lessen petitioner's monetary
obligation. The damage or prejudice to private respondents is beyond dispute. They
unquestionably suffered pecuniary losses because of their inability to use the leased
premises. Thus, in accordance with Article 1659 of the Civil Code, 25 they are entitled to
indemnification for damages; and the award of P492,000.00 is fair and just under the
circumstances of the case.
Finally, petitioner submits that the trial court gravely abused its discretion in denying
petitioner the right to be heard.
We disagree. The trial court was in fact liberal in granting several postponements 26 to
petitioner before it deemed terminated and waived the presentation of evidence in
petitioner's behalf.
It must be recalled that private respondents rested their case on 7 September 1987 yet.
27
Almost a year after, or on 10 August 1988 when it was petitioner's turn to present
evidence, petitioner's counsel asked for postponement of the hearing to 25 August 1988
due to conflict of schedules, 28 and this was granted. 29 At the rescheduled hearing,
petitioner's counsel, through a representative, moved anew for postponement, as he
was allegedly
indisposed. 30 The case was then reset "intransferable" to September 15 and 26, 1988. 31
On 2 September 1988, the Office of the Government Corporate Counsel, through Atty.
Elpidio J. Vega, entered its appearance for the
petitioner, 32 and later the original counsel withdrew his appearance. 33 On 15 September
1988, Atty. Vega requested for postponement to enable him to go over the records of
the case. 34 With his conformity, the hearing was reset "intransferable" to September 26
and October 17, 1988. 35 In the morning of 26 September 1988, the court received Atty.
Vega's Urgent Motion for Postponement on the ground that he was afflicted with
conjunctivitis or sore eyes. 36 This time, private respondents objected; and upon their
motion, the court deemed terminated and waived the presentation of evidence for the
petitioner. 37 Nevertheless, before the court considered the case submitted for decision,
it required the parties to submit their respective memoranda within thirty days. 38 But
petitioner failed to comply.
Likewise, the court was liberal with respect to petitioner's motion for reconsideration.
Notwithstanding the lack of request for hearing and proof of notice and service to private
respondents, the court set the hearing of the said motion on 29 November 1988. 39 Upon
the denial of the said motion for lack of merit, 40 petitioner filed a second motion for
reconsideration. But during the hearing of the motion on a date selected by him, Atty.
Vega was absent for no reason at all, despite due notice. 41
From the foregoing narration of procedural antecedents, it cannot be said that petitioner
was deprived of its day in court. The essence of due process is simply an opportunity to
he heard. 42 To be heard does not only mean oral arguments in court; one may be heard
also through pleadings. Where opportunity to be heard, either through oral arguments or
pleadings, is accorded, there is no denial of procedural due process. 43
WHEREFORE, the instant petition is DENIED and the challenge decision of the Court of
Appeals is AFFIRMED in toto.
No pronouncements as to costs.
SO ORDERED.
Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.
Footnotes
1 Exhibit "A," Original Record (OR), 68.
2 Exhibit "C," OR, 77; Rollo, 57.
3 Exhibit "B," OR, 76.
4 Exhibit "D," OR, 78.
5 Exhibit "E," Id., 80.
6 Exhibit "F," Id., 81-82.
7 Id., 1-7.
8 Order of 19 January 1989, OR, 129-130; Decision, 2-3.
9 OR 134-137; Rollo, 53-56. Per Judge Mariano M. Umali.
10 Rollo, 24-31. Per then Associate Justice Justo P. Torres, Jr. (now Associate Justice of
the Supreme Court), with the concurrence of then Associate Justice Bernardo P. Pardo
and Associate Justice Corona Ibay-Somera.
11 Exhibit "F-1," OR, 82.
12 Exhibit "D," Id., 78-79.
13 Articles 1159, 1308, 1315, and 1356 of the Civil Code.
14 DESIDERIO P. JURADO, Comments and Jurisprudence on Obligations and

Contracts 292 ( 10th revised ed. 1993) (hereafter JURADO).
15 IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of

the Philippines 57 (1991) (hereafter IV TOLENTINO).
16 JURADO, 283.
17 IV TOLENTINO 57.
18 At this point of affairs; in these circumstances. A name given to a tacit condition, said
to attach to all treaties, that they shall cease to be obligatory so soon as the state of facts
and conditions upon which they were founded has substantially changed. (Black's Law
Dictionary, 1139 [5th ed., 1979]).
19 Naga Telephone Co. v. Court of Appeals, 230 SCRA 351, 365 [1994] citing IV
TOLENTINO 347.
20 IV TOLENTINO 347.
21 Memorandum for the Private Respondents, 17; Rollo, 160.
22 139 SCRA 46 [1985], citing Repide v. Afzelius, 39 Phil. 190 [1918].
23 V TOLENTINO 206 [1992]; V EDGARDO E. PARAS, Civil Code of the Philippines,

307 [1995].
24 V TOLENTINO 535.
25 It provides:
Art. 1659. If the lessor or the lessee should not comply with the obligations set forth in
Articles 1654 and 1657, the aggrieved party may ask for rescission of the contract and
indemnification for damages, or only the latter, allowing the contract to remain in force.
26 Ocampo v. Arboleda, 153 SCRA 374, 381 [1987].
27 OR, 87.
28 OR, 89.
29 Id., 91.
30 Id., 94.
31 Id.
32 Id., 95.
33 Id., 99.
34 Id., 98.
35 Id.
36 Id., 101.
37 Id., 106.
38 Id.
39 Id., 120.
40 Id., 128.
41 Id., 127.
42 Roces v. Aportadera, 243 SCRA 108, 114 [1995]; Vallende v. NLRC, 245 SCRA 662,
666-667 [1995]; Navarro III v. Damasco, 246 SCRA 260, 265 [1995].
43 Mutuc v. Court of Appeals, 190 SCRA 43, 49 [1990].

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 117190 January 2, 1997
JACINTO TANGUILIG doing business under the name and style J.M.T.
ENGINEERING AND GENERAL MERCHANDISING, petitioner,
vs.
COURT OF APPEALS and VICENTE HERCE JR., respondents.
BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered into between the
parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name
and style J.M.T. Engineering and General Merchandising proposed to respondent
Vicente Herce Jr. to construct a windmill system for him. After some negotiations they
agreed on the construction of the windmill for a consideration of P60,000.00 with a one-
year guaranty from the date of completion and acceptance by respondent Herce Jr. of
the project. Pursuant to the agreement respondent paid petitioner a down payment of
P30,000.00 and an installment payment of P15,000.00, leaving a balance of
P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to pay the balance,
petitioner filed a complaint to collect the amount. In his Answer before the trial court
respondent denied the claim saying that he had already paid this amount to the San
Pedro General Merchandising Inc. (SPGMI) which constructed the deep well to which
the windmill system was to be connected. According to respondent, since the deep well
formed part of the system the payment he tendered to SPGMI should be credited to his
account by petitioner. Moreover, assuming that he owed petitioner a balance of
P15,000.00, this should be offset by the defects in the windmill system which caused
the structure to collapse after a strong wind hit their place. 1
Petitioner denied that the construction of a deep well was included in the agreement to
build the windmill system, for the contract price of P60,000.00 was solely for the
windmill assembly and its installation, exclusive of other incidental materials needed for
the project. He also disowned any obligation to repair or reconstruct the system and
insisted that he delivered it in good and working condition to respondent who accepted
the same without protest. Besides, its collapse was attributable to a typhoon, a force
majeure, which relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the deep well was not
part of the windmill project as evidenced clearly by the letter proposals submitted by
petitioner to respondent. 2 It noted that "[i]f the intention of the parties is to include the
construction of the deep well in the project, the same should be stated in the proposals.
In the absence of such an agreement, it could be safely concluded that the construction
of the deep well is not a part of the project undertaken by the plaintiff." 3 With respect to
the repair of the windmill, the trial court found that "there is no clear and convincing
proof that the windmill system fell down due to the defect of the construction." 4
The Court of Appeals reversed the trial court. It ruled that the construction of the deep
well was included in the agreement of the parties because the term "deep well" was
mentioned in both proposals. It also gave credence to the testimony of respondent's
witness Guillermo Pili, the proprietor of SPGMI which installed the deep well, that
petitioner Tanguilig told him that the cost of constructing the deep well would be
deducted from the contract price of P60,000.00. Upon these premises the appellate
court concluded that respondent's payment of P15,000.00 to SPGMI should be applied
to his remaining balance with petitioner thus effectively extinguishing his contractual
obligation. However, it rejected petitioner's claim of force majeure and ordered the latter
to reconstruct the windmill in accordance with the stipulated one-year guaranty.
His motion for reconsideration having been denied by the Court of Appeals, petitioner
now seeks relief from this Court. He raises two issues: firstly, whether the agreement to
construct the windmill system included the installation of a deep well and, secondly,
whether petitioner is under obligation to reconstruct the windmill after it collapsed.
We reverse the appellate court on the first issue but sustain it on the second.
The preponderance of evidence supports the finding of the trial court that the installation
of a deep well was not included in the proposals of petitioner to construct a windmill
system for respondent. There were in fact two (2) proposals: one dated 19 May 1987
which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by
respondent. The other was submitted three days later, i.e., on 22 May 1987 which
contained more specifications but proposed a lower contract price of P60,000.00 (Exh.
"A"). The latter proposal was accepted by respondent and the construction immediately
followed. The pertinent portions of the first letter-proposal (Exh. "1") are reproduced
hereunder —
In connection with your Windmill System and Installation, we would like to quote to you as
follows:
One (1) Set — Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity,
14 feet in diameter, with 20 pieces blade, Tower 40 feet high, including
mechanism which is not advisable to operate during extra-intensity wind.
Excluding cylinder pump.
UNIT CONTRACT PRICE
P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system, Supply of Labor Materials and Installation, operated
water pump, we would like to quote to you as
follows —
One (1) set — Windmill assembly for 2 inches or 3 inches deep-well pump, 6
Stroke, 14 feet diameter, 1-lot blade materials, 40 feet Tower complete with
standard appurtenances up to Cylinder pump, shafting U.S. adjustable
International Metal.
One (1) lot — Angle bar, G.I. pipe, Reducer Coupling, Elbow Gate valve, cross
Tee coupling.
One (1) lot — Float valve.
One (1) lot — Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well mentioned, even
remotely. Neither is there an itemization or description of the materials to be used in
constructing the deep well. There is absolutely no mention in the two (2) documents that
a deep well pump is a component of the proposed windmill system. The contract prices
fixed in both proposals cover only the features specifically described therein and no
other. While the words "deep well" and "deep well pump" are mentioned in both, these
do not indicate that a deep well is part of the windmill system. They merely describe the
type of deep well pump for which the proposed windmill would be suitable. As correctly
pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and
"suitable for" were meant only to convey the idea that the proposed windmill would be
appropriate for a deep well pump with a diameter of 2 to 3 inches. For if the real intent
of petitioner was to include a deep well in the agreement to construct a windmill, he
would have used instead the conjunctions "and" or "with." Since the terms of the
instruments are clear and leave no doubt as to their meaning they should not be
disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the
parties shall be accorded primordial consideration 5 and, in case
of doubt, their contemporaneous and subsequent acts shall be principally considered. 6
An examination of such contemporaneous and subsequent acts of respondent as well
as the attendant circumstances does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract price of P60,000.00
covered the installation of a deep well pump. He contends that since petitioner did not
have the capacity to install the pump the latter agreed to have a third party do the work
the cost of which was to be deducted from the contract price. To prove his point, he
presented Guillermo Pili of SPGMI who declared that petitioner Tanguilig approached
him with a letter from respondent Herce Jr. asking him to build a deep well pump as
"part of the price/contract which Engineer (Herce) had with Mr. Tanguilig." 7
We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr.
wrote him a letter is unsubstantiated. The alleged letter was never presented in court by
private respondent for reasons known only to him. But granting that this written
communication existed, it could not have simply contained a request for Pili to install a
deep well; it would have also mentioned the party who would pay for the undertaking. It
strains credulity that respondent would keep silent on this matter and leave it all to
petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill
construction and that its payment would come from the contract price of P60,000.00.
We find it also unusual that Pili would readily consent to build a deep well the payment
for which would come supposedly from the windmill contract price on the mere
representation of petitioner, whom he had never met before, without a written
commitment at least from the former. For if indeed the deep well were part of the
windmill project, the contract for its installation would have been strictly a matter
between petitioner and Pili himself with the former assuming the obligation to pay the
price. That it was respondent Herce Jr. himself who paid for the deep well by handing
over to Pili the amount of P15,000.00 clearly indicates that the contract for the deep well
was not part of the windmill project but a separate agreement between respondent and
Pili. Besides, if the price of P60,000.00 included the deep well, the obligation of
respondent was to pay the entire amount to petitioner without prejudice to any action
that Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when
asked why he tendered payment directly to Pili and not to petitioner, respondent
explained, rather lamely, that he did it "because he has (sic) the money, so (he) just
paid the money in his possession." 8
Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While
the law is clear that "payment shall be made to the person in whose favor the obligation
has been constituted, or his successor in interest, or any person authorized to receive
it," 9 it does not appear from the record that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning "payments made by a third
person." 10 The Civil Code provisions do not apply in the instant case because no
creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has
been established regarding the construction of the deep well. Specifically, witness Pili
did not testify that he entered into a contract with petitioner for the construction of
respondent's deep well. If SPGMI was really commissioned by petitioner to construct
the deep well, an agreement particularly to this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned effectively

belie respondent's assertions. These circumstances only show that the
construction of the well by SPGMI was for the sole account of respondent and
that petitioner merely supervised the installation of the well because the windmill
was to be connected to it. There is no legal nor factual basis by which this Court
can impose upon petitioner an obligation he did not expressly assume nor ratify.
The second issue is not a novel one. In a long line of cases 11 this Court has
consistently held that in order for a party to claim exemption from liability by
reason of fortuitous event under Art. 1174 of the Civil Code the event should be
the sole and proximate cause of the loss or destruction of the object of the
contract. In Nakpil vs. Court of Appeals, 12 four (4) requisites must concur: (a) the
cause of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforeseeable or unavoidable; (c) the event
must be such as to render it impossible for the debtor to fulfill his obligation in a
normal manner; and, (d) the debtor must be free from any participation in or
aggravation of the injury to the creditor.
Petitioner failed to show that the collapse of the windmill was due solely to a
fortuitous event. Interestingly, the evidence does not disclose that there was
actually a typhoon on the day the windmill collapsed. Petitioner merely stated
that there was a "strong wind." But a strong wind in this case cannot be fortuitous
— unforeseeable nor unavoidable. On the contrary, a strong wind should be
present in places where windmills are constructed, otherwise the windmills will
not turn.
The appellate court correctly observed that "given the newly-constructed windmill
system, the same would not have collapsed had there been no inherent defect in
it which could only be attributable to the appellee." 13 It emphasized that
respondent had in his favor the presumption that "things have happened
according to the ordinary course of nature and the ordinary habits of life." 14 This
presumption has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in default in the
payment of his outstanding balance of P15,000.00 and hence should bear his
own loss, is untenable. In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a proper manner with what
is incumbent upon him. 15 When the windmill failed to function properly it became
incumbent upon petitioner to institute the proper repairs in accordance with the
guaranty stated in the contract. Thus, respondent cannot be said to have
incurred in delay; instead, it is petitioner who should bear the expenses for the
reconstruction of the windmill. Article 1167 of the Civil Code is explicit on this
point that if a person obliged to do something fails to do it, the same shall be
executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE

HERCE JR. is directed to pay petitioner JACINTO M. TANGUILIG the balance of
P15,000.00 with interest at the legal rate from the date of the filing of the
complaint. In return, petitioner is ordered to "reconstruct subject defective
windmill system, in accordance with the one-year guaranty" 16 and to complete the
same within three (3) months from the finality of this decision.
SO ORDERED.
Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
Footnotes
1 TSN, 20 December 1988, pp. 10-12.
2 Exh. "A" and Exh. "1."
3 Rollo, p. 36.
4 Id., p. 37.
5 Kasilag v. Rodriguez, 69 Phil. 217 (1939).
6 Art. 1371, New Civil Code; GSIS v. Court of Appeals, G.R. No. 52478, 30 October
1986, 145 SCRA 311; Serrano v. Court of Appeals, No. L-46357, 9 October 1985, 139
SCRA 179.
7 TSN, 13 April 1989, pp. 18-19.
8 TSN, 13 April 1989, p. 22.
9 Art. 1240, New Civil Code.
10 Arts. 1236 and 1237, New Civil Code.
11 Nakpil v. Court of Appeals, Nos. L-47851, L-47863, L-47896, 3 October 1986, 144
SCRA 596; National Power Corporation v. Court of Appeals, G.R. Nos. L-47379 and
47481, 16 May 1988, 161 SCRA 334; National Power Corporation v. Court of Appeals,
G.R. Nos. 103442-45, 21 May 1993, 222 SCRA 415.
12 See Note 11.
13 Rollo, p. 44.
14 Sec. 3, par. (y), Rule 131, Revised Rules of Evidence.
15 Art. 1169, last par., New Civil Code.
16 See CA Decision, p. 7; Rollo, p. 27.

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 102316 June 30, 1997
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner,

vs.
COURT OF APPEALS AND SEVEN BROTHERS SHIPPING CORPORATION,
respondents.
PANGANIBAN, J.:
Is a stipulation in a charter party that the "(o)wners shall not be responsible for loss,
split, short-landing, breakages and any kind of damages to the cargo" 1 valid? This is the
main question raised in this petition for review assailing the Decision of Respondent
Court of Appeals 2 in CA-G.R. No. CV-20156 promulgated on October 15, 1991. The
Court of Appeals modified the judgment of the Regional Trial Court of Valenzuela, Metro
Manila, Branch 171, the dispositive portion of which reads:
WHEREFORE, Judgment is hereby rendered ordering South Sea Surety and Insurance
Co., Inc. to pay plaintiff the sum of TWO MILLION PESOS (P2,000,000.00) representing
the value of the policy of the lost logs with legal interest thereon from the date of demand
on February 2, 1984 until the amount is fully paid or in the alternative, defendant Seven
Brothers Shipping Corporation to pay plaintiff the amount of TWO MILLION PESOS
(2,000,000.00) representing the value of lost logs plus legal interest from the date of
demand on April 24, 1984 until full payment thereof; the reasonable attorney's fees in the
amount equivalent to five (5) percent of the amount of the claim and the costs of the suit.
Plaintiff is hereby ordered to pay defendant Seven Brothers Shipping Corporation the
sum of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00) representing the
balance of the stipulated freight charges.
Defendant South Sea Surety and Insurance Company's counterclaim is hereby

dismissed.
In its assailed Decision, Respondent Court of Appeals held:
WHEREFORE, the appealed judgment is hereby AFFIRMED except in so far (sic) as the
liability of the Seven Brothers Shipping Corporation to the plaintiff is concerned which is
hereby REVERSED and SET ASIDE. 3
The Facts
The factual antecedents of this case as narrated in the Court of Appeals Decision are as
follows:
It appears that on 16 January 1984, plaintiff (Valenzuela Hardwood and Industrial Supply,
Inc.) entered into an agreement with the defendant Seven Brothers (Shipping
Corporation) whereby the latter undertook to load on board its vessel M/V Seven
Ambassador the former's lauan round logs numbering 940 at the port of Maconacon,
Isabela for shipment to Manila.
On 20 January 1984, plaintiff insured the logs against loss and/or damage with defendant
South Sea Surety and Insurance Co., Inc. for P2,000,000.00 and the latter issued its
Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984
resulting in the loss of the plaintiff's insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium
and documentary stamps due on the policy was tendered due to the insurer but was not
accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance
policy it issued as of the date of the inception for non-payment of the premium due in
accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance
Co., Inc. the payment of the proceeds of the policy but the latter denied liability under the
policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping
Corporation for the value of the lost logs but the latter denied the claim.
After due hearing and trial, the court a quo rendered judgment in favor of plaintiff and
against defendants. Both defendants shipping corporation and the surety company
appealed.
Defendant-appellant Seven Brothers Shipping Corporation impute (sic) to the court a quo
the following assignment of errors, to wit:
A. The lower court erred in holding that the proximate cause of the sinking of the vessel
Seven Ambassadors, was not due to fortuitous event but to the negligence of the captain
in stowing and securing the logs on board, causing the iron chains to snap and the logs
to roll to the portside.
B. The lower court erred in declaring that the non-liability clause of the Seven Brothers
Shipping Corporation from logs (sic) of the cargo stipulated in the charter party is void for
being contrary to public policy invoking article 1745 of the New Civil Code.
C. The lower court erred in holding defendant-appellant Seven Brothers Shipping

Corporation liable in the alternative and ordering/directing it to pay plaintiff-appellee the
amount of two million (2,000,000.00) pesos representing the value of the logs plus legal
interest from date of demand until fully paid.
D. The lower court erred in ordering defendant-appellant Seven Brothers Shipping
Corporation to pay appellee reasonable attorney's fees in the amount equivalent to 5% of
the amount of the claim and the costs of the suit.
E. The lower court erred in not awarding defendant-appellant Seven Brothers Corporation
its counter-claim for attorney's fees.
F. The lower court erred in not dismissing the complaint against Seven Brothers Shipping
Corporation.
Defendant-appellant South Sea Surety and Insurance Co., Inc. assigns the following
errors:
A. The trial court erred in holding that Victorio Chua was an agent of defendant-appellant
South Sea Surety and Insurance Company, Inc. and likewise erred in not holding that he
was the representative of the insurance broker Columbia Insurance Brokers, Ltd.
B. The trial court erred in holding that Victorio Chua received compensation/commission
on the premiums paid on the policies issued by the defendant-appellant South Sea
Surety and Insurance Company, Inc.
C. The trial court erred in not applying Section 77 of the Insurance Code.
D. The trial court erred in disregarding the "receipt of payment clause" attached to and
forming part of the Marine Cargo Insurance Policy No. 84/24229.
E. The trial court in disregarding the statement of account or bill stating the amount of
premium and documentary stamps to be paid on the policy by the plaintiff-appellee.
F. The trial court erred in disregarding the endorsement of cancellation of the policy due
to non-payment of premium and documentary stamps.
G. The trial court erred in ordering defendant-appellant South Sea Surety and Insurance
Company, Inc. to pay plaintiff-appellee P2,000,000.00 representing value of the policy
with legal interest from 2 February 1984 until the amount is fully paid,
H. The trial court erred in not awarding to the defendant-appellant the attorney's fees
alleged and proven in its counterclaim.
The primary issue to be resolved before us is whether defendants shipping corporation

and the surety company are liable to the plaintiff for the latter's lost logs. 4
The Court of Appeals affirmed in part the RTC judgment by sustaining the liability of
South Sea Surety and Insurance Company ("South Sea"), but modified it by holding that
Seven Brothers Shipping Corporation ("Seven Brothers") was not liable for the lost
cargo. 5 In modifying the RTC judgment, the respondent appellate court ratiocinated
thus:
It appears that there is a stipulation in the charter party that the ship owner would be
exempted from liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to
establish the liability of the shipping corporation. The provisions on common carriers
should not be applied where the carrier is not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special cargo or

chartered to a special person only, becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the
negligence of its agent is valid (Home Insurance Company, Inc. vs. American Steamship
Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs. 6
South Sea and herein Petitioner Valenzuela Hardwood and Industrial Supply, Inc.
("Valenzuela") filed separate petitions for review before this Court. In a Resolution dated
June 2, 1995, this Court denied the petition of South
Sea. 7 There the Court found no reason to reverse the factual findings of the trial court
and the Court of Appeals that Chua was indeed an authorized agent of South Sea when
he received Valenzuela's premium payment for the marine cargo insurance policy which
was thus binding on the insurer. 8
The Court is now called upon to resolve the petition for review filed by Valenzuela
assailing the CA Decision which exempted Seven Brothers from any liability for the lost
cargo.
The Issue
Petitioner Valenzuela's arguments resolve around a single issue: "whether or not

respondent Court (of Appeals) committed a reversible error in upholding the validity of
the stipulation in the charter party executed between the petitioner and the private
respondent exempting the latter from liability for the loss of petitioner's logs arising from
the negligence of its (Seven Brothers') captain." 9
The Court's Ruling
The petition is not meritorious.
Validity of Stipulation is Lis Mota
The charter party between the petitioner and private respondent stipulated that the
"(o)wners shall not be responsible for loss, split, short-landing, breakages and any kind
of damages to the cargo." 10 The validity of this stipulation is the lis mota of this case.
It should be noted at the outset that there is no dispute between the parties that the
proximate cause of the sinking of M/V Seven Ambassadors resulting in the loss of its
cargo was the "snapping of the iron chains and the subsequent rolling of the logs to the
portside due to the negligence of the captain in stowing and securing the logs on board
the vessel and not due to fortuitous event." 11 Likewise undisputed is the status of
Private Respondent Seven Brothers as a private carrier when it contracted to transport
the cargo of Petitioner Valenzuela. Even the latter admits this in its petition. 12
The trial court deemed the charter party stipulation void for being contrary to public
policy, 13 citing Article 1745 of the Civil Code which provides:
Art. 1745. Any of the following or similar stipulations shall be considered unreasonable,
unjust and contrary to public policy:
(1) That the goods are transported at the risk of the owner or shipper;
(2) That the common carrier will not be liable for any loss, destruction, or deterioration of
the goods;
(3) That the common carrier need not observe any diligence in the custody of the goods;
(4) That the common carrier shall exercise a degree of diligence less than that of a good
father of a family, or of a man of ordinary prudence in the vigilance over the movables
transported;
(5) That the common carrier shall not be responsible for the acts or omissions of his or its
employees;
(6) That the common carrier's liability for acts committed by thieves, or of robbers who do
not act with grave or irresistible threat, violence or force, is dispensed with or diminished;
(7) That the common carrier is not responsible for the loss, destruction, or deterioration of
goods on account of the defective condition of the car, vehicle, ship, airplane or other
equipment used in the contract of carriage.
Petitioner Valenzuela adds that the stipulation is void for being contrary to Articles 586
and 587 of the Code of Commerce 14 and Articles 1170 and 1173 of the Civil Code.
Citing Article 1306 and paragraph 1, Article 1409 of the Civil Code, 15 petitioner further
contends that said stipulation "gives no duty or obligation to the private respondent to
observe the diligence of a good father of a family in the custody and transportation of
the cargo."
The Court is not persuaded. As adverted to earlier, it is undisputed that private

respondent had acted as a private carrier in transporting petitioner's lauan logs. Thus,
Article 1745 and other Civil Code provisions on common carriers which were cited by
petitioner may not be applied unless expressly stipulated by the parties in their charter
party. 16
In a contract of private carriage, the parties may validly stipulate that responsibility for
the cargo rests solely on the charterer, exempting the shipowner from liability for loss of
or damage to the cargo caused even by the negligence of the ship captain. Pursuant to
Article 1306 17 of the Civil Code, such stipulation is valid because it is freely entered into
by the parties and the same is not contrary to law, morals, good customs, public order,
or public policy. Indeed, their contract of private carriage is not even a contract of
adhesion. We stress that in a contract of private carriage, the parties may freely
stipulate their duties and obligations which perforce would be binding on them. Unlike in
a contract involving a common carrier, private carriage does not involve the general
public. Hence, the stringent provisions of the Civil Code on common carriers protecting
the general public cannot justifiably be applied to a ship transporting commercial goods
as a private carrier. Consequently, the public policy embodied therein is not
contravened by stipulations in a charter party that lessen or remove the protection given
by law in contracts involving common carriers.
The issue posed in this case and the arguments raised by petitioner are not novel; they
were resolved long ago by this Court in Home Insurance Co. vs. American Steamship
Agencies, Inc. 18 In that case, the trial court similarly nullified a stipulation identical to
that involved in the present case for being contrary to public policy based on Article
1744 of the Civil Code and Article 587 of the Code of Commerce. Consequently, the
trial court held the shipowner liable for damages resulting for the partial loss of the
cargo. This Court reversed the trial court and laid down, through Mr. Justice Jose P.
Bengzon, the following well-settled observation and doctrine:
The provisions of our Civil Code on common carriers were taken from Anglo-American
law. Under American jurisprudence, a common carrier undertaking to carry a special
cargo or chartered to a special person only, becomes a private carrier. As a private
carrier, a stipulation exempting the owner from liability for the negligence of its agent is
not against public policy, and is deemed valid.
Such doctrine We find reasonable. The Civil Code provisions on common carriers should
not be applied where the carrier is not acting as such but as a private carrier. The
stipulation in the charter party absolving the owner from liability for loss due to the
negligence of its agent would be void if the strict public policy governing common carriers
is applied. Such policy has no force where the public at large is not involved, as in this
case of a ship totally chartered for the used of a single party. 19 (Emphasis supplied.)
Indeed, where the reason for the rule ceases, the rule itself does not apply. The general
public enters into a contract of transportation with common carriers without a hand or a
voice in the preparation thereof. The riding public merely adheres to the contract; even if
the public wants to, it cannot submit its own stipulations for the approval of the common
carrier. Thus, the law on common carriers extends its protective mantle against one-
sided stipulations inserted in tickets, invoices or other documents over which the riding
public has no understanding or, worse, no choice. Compared to the general public, a
charterer in a contract of private carriage is not similarly situated. It can — and in fact it
usually does — enter into a free and voluntary agreement. In practice, the parties in a
contract of private carriage can stipulate the carrier's obligations and liabilities over the
shipment which, in turn, determine the price or consideration of the charter. Thus, a
charterer, in exchange for convenience and economy, may opt to set aside the
protection of the law on common carriers. When the charterer decides to exercise this
option, he takes a normal business risk.
Petitioner contends that the rule in Home Insurance is not applicable to the present
case because it "covers only a stipulation exempting a private carrier from liability for
the negligence of his agent, but it does not apply to a stipulation exempting a private
carrier like private respondent from the negligence of his employee or servant which is
the situation in this case." 20 This contention of petitioner is bereft of merit, for it raises a
distinction without any substantive difference. The case Home Insurance specifically
dealt with "the liability of the shipowner for acts or negligence of its captain and crew" 21
and a charter party stipulation which "exempts the owner of the vessel from any loss or
damage or delay arising from any other source, even from the neglect or fault of the
captain or crew or some other person employed by the owner on
board, for whose acts the owner would ordinarily be liable except for said paragraph." 22
Undoubtedly, Home Insurance is applicable to the case at bar.
The naked assertion of petitioner that the American rule enunciated in Home Insurance
is not the rule in the Philippines 23 deserves scant consideration. The Court there
categorically held that said rule was "reasonable" and proceeded to apply it in the
resolution of that case. Petitioner miserably failed to show such circumstances or
arguments which would necessitate a departure from a well-settled rule. Consequently,
our ruling in said case remains a binding judicial precedent based on the doctrine of
stare decisis and Article 8 of the Civil Code which provides that "(j)udicial decisions
applying or interpreting the laws or the Constitution shall form part of the legal system of
the Philippines."
In fine, the respondent appellate court aptly stated that "[in the case of] a private carrier,
a stipulation exempting the owner from liability even for the negligence of its agents is
valid." 24
Other Arguments
On the basis of the foregoing alone, the present petition may already be denied; the
Court, however, will discuss the other arguments of petitioner for the benefit and
satisfaction of all concerned.
Articles 586 and 587, Code of Commerce
Petitioner Valenzuela insists that the charter party stipulation is contrary to Articles 586
and 587 of the Code of Commerce which confer on petitioner the right to recover
damages from the shipowner and ship agent for the acts or conduct of the captain. 25
We are not persuaded. Whatever rights petitioner may have under the aforementioned
statutory provisions were waived when it entered into the charter party.
Article 6 of the Civil Code provides that "(r)ights may be waived, unless the waiver is
contrary to law, public order, public policy, morals, or good customs, or prejudicial to a
person with a right recognized by law." As a general rule, patrimonial rights may be
waived as opposed to rights to personality and family rights which may not be made the
subject of waiver. 26 Being patently and undoubtedly patrimonial, petitioner's right
conferred under said articles may be waived. This, the petitioner did by acceding to the
contractual stipulation that it is solely responsible or any damage to the cargo, thereby
exempting the private carrier from any responsibility for loss or damage thereto.
Furthermore, as discussed above, the contract of private carriage binds petitioner and
private respondent alone; it is not imbued with public policy considerations for the
general public or third persons are not affected thereby.
Articles 1170 and 1173, Civil Code
Petitioner likewise argues that the stipulation subject of this controversy is void for being
contrary to Articles 1170 and 1173 of the Civil Code 27 which read:
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
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 the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, shall apply.
If the law 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.
The Court notes that the foregoing articles are applicable only to the obligor or the one
with an obligation to perform. In the instant case, Private Respondent Seven Brothers is
not an obligor in respect of the cargo, for this obligation to bear the loss was shifted to
petitioner by virtue of the charter party. This shifting of responsibility, as earlier
observed, is not void. The provisions cited by petitioner are, therefore, inapplicable to
the present case.
Moreover, the factual milieu of this case does not justify the application of the second
paragraph of Article 1173 of the Civil Code which prescribes the standard of diligence to
be observed in the event the law or the contract is silent. In the instant case, Article 362
of the Code of Commerce 28 provides the standard of ordinary diligence for the carriage
of goods by a carrier. The standard of diligence under this statutory provision may,
however, be modified in a contract of private carriage as the petitioner and private
respondent had done in their charter party.
Cases Cited by Petitioner Inapplicable
Petitioner cites Shewaram vs. Philippine Airlines, Inc. 29 which, in turn, quoted Juan
Ysmael & Co. vs. Gabino Barreto & Co. 30 and argues that the public policy
considerations stated there vis-a-vis contractual stipulations limiting the carrier's liability
be applied "with equal force" to this case. 31 It also cites Manila Railroad Co. vs.
Compañia Transatlantica 32 and contends that stipulations exempting a party from
liability for damages due to negligence "should not be countenanced" and should be
"strictly construed" against the party claiming its benefit. 33 We disagree.
The cases of Shewaram and Ysmael both involve a common carrier; thus, they
necessarily justify the application of such policy considerations and concomitantly
stricter rules. As already discussed above, the public policy considerations behind the
rigorous treatment of common carriers are absent in the case of private carriers. Hence,
the stringent laws applicable to common carriers are not applied to private carries. The
case of Manila Railroad is also inapplicable because the action for damages there does
not involve a contract for transportation. Furthermore, the defendant therein made a
"promise to use due care in the lifting operations" and, consequently, it was "bound by
its undertaking"'; besides, the exemption was intended to cover accidents due to hidden
defects in the apparatus or other unforseeable occurrences" not caused by its "personal
negligence." This promise was thus constructed to make sense together with the
stipulation against liability for damages. 34 In the present case, we stress that the private
respondent made no such promise. The agreement of the parties to exempt the
shipowner from responsibility for any damage to the cargo and place responsibility over
the same to petitioner is the lone stipulation considered now by this Court.
Finally, petitioner points to Standard Oil Co. of New York vs. Lopez Costelo, 35 Walter A.
Smith & Co. vs. Cadwallader Gibson Lumber Co., 36 N. T . Hashim and Co. vs. Rocha
and Co., 37 Ohta Development Co. vs. Steamship "Pompey" 38 and Limpangco Sons vs.
Yangco Steamship Co. 39 in support of its contention that the shipowner be held liable
for damages. 40 These however are not on all fours with the present case because they
do not involve a similar factual milieu or an identical stipulation in the charter party
expressly exempting the shipowner form responsibility for any damage to the cargo.
Effect of the South Sea Resolution
In its memorandum, Seven Brothers argues that petitioner has no cause of action
against it because this Court has earlier affirmed the liability of South Sea for the loss
suffered by petitioner. Private respondent submits that petitioner is not legally entitled to
collect twice for a single loss. 41 In view of the above disquisition upholding the validity of
the questioned charter party stipulation and holding that petitioner may not recover from
private respondent, the present issue is moot and academic. It suffices to state that the
Resolution of this Court dated June 2, 1995 42 affirming the liability of South Sea does
not, by itself, necessarily preclude the petitioner from proceeding against private
respondent. An aggrieved party may still recover the deficiency for the person causing
the loss in the event the amount paid by the insurance company does not fully cover the
loss. Article 2207 of the Civil Code provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity for
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall
be entitled to recover the deficiency form the person causing the loss or injury.
WHEREFORE, premises considered, the petition is hereby DENIED for its utter failure
to show any reversible error on the part of Respondent Court. The assailed Decision is
AFFIRMED.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.
Footnotes
1 Charter Party, p. 2; Record of the Regional Trial Court, p. 202.
2 Seventeenth Division, composed of J . Fernando A. Santiago, ponente, and JJ . Pedro

A. Ramirez, Chairman, and Fermin A. Martin, Jr., concurring.
3 Rollo, p. 24.
4 Decision of the Court of Appeals, pp. 1-4; rollo, pp. 19-22.
5 Ibid., p. 6; rollo, p. 24.
6 Ibid., p. 4; rollo, p. 22.
7 South Sea Surety and Insurance Company, Inc. vs. Hon. Court of Appeals and
Valenzuela Hardwood and Industrial Supply, Inc., G.R. No. 102253, p. 4, June 2, 1995.
8 Ibid., pp. 5-7.
9 Memorandum for Petitioner, p. 5; rollo, p. 47.
10 Charter Party of January 16, 1984; Petitioner's Memorandum, p. 2; rollo, p. 62. See
first, second, and third versions of charter party in Record of the Regional Trial Court, pp.
201-206.
11 Decision of the Regional Trial Court, p. 17; Record of the Regional Trial Court, p. 383.
12 Petition, p. 13; rollo, p. 14.
13 Decision of the Regional Trial Court, p. 17; Record of the Regional Trial Court, p. 383.
14 Petition, p. 2, rollo, p. 9. The Code of Commerce provides:
Art. 586. The shipowner and the ship agent shall be civilly liable for the acts of the
captain and for the obligations contracted by the latter to repair equip, and provision the
vessel, provided the creditors prove that the amount claimed was invested therein.
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which arise from the conduct of the captain in the vigilance over the goods which
the vessel carried; but he may exempt himself therefrom by abandoning the vessel with
all her equipments and the freight he may have earned during the voyage.
15 Ibid., p. 11; rollo, p. 53.
16 See Hernandez, Eduardo F. and Peñasales, Antero A., Philippine Admiralty and
Maritime Law, p. 250, (1987).
17 "Art. 1306. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy." See also, Section 10, Article III,
Constitution; People vs. Pomar, 46 Phil. 440, 449, (1924).
18 23 SCRA 24, April 4, 1968.
19 Ibid., pp. 27-28.
20 Petitioner's Memorandum, p. 12; rollo, p. 57.
21 Home Insurance Co. vs. American Steamship Agencies, Inc., supra, p. 27.
22 Ibid.
23 Petitioner's Memorandum, pp. 8-9; rollo, pp. 50-51.
24 Decision, p. 4; rollo, p. 22.
Art 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain
and for the obligations contracted by the latter to repair, equip, and provision the vessel,
provided the creditor proves that the amount claimed was invested therein.
By ship agent is understood the person instrusted with the provisioning of a vessel, or
who represents her in port in which she may be found.
Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third
persons which arise from the conduct of the captain in the vigilance over the goods which
the vessels carried; but he may exempt himself therefrom by abandoning the vessel with
all her equipment and the freight he may have earned during the voyage.
26 Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code of the
Philippines, p. 29, Volume I, (1990).
28 Art. 362. Nevertheless, the carrier shall be liable for the losses and damages resulting
from causes mentioned in the preceding article if it is proved, as against him, that they
arose through his negligence or by reason of his having failed to take the precautions
which usage has established among careful persons, unless the shipper has committed
fraud in the bill of lading, representing the goods to be of a kind or quality different from
what they really were.
If notwithstanding the precautions referred to in this article, the goods transported run the
risk of being lost, on account of their nature or by reason of unavoidable accident, there
being no time for their owners to dispose of them, the carrier may proceed to sell them,
placing them for the purpose at the disposal of the judicial authority or of the officials
designated by special provisions.
29 17 SCRA 606, July 7, 1966.
30 51 Phil. 90, (1927).
31 Petitioner's Memorandum, pp. 9-10; rollo, pp. 51-52.
32 38 Phil. 875, (1918).
33 Petitioner's Memorandum, p. 13, rollo, p. 55.
34 Manila Railroad vs. Compañia Transatlantica, supra, pp. 886-887.
35 42 Phil. 256, (1921).
36 55 Phil. 517 (1930).
37 18 Phil. 315, (1911).
38 49 Phil. 117, (1926).
39 34 Phil. 597, (1916).
41 Memorandum For Private Respondent, p. 8; rollo, p. 68.
42 Supra.
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 114791 May 29, 1997
NANCY GO AND ALEX GO, petitioners,

vs.
THE HONORABLE COURT OF APPEALS, HERMOGENES ONG and JANE C. ONG,
respondents.
ROMERO, J.:
No less than the Constitution commands us to protect marriage as an inviolable social

institution and the foundation of the family. 1 In our society, the importance of a wedding
ceremony cannot be underestimated as it is the matrix of the family and, therefore, an
occasion worth reliving in the succeeding years.
It is in this light that we narrate the following undisputed facts:
Private respondents spouses Hermogenes and Jane Ong were married on June 7,
1981, in Dumaguete City. The video coverage of the wedding was provided by
petitioners at a contract price of P1,650.00. Three times thereafter, the newlyweds tried
to claim the video tape of their wedding, which they planned to show to their relatives in
the United States where they were to spend their honeymoon, and thrice they failed
because the tape was apparently not yet processed. The parties then agreed that the
tape would be ready upon private respondents' return.
When private respondents came home from their honeymoon, however, they found out
that the tape had been erased by petitioners and therefore, could no longer be
delivered.
Furious at the loss of the tape which was supposed to be the only record of their
wedding, private respondents filed on September 23, 1981 a complaint for specific
performance and damages against petitioners before the Regional Trial Court, 7th
Judicial District, Branch 33, Dumaguete City. After a protracted trial, the court a quo
rendered a decision, to wit:
WHEREFORE, judgment is hereby granted:

1. Ordering the rescission of the agreement entered into between plaintiff Hermogenes
Ong and defendant Nancy Go;
2. Declaring defendants Alex Go and Nancy Go jointly and severally liable to plaintiffs
Hermogenes Ong and Jane C. Ong for the following sums:
a) P450.00 , the down payment made at contract time;
b) P75,000.00, as moral damages;
c) P20,000.00, as exemplary damages;
d) P5,000.00, as attorney's fees; and
e) P2,000.00, as litigation expenses;
Defendants are also ordered to pay the costs.
SO ORDERED.
Dissatisfied with the decision, petitioners elevated the case to the Court of Appeals
which, on September 14, 1993, dismissed the appeal and affirmed the trial court's
decision.
Hence, this petition.
Petitioners contend that the Court of Appeals erred in not appreciating the evidence
they presented to prove that they acted only as agents of a certain Pablo Lim and, as
such, should not have been held liable. In addition, they aver that there is no evidence
to show that the erasure of the tape was done in bad faith so as to justify the award of
damages. 2
The petition is not meritorious.
Petitioners claim that for the video coverage, the cameraman was employed by Pablo
Lim who also owned the video equipment used. They further assert that they merely get
a commission for all customers solicited for their principal. 3
This contention is primarily premised on Article 1883 of the Civil Code which states
thus:
Art. 1883. If an agent acts in his own name, the principal has no right of action against
the persons with whom the agent has contracted; neither have such persons against the
principal.
In such case the agent is the one directly bound in favor of the person with whom he has
contracted, as if the transaction were his own, except when the contract involves things
belonging to the principal.
xxx xxx xxx
Petitioners' argument that since the video equipment used belonged to Lim and thus the
contract was actually entered into between private respondents and Lim is not
deserving of any serious consideration. In the instant case, the contract entered into is
one of service, that is, for the video coverage of the wedding. Consequently, it can
hardly be said that the object of the contract was the video equipment used. The use by
petitioners of the video equipment of another person is of no consequence.
It must also be noted that in the course of the protracted trial below, petitioners did not
even present Lim to corroborate their contention that they were mere agents of the
latter. It would not be unwarranted to assume that their failure to present such a vital
witness would have had an adverse result on the case. 4
As regards the award of damages, petitioners would impress upon this Court their lack
of malice or fraudulent intent in the erasure of the tape. They insist that since private
respondents did not claim the tape after the lapse of thirty days, as agreed upon in their
contract, the erasure was done in consonance with consistent business practice to
minimize losses. 5
We are not persuaded.
As correctly observed by the Court of Appeals, it is contrary to human nature for any
newlywed couple to neglect to claim the video coverage of their wedding; the fact that
private respondents filed a case against petitioners belies such assertion. Clearly,
petitioners are guilty of actionable delay for having failed to process the video tape.
Considering that private respondents were about to leave for the United States, they
took care to inform petitioners that they would just claim the tape upon their return two
months later. Thus, the erasure of the tape after the lapse of thirty days was unjustified.
In this regard, Article 1170 of the Civil Code provides that "those who in the
performance of their obligations are guilty of fraud, negligence or delay, and those who
is any manner contravene the tenor thereof, are liable for damages."
In the instant case, petitioners and private respondents entered into a contract whereby,
for a fee, the former undertook to cover the latter's wedding and deliver to them a video
copy of said event. For whatever reason, petitioners failed to provide private
respondents with their tape. Clearly, petitioners are guilty of contravening their
obligation to said private respondents and are thus liable for damages.
The grant of actual or compensatory damages in the amount of P450.00 is justified, as

reimbursement of the downpayment paid by private respondents to petitioners. 6
Generally, moral damages cannot be recovered in an action for breach of contract

because this case is not among those enumerated in Article 2219 of the Civil Code.
However, it is also accepted in this jurisdiction that liability for a quasi-delict may still
exist despite the presence of contractual relations, that is, the act which violates the
contract may also constitute a quasi-delict. 7 Consequently, moral damages are
recoverable for the breach of contract
which was palpably wanton, reckless, malicious or in bad faith, oppressive or abusive. 8
Petitioners' act or omission in recklessly erasing the video coverage of private

respondents' wedding was precisely the cause of the suffering private respondents had
to undergo.
As the appellate court aptly observed:
Considering the sentimental value of the tapes and the fact that the event therein
recorded — a wedding which in our culture is a significant milestone to be cherished and
remembered — could no longer be reenacted and was lost forever, the trial court was
correct in awarding the appellees moral damages albeit in the amount of P75,000.00,
which was a great reduction from plaintiffs' demand in the complaint in compensation for
the mental anguish, tortured feelings, sleepless nights and humiliation that the appellees
suffered and which under the circumstances could be awarded as allowed under Articles
2217 and 2218 of the Civil Code. 9
Considering the attendant wanton negligence committed by petitioners in the case at

bar, the award of exemplary damages by the trial court is justified 10 to serve as a
warning to all entities engaged in the same business to observe due diligence in the
conduct of their affairs.
The award of attorney' s fees and litigation expenses are likewise proper, consistent
with Article 2208 11 of the Civil Code.
Finally, petitioner Alex Go questions the finding of the trial and appellate courts holding
him jointly and severally liable with his wife Nancy regarding the pecuniary liabilities
imposed. He argues that when his wife entered into the contract with private
respondent, she was acting alone for her sole interest. 12
We find merit in this contention. Under Article 117 of the Civil Code (now Article 73 of
the Family Code), the wife may exercise any profession, occupation or engage in
business without the consent of the husband. In the instant case, we are convinced that
it was only petitioner Nancy Go who entered into the contract with private respondent.
Consequently, we rule that she is solely liable to private respondents for the damages
awarded below, pursuant to the principle that contracts produce effect only as between
the parties who execute them. 13
WHEREFORE, the assailed decision dated September 14, 1993 is hereby AFFIRMED
with the MODIFICATION that petitioner Alex Go is absolved from any liability to private
respondents and that petitioner Nancy Go is solely liable to said private respondents for
the judgment award. Costs against petitioners.
SO ORDERED.
Regalado, Puno, Mendoza and Torres, Jr., JJ., concur.
Footnotes
1 Section 2, Article XV, 1987 Constitution.
2 Rollo, pp. 15-23.
3 Ibid., p. 7.
4 Section 3(e), Rule 131 of the Rules of Court states, "(t)hat evidence willfully suppressed
would be adverse if produced,".
5 Rollo, p. 19.
6 Article 2200, Civil Code of the Philippines.
7 PARAS, Civil Code of the Philippines, V, 1990, pp. 995-996, Singson v. Bank of the
Philippine Islands, 23 SCRA 1117 (1968).
8 TOLENTINO, COMMENTARIES & JURISPRUDENCE ON THE CIVIL CODE OF THE

PHILIPPINES, V, 1995, p. 656.
9 Rollo, p. 37.
11 Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation,
other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
xxx xxx xxx
12 Rollo, p. 23.

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 73867 February 29, 1988
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, INC., petitioner,

vs.
IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO CASTRO JR., AURORA
CASTRO, SALVADOR CASTRO, MARIO CASTRO, CONRADO CASTRO,
ESMERALDA C. FLORO, AGERICO CASTRO, ROLANDO CASTRO, VIRGILIO
CASTRO AND GLORIA CASTRO, and HONORABLE INTERMEDIATE APPELLATE
COURT, respondents.
PADILLA, J.:
Petition for review on certiorari of the decision * of the Intermediate Appellate Court,
dated 11 February 1986, in AC-G.R. No. CV-70245, entitled "Ignacio Castro, Sr., et al.,
Plaintiffs-Appellees, versus Telefast Communication/Philippine Wireless, Inc.,
Defendant-Appellant."
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff Ignacio Castro, Sr. and
mother of the other plaintiffs, passed away in Lingayen, Pangasinan. On the same day,
her daughter Sofia C. Crouch, who was then vacationing in the Philippines, addressed a
telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg, Indiana, U.S.A.,
47170 announcing Consolacion's death. The telegram was accepted by the defendant
in its Dagupan office, for transmission, after payment of the required fees or charges.
The telegram never reached its addressee. Consolacion was interred with only her
daughter Sofia in attendance. Neither the husband nor any of the other children of the
deceased, then all residing in the United States, returned for the burial.
When Sofia returned to the United States, she discovered that the wire she had caused
the defendant to send, had not been received. She and the other plaintiffs thereupon
brought action for damages arising from defendant's breach of contract. The case was
filed in the Court of First Instance of Pangasinan and docketed therein as Civil Case No.
15356. The only defense of the defendant was that it was unable to transmit the
telegram because of "technical and atmospheric factors beyond its control." 1 No
evidence appears on record that defendant ever made any attempt to advise the plaintiff
Sofia C. Crouch as to why it could not transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered the defendant (now
petitioner) to pay the plaintiffs (now private respondents) damages, as follows, with
interest at 6% per annum:
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory damages and P20,000.00

as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees, exemplary damages in the
amount of P1,000.00 to each of the plaintiffs and costs. 2
On appeal by petitioner, the Intermediate Appellate Court affirmed the trial court's
decision but eliminated the award of P16,000.00 as compensatory damages to Sofia C.
Crouch and the award of P1,000.00 to each of the private respondents as exemplary
damages. The award of P20,000.00 as moral damages to each of Sofia C. Crouch,
Ignacio Castro, Jr. and Esmeralda C. Floro was also reduced to P120,000. 00 for each.
3
Petitioner appeals from the judgment of the appellate court, contending that the award
of moral damages should be eliminated as defendant's negligent act was not motivated
by "fraud, malice or recklessness."
In other words, under petitioner's theory, it can only be held liable for P 31.92, the fee or
charges paid by Sofia C. Crouch for the telegram that was never sent to the addressee
thereof.
Petitioner's contention is without merit.

Art. 1170 of the Civil Code provides that "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." Art. 2176 also provides that
"whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done."
In the case at bar, petitioner and private respondent Sofia C. Crouch entered into a
contract whereby, for a fee, petitioner undertook to send said private respondent's
message overseas by telegram. This, petitioner did not do, despite performance by said
private respondent of her obligation by paying the required charges. Petitioner was
therefore guilty of contravening its obligation to said private respondent and is thus
liable for damages.
This liability is not limited to actual or quantified damages. To sustain petitioner's

contrary position in this regard would result in an inequitous situation where petitioner
will only be held liable for the actual cost of a telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It states: "Moral
damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they
are the proximate results of the defendant's wrongful act or omission." (Emphasis
supplied).
Here, petitioner's act or omission, which amounted to gross negligence, was precisely
the cause of the suffering private respondents had to undergo.
As the appellate court properly observed:
[Who] can seriously dispute the shock, the mental anguish and the sorrow that the
overseas children must have suffered upon learning of the death of their mother after she
had already been interred, without being given the opportunity to even make a choice on
whether they wanted to pay her their last respects? There is no doubt that these
emotional sufferings were proximately caused by appellant's omission and substantive
law provides for the justification for the award of moral damages. 4
We also sustain the trial court's award of P16,000.00 as compensatory damages to

Sofia C. Crouch representing the expenses she incurred when she came to the
Philippines from the United States to testify before the trial court. Had petitioner not
been remiss in performing its obligation, there would have been no need for this suit or
for Mrs. Crouch's testimony.
The award of exemplary damages by the trial court is likewise justified and, therefore,
sustained in the amount of P1,000.00 for each of the private respondents, as a warning
to all telegram companies to observe due diligence in transmitting the messages of their
customers.
WHEREFORE, the petition is DENIED. The decision appealed from is modified so that
petitioner is held liable to private respondents in the following amounts:
(1) P10,000.00 as moral damages, to each of private respondents;
(2) P1,000.00 as exemplary damages, to each of private respondents;
(3) P16,000.00 as compensatory damages, to private respondent Sofia C.

Crouch;
(4) P5,000.00 as attorney's fees; and
(5) Costs of suit.
SO ORDERED.
Yap (Chairman), Paras and Sarmiento, JJ., concur.
Separate Opinions

MELENCIO-HERRERA, J., concurring.
[I] concur.In addition to compensatory and exemplary damages, moral damages are
recoverable in actions for breach of contract, as in this case, where the breach has
been wanton and reckless, tantamount to bad faith.
Separate Opinions
MELENCIO-HERRERA, J., concurring.
[I] concur.In addition to compensatory and exemplary damages, moral damages are
recoverable in actions for breach of contract, as in this case, where the breach has
been wanton and reckless, tantamount to bad faith.
Footnotes
* Penned by Justice Serafin E. Camilon, with the concurrence of Justices Crisolito Pascual, Jose C. Campos, Jr. and
Desiderio P. Jurado.
1 Rollo at 8.
2 Rollo at 9-10.
3 Rollo at 14,
4 Rollo at 13.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-44748 August 29, 1986
RADIO COMMUNICATIONS OF THE PHILS., INC. (RCPI). petitioner,

vs.
COURT OF APPEALS and LORETO DIONELA, respondents.
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
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.
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
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.
Feria (Chairman), Fernan, Alampay, and Gutierrez, Jr., JJ., concur.
Footnotes
1 In contracts the negligence of the employee (servant) is the negligence of the employer (master). This is the master
and servant rule.
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 115129 February 12, 1997
IGNACIO BARZAGA, petitioner,

vs.
COURT OF APPEALS and ANGELITO ALVIAR, respondents.
BELLOSILLO, J.:
The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family.
On the nineteenth of December Ignacio's wife succumbed to a debilitating ailment after
prolonged pain and suffering. Forewarned by her attending physicians of her impending
death, she expressed her wish to be laid to rest before Christmas day to spare her
family from keeping lonely vigil over her remains while the whole of Christendom
celebrate the Nativity of their Redeemer.
Drained to the bone from the tragedy that befell his family yet preoccupied with
overseeing the wake for his departed wife, Ignacio Barzaga set out to arrange for her
interment on the twenty-fourth of December in obedience semper fidelis to her dying
wish. But her final entreaty, unfortunately, could not be carried out. Dire events
conspired to block his plans that forthwith gave him and his family their gloomiest
Christmas ever.
This is Barzaga's story. On 21 December 1990, at about three o'clock in the afternoon,
he went to the hardware store of respondent Angelito Alviar to inquire about the
availability of certain materials to be used in the construction of a niche for his wife. He
also asked if the materials could be delivered at once. Marina Boncales, Alviar's
storekeeper, replied that she had yet to verify if the store had pending deliveries that
afternoon because if there were then all subsequent purchases would have to be
delivered the following day. With that reply petitioner left.
At seven o'clock the following morning, 22 December, Barzaga returned to Alviar's

hardware store to follow up his purchase of construction materials. He told the store
employees that the materials he was buying would have to be delivered at the Memorial
Cemetery in Dasmarinas, Cavite, by eight o'clock that morning since his hired workers
were already at the burial site and time was of the essence. Marina Boncales agreed to
deliver the items at the designated time, date and place. With this assurance, Barzaga
purchased the materials and paid in full the amount of P2,110.00. Thereafter he joined
his workers at the cemetery, which was only a kilometer away, to await the delivery.
The construction materials did not arrive at eight o'clock as promised. At nine o'clock,
the delivery was still nowhere in sight. Barzaga returned to the hardware store to inquire
about the delay. Boncales assured him that although the delivery truck was not yet
around it had already left the garage and that as soon as it arrived the materials would
be brought over to the cemetery in no time at all. That left petitioner no choice but to
rejoin his workers at the memorial park and wait for the materials.
By ten o'clock, there was still no delivery. This prompted petitioner to return to the store
to inquire about the materials. But he received the same answer from respondent's
employees who even cajoled him to go back to the burial place as they would just follow
with his construction materials.
After hours of waiting — which seemed interminable to him — Barzaga became

extremely upset. He decided to dismiss his laborers for the day. He proceeded to the
police station, which was just nearby, and lodged a complaint against Alviar. He had his
complaint entered in the police blotter. When he returned again to the store he saw the
delivery truck already there but the materials he purchased were not yet ready for
loading. Distressed that Alviar's employees were not the least concerned, despite his
impassioned pleas, Barzaga decided to cancel his transaction with the store and look
for construction materials elsewhere.
In the afternoon of that day, petitioner was able to buy from another store. But since
darkness was already setting in and his workers had left, he made up his mind to start
his project the following morning, 23 December. But he knew that the niche would not
be finish in time for the scheduled burial the following day. His laborers had to take a
break on Christmas Day and they could only resume in the morning of the twenty-sixth.
The niche was completed in the afternoon and Barzaga's wife was finally laid to rest.
However, it was two-and-a-half (2-1/2) days behind schedule.
On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish,
Barzaga wrote private respondent Alviar demanding recompense for the damage he
suffered. Alviar did not respond. Consequently, petitioner sued him before the Regional
Trial Court. 1
Resisting petitioner's claim, private respondent contended that legal delay could not be
validly ascribed to him because no specific time of delivery was agreed upon between
them. He pointed out that the invoices evidencing the sale did not contain any
stipulation as to the exact time of delivery and that assuming that the materials were not
delivered within the period desired by petitioner, the delivery truck suffered a flat tire on
the way to the store to pick up the materials. Besides, his men were ready to make the
delivery by ten-thirty in the morning of 22 December but petitioner refused to accept
them. According to Alviar, it was this obstinate refusal of petitioner to accept delivery
that caused the delay in the construction of the niche and the consequent failure of the
family to inter their loved one on the twenty-fourth of December, and that, if at all, it was
petitioner and no other who brought about all his personal woes.
Upholding the proposition that respondent incurred in delay in the delivery of the
construction materials resulting in undue prejudice to petitioner, the trial court ordered
respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase price of the
materials with interest per annum computed at the legal rate from the date of the filing of
the complaint, (b) P5,000.00 as temperate damages, (c) P20,000.00 as moral damages,
(d) P5,000.00 as litigation expenses, and (e) P5,000.00 as attorney's fees.
On appeal, respondent Court of Appeals reversed the lower court and ruled that there
was no contractual commitment as to the exact time of delivery since this was not
indicated in the invoice receipts covering the sale. 2
The arrangement to deliver the materials merely implied that delivery should be made
within a reasonable time but that the conclusion that since petitioner's workers were
already at the graveyard the delivery had to be made at that precise moment, is non-
sequitur. The Court of Appeals also held that assuming that there was delay, petitioner
still had sufficient time to construct the tomb and hold his wife's burial as she wished.
We sustain the trial court. An assiduous scrutiny of the record convinces us that
respondent Angelito Alviar was negligent and incurred in delay in the performance of his
contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to be
indemnified for the damage he suffered as a consequence of delay or a contractual
breach. The law expressly provides that 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. 3
Contrary to the appellate court's factual determination, there was a specific time agreed
upon for the delivery of the materials to the cemetery. Petitioner went to private
respondent's store on 21 December precisely to inquire if the materials he intended to
purchase could be delivered immediately. But he was told by the storekeeper that if
there were still deliveries to be made that afternoon his order would be delivered the
following day. With this in mind Barzaga decided to buy the construction materials the
following morning after he was assured of immediate delivery according to his time
frame. The argument that the invoices never indicated a specific delivery time must fall
in the face of the positive verbal commitment of respondent's storekeeper.
Consequently it was no longer necessary to indicate in the invoices the exact time the
purchased items were to be brought to the cemetery. In fact, storekeeper Boncales
admitted that it was her custom not to indicate the time of delivery whenever she
prepared invoices. 4
Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in
the delivery of petitioner's purchases. He maintains that Barzaga should have allowed
his delivery men a little more time to bring the construction materials over to the
cemetery since a few hours more would not really matter and considering that his truck
had a flat tire. Besides, according to him, Barzaga still had sufficient time to build the
tomb for his wife.
This is a gratuitous assertion that borders on callousness. Private respondent had no

right to manipulate petitioner's timetable and substitute it with his own. Petitioner had a
deadline to meet. A few hours of delay was no piddling matter to him who in his
bereavement had yet to attend to other pressing family concerns. Despite this,
respondent's employees still made light of his earnest importunings for an immediate
delivery. As petitioner bitterly declared in court " . . . they (respondent's employees)
were making a fool out of me." 5
We also find unacceptable respondent's justification that his truck had a flat tire, for this
event, if indeed it happened, was forseeable according to the trial court, and as such
should have been reasonably guarded against. The nature of private respondent's
business requires that he should be ready at all times to meet contingencies of this kind.
One piece of testimony by respondent's witness Marina Boncales has caught our
attention - that the delivery truck arrived a little late than usual because it came from a
delivery of materials in Langcaan, Dasmarinas, Cavite. 6 Significantly, this information
was withheld by Boncales from petitioner when the latter was negotiating with her for
the purchase of construction materials. Consequently, it is not unreasonable to suppose
that had she told petitioner of this fact and that the delivery of the materials would
consequently be delayed, petitioner would not have bought the materials from
respondent's hardware store but elsewhere which could meet his time requirement. The
deliberate suppression of this information by itself manifests a certain degree of bad
faith on the part of respondent's storekeeper.
The appellate court appears to have belittled petitioner's submission that under the
prevailing circumstances time was of the essence in the delivery of the materials to the
grave site. However, we find petitioner's assertion to be anchored on solid ground. The
niche had to be constructed at the very least on the twenty-second of December
considering that it would take about two (2) days to finish the job if the interment was to
take place on the twenty-fourth of the month. Respondent's delay in the delivery of the
construction materials wasted so much time that construction of the tomb could start
only on the twenty-third. It could not be ready for the scheduled burial of petitioner's
wife. This undoubtedly prolonged the wake, in addition to the fact that work at the
cemetery had to be put off on Christmas day.
This case is clearly one of non-performance of a reciprocal obligation. 7 In their contract

of purchase and sale, petitioner had already complied fully with what was required of
him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was
incumbent upon respondent to immediately fulfill his obligation to deliver the goods
otherwise delay would attach.
We therefore sustain the award of moral damages. It cannot be denied that petitioner
and his family suffered wounded feelings, mental anguish and serious anxiety while
keeping watch on Christmas day over the remains of their loved one who could not be
laid to rest on the date she herself had chosen. There is no gainsaying the inexpressible
pain and sorrow Ignacio Barzaga and his family bore at that moment caused no less by
the ineptitude, cavalier behavior and bad faith of respondent and his employees in the
performance of an obligation voluntarily entered into.
We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude
of the employees of respondent over which he exercised supervisory authority indicates
gross negligence in the fulfillment of his business obligations. Respondent Alviar and his
employees should have exercised fairness and good judgment in dealing with petitioner
who was then grieving over the loss of his wife. Instead of commiserating with him,
respondent and his employees contributed to petitioner's anguish by causing him to
bear the agony resulting from his inability to fulfill his wife's dying wish.
We delete however the award of temperate damages. Under Art. 2224 of the Civil
Code, temperate damages are more than nominal but less than compensatory, and
may be recovered when the court finds that some pecuniary loss has been suffered but
the amount cannot, from the nature of the case, be proved with certainty. In this case,
the trial court found that plaintiff suffered damages in the form of wages for the hired
workers for 22 December 1990 and expenses incurred during the extra two (2) days of
the wake. The record however does not show that petitioner presented proof of the
actual amount of expenses he incurred which seems to be the reason the trial court
awarded to him temperate damages instead. This is an erroneous application of the
concept of temperate damages. While petitioner may have indeed suffered pecuniary
losses, these by their very nature could be established with certainty by means of
payment receipts. As such, the claim falls unequivocally within the realm of actual or
compensatory damages. Petitioner's failure to prove actual expenditure consequently
conduces to a failure of his claim. For in determining actual damages, the court cannot
rely on mere assertions, speculations, conjectures or guesswork but must depend on
competent proof and on the best evidence obtainable regarding the actual amount of
loss. 8
We affirm the award of attorney's fees and litigation expenses. Award of damages,
attorney's fees and litigation costs is left to the sound discretion of the court, and if such
discretion be well exercised, as in this case, it will not be disturbed on appeal. 9
WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE
except insofar as it GRANTED on a motion for reconsideration the refund by private
respondent of the amount of P2,110.00 paid by petitioner for the construction materials.
Consequently, except for the award of P5,000.00 as temperate damages which we
delete, the decision of the Regional Trial Court granting petitioner (a) P2,110.00 as
refund for the value of materials with interest computed at the legal rate per annum from
the date of the filing of the case; (b) P20,000.00 as moral damages; (c) P10,000.00 as
exemplary damages; (d) P5,000.00 as litigation expenses; and (4) P5,000.00 as
attorney's fees, is AFFIRMED. No costs.
SO ORDERED.
Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
Footnotes
1 Assigned to RTC-Br. 21, Imus, Cavite, presided over by Judge Roy S. del Rosario,
Rollo, p. 68.
2 Decision penned by Justice Manuel C. Herrera, concurred in by Justices Cezar D.

Francisco and Buenaventura J. Guerrero, Rollo, p. 38.
3 Art. 1170, Civil Code.
4 TSN, 6 December 1991, pp. 22-23.
5 TSN, 19 September 1991, p. 47.
6 TSN, 6 December 1991, p. 35.
7 Art. 1169, last par., Civil Code.
8 Dichoso v. Court of Appeals, G.R. No. 55613, 10 December 1990, 192 SCRA 169;
People v. Rosario, G.R. No. 108789, 18 July 1995, 246 SCRA 658.
9 Philippine Airlines, Inc. v. Court of Appeals, G.R. Nos. 50504-05, 13 August 1990, 188
SCRA 461.
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 106999 June 20, 1996
PHILIPPINE HOME ASSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and EASTERN SHIPPING LINES, INC., respondents.
KAPUNAN, J.:p
Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in

Kobe, Japan, the following shipment for carriage to Manila and Cebu, freight
pre-paid and in good order and condition, viz: (a) two (2) boxes internal
combustion engine parts, consigned to William Lines, Inc. under Bill of Lading
No. 042283; (b) ten (l0) metric ton. (334 bags) ammonium chloride, consigned
to Orca's Company under Bill of Lading No. KCE-I2; (c) two hundred (200)
bags Glue 300, consigned to Pan Oriental Match Company under Bill of
Lading No. KCE-8; and (d) garments, consigned to Ding Velayo under Bills of
Lading Nos. KMA-73 and KMA-74.
While the vessel was off Okinawa, Japan, a small flame was detected on the
acetylene cylinder located in the accommodation area near the engine room
on the main deck level. As the crew was trying to extinguish the fire, the
acetylene cylinder suddenly exploded sending a flash of flame throughout the
accommodation area, thus causing death and severe injuries to the crew and
instantly setting fire to the whole superstructure of the vessel. The incident
forced the master and the crew to abandon the ship.
Thereafter, SS Eastern Explorer was found to be a constructive total loss and

its voyage was declared abandoned.
Several hours later, a tugboat under the control of Fukuda Salvage Co.
arrived near the vessel and commenced to tow the vessel for the port of
Naha, Japan.
Fire fighting operations were again conducted at the said port. After the fire
was extinguished, the cargoes which were saved were loaded to another
vessel for delivery to their original ports of destination. ESLI charged the
consignees several amounts corresponding to additional freight and salvage
charges, as follows: (a) for the goods covered by Bill of Lading No. 042283,
ESLI charged the consignee the sum of P1,927.65, representing salvage
charges assessed against the goods; (b) for the goods covered by Bill of
Lading No. KCE-12, ESLI charged the consignee the sum of P2,980.64 for
additional freight and P826.14 for salvage charges against the goods; (c) for
the goods covered by Bill of Lading No. KCE-8, ESLI charged the consignee
the sum of P3,292.26 for additional freight and P4,130.68 for salvage charges
against the goods; and
(d) for the goods under Bills of Lading Nos. KMA-73 and KMA-74, ESLI
charged the consignee the sum of P8,337.06 for salvage charges against the
goods.
The charges were all paid by Philippine Home Assurance Corporation (PHAC)
under protest for and in behalf of the consignees.
PHAC, as subrogee of the consignees, thereafter filed a complaint before the

Regional Trial Court of Manila, Branch 39, against ESLI to recover the sum
paid under protest on the ground that the same were actually damages
directly brought about by the fault, negligence, illegal act and/or breach of
contract of ESLI.
In its answer, ESLI contended that it exercised the diligence required by law in
the handling, custody and carriage of the shipment; that the fire was caused
by an unforeseen event; that the additional freight charges are due and
demandable pursuant to the Bill of Lading; 1 and that salvage charges are
properly collectible under Act No. 2616, known as the Salvage Law.
The trial court dismissed PHAC's complaint and ruled in favor of ESLI
ratiocinating thus:
The question to be resolved is whether or not the fire on the vessel which
was caused by the explosion of an acetylene cylinder loaded on the same
was the fault or negligence of the defendant.
Evidence has been presented that the SS "Eastern Explorer" was a

seaworthy vessel (Deposition of Jumpei Maeda, October 23, 1980, p. 3)
and before the ship loaded the Acetylene Cylinder No. NCW 875, the
same has been tested, checked and examined and was certified to have
complied with the required safety measures and standards (Deposition of
Senjei Hayashi, October 23, 1980, pp. 2-3). When the fire was detected by
the crew, fire fighting operations was immediately conducted but due to
the explosion of the acetylene cylinder, the crew were unable to contain
the fire and had to abandon the ship to save their lives and were saved
from drowning by passing vessels in the vicinity. The burning of the vessel
rendering it a constructive total loss and incapable of pursuing its voyage
to the Philippines was, therefore, not the fault or negligence of defendant
but a natural disaster or calamity which nobody would like to happen. The
salvage operations conducted by Fukuda Salvage Company (Exhibits "4-
A" and "6-A") was perfectly a legal operation and charges made on the
goods recovered were legitimate charges.
Act No. 2616, otherwise known as the Salvage Law, is thus

applicable to the case at bar. Section 1 of Act No. 2616
states:
Sec 1. When in case of shipwreck, the vessel

or its cargo shall be beyond the control of the
crew, or shall have been abandoned by them,
and picked up and conveyed to a safe place by
other persons, the latter shall be entitled to a
reward for the salvage.
Those who, not being included in the above

paragraph, assist in saving a vessel or its
cargo from shipwreck, shall be entitled to like
reward.
In relation to the above provision, the Supreme Court has

ruled in Erlanger & Galinger v. Swedish East Asiatic Co.,
Ltd., 34 Phil. 178, that three elements are necessary to a
valid salvage claim, namely (a)a marine peril (b) service
voluntarily rendered when not required as an existing duty or
from a special contract and (c) success in whole or in part, or
that the service rendered contributed to such success.
The above elements are all present in the instant case.

Salvage charges may thus be assessed on the cargoes
saved from the vessel. As provided for in Section 13 of the
Salvage Law, "The expenses of salvage, as well as the
reward for salvage or assistance, shall be a charge on the
things salvaged or their value." In Manila Railroad Co. v.
Macondray Co., 37 Phil. 583, it was also held that "when a
ship and its cargo are saved together, the salvage allowance
should be charged against the ship and cargo in the
proportion of their respective values, the same as in a case
of general average . . ." Thus, the "compensation to be paid
by the owner of the cargo is in proportion to the value of the
vessel and the value of the cargo saved." (Atlantic Gulf and
Pacific Co. v. Uchida Kisen Kaisha, 42 Phil. 321).
(Memorandum for Defendant, Records, pp. 212-213).
With respect to the additional freight charged by defendant from the

consignees of the goods, the same are also validly demandable.
As provided by the Civil Code:
Art. 1174. Except in cases expressly specified by law, or

when it is otherwise declared by stipulation, or when the
nature of the obligation require the assumption of risk, no
person shall be responsible for those events which could not
be foreseen, or which though foreseen, were inevitable.
Art 1266. The debtor in obligations to do shall also be

released when the prestation becomes legally or physically
impossible without the fault of the obligor."
The burning of "EASTERN EXPLORER" while off Okinawa rendered it

physically impossible for defendant to comply with its obligation of
delivering the goods to their port of destination pursuant to the contract of
carriage. Under Article 1266 of the Civil Code, the physical impossibility of
the prestation extinguished defendant's obligation..
It is but legal and equitable for the defendant therefore, to demand

additional freight from the consignees for forwarding the goods from Naha,
Japan to Manila and Cebu City on board another vessel, the "EASTERN
MARS." This finds support under Article 844 of the Code of Commerce
which provides as follows:
Art. 844. A captain who may have taken on board the goods
saved from the wreck shall continue his course to the port of
destination; and on arrival should deposit the same, with
judicial intervention at the disposal of their legitimate owners.
...
The owners of the cargo shall defray all the expenses of this
arrival as well as the payment of the freight which, after
taking into consideration the circumstances of the case, may
be fixed by agreement or by a judicial decision.
Furthermore, the terms and conditions of the Bill of Lading authorize the
imposition of additional freight charges in case of forced interruption or
abandonment of the voyage. At the dorsal portion of the Bills of Lading
issued to the consignees is this stipulation:
12. All storage, transshipment, forwarding or other

disposition of cargo at or from a port of distress or other
place where there has been a forced interruption or
abandonment of the voyage shall be at the expense of the
owner, shipper, consignee of the goods or the holder of this
bill of lading who shall be jointly and severally liable for all
freight charges and expenses of every kind whatsoever,
whether payable in advance or not that may be incurred by
the cargo in addition to the ordinary freight, whether the
service be performed by the named carrying vessel or by
carrier's other vessels or by strangers. All such expenses
and charges shall be due and payable day by day
immediately when they are incurred.
The bill of lading is a contract and the parties are bound by its terms (Gov't
of the Philippine Islands vs. Ynchausti and Co., 40 Phil. 219). The
provision quoted is binding upon the consignee.
Defendant therefore, can validly require payment of additional freight from

the consignee. Plaintiff can not thus recover the additional freight paid by
the consignee to defendant. (Memorandum for Defendant, Record, pp.
215-216). 2
On appeal to the Court of Appeals, respondent court affirmed the trial court's
findings and conclusions, 3 hence, the present petition for review before this
Court on the following errors:
I. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH

APPROVAL THE TRIAL COURT'S FINDINGS THAT THE BURNING OF
THE SS "EASTERN EXPLORER", RENDERING ET A CONSTRUCTIVE
TOTAL LOSS, IS A NATURAL DISASTER OR CALAMITY WHICH
NOBODY WOULD LIKE TO HAPPEN, DESPITE EXISTING
JURISPRUDENCE TO THE CONTRARY.
II. THE RESPONDENT COURT ARBITRARILY RULED THAT THE

BURNING OF THE SS "EASTERN EXPLORER" WAS NOT THE FAULT
AND NEGLIGENCE OF RESPONDENT EASTERN SHIPPING LINES.
III. THE RESPONDENT COURT COMMITTED GRAVE ABUSE OF

DISCRETION IN RULING THAT DEFENDANT HAD EXERCISED THE
EXTRAORDINARY DILIGENCE IN THE VIGILANCE OVER THE GOODS
AS REQUIRED BY LAW.
IV. THE RESPONDENT COURT ARBITRARILY RULED THAT THE
MARINE NOTE OF PROTEST AND STATEMENT OF FACTS ISSUED
BY THE VESSEL'S MASTER ARE NOT HEARSAY DESPITE THE FACT
THAT THE VESSEL'S MASTER, CAPT. LICAYLICAY WAS NOT
PRESENTED COURT, WITHOUT EXPLANATION WHATSOEVER FOR
HIS NON-PRESENTATION, THUS, PETITIONER WAS DEPRIVED OF
ITS RIGHT TO CROSS- EXAMINE THE AUTHOR THEREOF.
V. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH

APPROVAL THE TRIAL COURT'S CONCLUSION THAT THE
EXPENSES OR AVERAGES INCURRED IN SAVING THE CARGO
CONSTITUTE GENERAL AVERAGE.
VI. THE RESPONDENT COURT ERRONEOUSLY ADOPTED THE

TRIAL COURT'S RULING THAT PETITIONER WAS LIABLE TO
RESPONDENT CARRIER FOR ADDITIONAL FREIGHT AND SALVAGE
CHARGES. 4
It is quite evident that the foregoing assignment of errors challenges the

findings of fact and the appreciation of evidence made by the trial court and
later affirmed by respondent court. While it is a well-settled rule that only
questions of law may be raised in a petition for review under Rule 45 of the
Rules of Court, it is equally well-settled that the same admits of the following
exceptions, namely: (a) when the conclusion is a finding grounded entirely on
speculation, surmises or conjectures; (b) when the inference made is
manifestly mistaken, absurd or impossible; (c) where there is a grave abuse of
discretion; (d) when the judgment is based on a misapprehension of facts; (e)
when the findings of fact are conflicting; (f) when the Court of Appeals, in
making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (g) when the
findings of the Court of Appeals are contrary to those of the trial court; (h)
when the findings of fact are conclusions without citation of specific evidence
on which they are based;
(i) when the facts set forth in the petition as well as in the petitioners' main and
reply briefs are not disputed by the respondents; and (j) when the finding of
fact of the Court of Appeals is premised on the supposed absence of evidence
and is contradicted by the evidence on record. 5 Thus, if there is a showing, as
in the instant case, that the findings complained of are totally devoid of
support in the records, or that they are so glaringly erroneous as to constitute
grave abuse of discretion, the same may be properly reviewed and evaluated
by this Court.
It is worthy to note at the outset that the goods subject of the present
controversy were neither lost nor damaged in transit by the fire that razed the
carrier. In fact, the said goods were all delivered to the consignees, even if the
transshipment took longer than necessary. What is at issue therefore is not
whether or not the carrier is liable for the loss, damage, or deterioration of the
goods transported by them but who, among the carrier, consignee or insurer
of the goods, is liable for the additional charges or expenses incurred by the
owner of the ship in the salvage operations and in the transshipment of the
goods via a different carrier.
In absolving respondent carrier of any liability, respondent Court of Appeals

sustained the trial court's finding that the fire that gutted the ship was a natural
disaster or calamity. Petitioner takes exception to this conclusion and we
agree.
In our jurisprudence, fire may not be considered a natural disaster or calamity

since it almost always arises from some act of man or by human means.
It cannot be an act of God unless caused by lightning or a natural disaster or

casualty not attributable to human agency. 6
In the case at bar, it is not disputed that a small flame was detected on the
acetylene cylinder and that by reason thereof, the same exploded despite
efforts to extinguish the fire. Neither is there any doubt that the acetylene
cylinder, obviously fully loaded, was stored in the accommodation area near
the engine room and not in a storage area considerably far, and in a safe
distance, from the engine room. Moreover, there was no showing, and none
was alleged by the parties, that the fire was caused by a natural disaster or
calamity not attributable to human agency. On the contrary, there is strong
evidence indicating that the acetylene cylinder caught fire because of the fault
and negligence of respondent ESLI, its captain and its crew.
First, the acetylene cylinder which was fully loaded should not have been
stored in the accommodation area near the engine room where the heat
generated therefrom could cause the acetylene cylinder to explode by reason
of spontaneous combustion. Respondent ESLI should have easily foreseen
that the acetylene cylinder, containing highly inflammable material was in real
danger of exploding because it was stored in close proximity to the engine
room.
Second, respondent ESLI should have known that by storing the acetylene
cylinder in the accommodation area supposed to be reserved for passengers,
it unnecessarily exposed its passengers to grave danger and injury. Curious
passengers, ignorant of the danger the tank might have on humans and
property, could have handled the same or could have lighted and smoked
cigarettes while repairing in the accommodation area.
Third, the fact that the acetylene cylinder was checked, tested and examined
and subsequently certified as having complied with the safety measures and
standards by qualified experts 7 before it was loaded in the vessel only shows
to a great extent that negligence was present in the handling of the acetylene
cylinder after it was loaded and while it was on board the ship. Indeed, had
the respondent and its agents not been negligent in storing the acetylene
cylinder near the engine room, then the same would not have leaked and
exploded during the voyage.
Verily, there is no merit in the finding of the trial court to which respondent
court erroneously agreed that the fire was not the fault or negligence of
respondent but a natural disaster or calamity. The records are simply wanting
in this regard.
Anent petitioner's objection to the admissibility of Exhibits "4'' and ''5", the
Statement of Facts and the Marine Note of Protest issued by Captain Tiburcio
A. Licaylicay, we find the same impressed with merit because said documents
are hearsay evidence. Capt. Licaylicay, Master of S.S. Eastern Explorer who
issued the said documents, was not presented in court to testify to the truth of
the facts he stated therein; instead, respondent ESLI presented Junpei
Maeda, its Branch Manager in Tokyo and Yokohama, Japan, who evidently
had no personal knowledge of the facts stated in the documents at issue. It is
clear from Section 36, Rule 130 of the Rules of Court that any evidence,
whether oral or documentary, is hearsay if its probative value is not based on
the personal knowledge of the witness but on the knowledge of some other
person not on the witness stand. Consequently, hearsay evidence, whether
objected to or not, has no probative value unless the proponent can show that
the evidence falls within the exceptions to the hearsay evidence rule. 8 It is
excluded because the party against whom it is presented is deprived of his
right and opportunity to cross-examine the persons to whom the statements or
writings are attributed.
On the issue of whether or not respondent court committed an error in

concluding that the expenses incurred in saving the cargo are considered
general average, we rule in the affirmative. As a rule, general or gross
averages include all damages and expenses which are deliberately caused in
order to save the vessel, its cargo, or both at the same time, from a real and
known risk 9 While the instant case may technically fall within the purview of
the said provision, the formalities prescribed under Articles 813 10 and 814 11 of
the Code of Commerce in order to incur the expenses and cause the damage
corresponding to gross average were not complied with. Consequently,
respondent ESLI's claim for contribution from the consignees of the cargo at
the time of the occurrence of the average turns to naught.
Prescinding from the foregoing premises, it indubitably follows that the cargo
consignees cannot be made liable to respondent carrier for additional freight
and salvage charges. Consequently, respondent carrier must refund to herein
petitioner the amount it paid under protest for additional freight and salvage
charges in behalf of the consignees.
WHEREFORE, the judgment appealed from is hereby REVERSED and SET

ASIDE. Respondent Eastern Shipping Lines, Inc. is ORDERED to return to
petitioner Philippine Home Assurance Corporation the amount it paid under
protest in behalf of the consignees herein.
SO ORDERED.
Padilla, Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.
Footnotes
1 Sec 12. All storage, transshipment forwarding or other disposition of cargo at or

from port of distress or other place where there has been a forced interruption or
abandonment of the voyage shall be at the expense of the owner, shipper,
consignee of the goods or the holder of this bill of lading who shall be jointly and
severally liable for all freight charges and expenses of every kind whatsoever,
whether payable in advance or not that may be incurred by the cargo in addition
to the ordinary freight, whether payable in advance or not that may be incurred
by the cargo in addition to the ordinary freight, whether the service be performed
by the named carrying vessel or by carrier's other vessels or by strangers such
expenses and charges shall be due and payable day by day immediately when
they are incurred.
2 Original Records, pp. 240-243.
3 Rollo, pp. 29-39.
4 Id., at 12-13.
5 Geronimo v. Court of Appeals, 224 SCRA 494, 498-499 (1993]; BPI Credit
Corporation v. Court of Appeals, 204 SCRA 601, 608-609 [1991]; Medina v.
Asistio, Jr., 191 SCRA 218, 223-224 [1990].
6 Eastern Shipping Lines, Inc. v. Intermediate Appellate Court 150 SCRA 463
[1987]; Africa v. Caltex, 16 SCRA 448 [1966]; See also 4 Agbayani,
Commentaries and Jurisprudence on the Commercial Laws of the Philippines,
1993 Edition, p. 44.
7 Original Records, p. 171.
8 Baguio v. Court of Appeals, 226 SCRA 366, 370 [1993].
9 Art 811, Code of Commerce.
10 Art 813. In order to incur the expenses and cause the damages corresponding
to gross average, there must be a resolution of the captain, adopted after
deliberation with the sailing mate and other officers of the vessel, and after
hearing the persons interested in the cargo who may be present.
If the latter shall object, and the captain and officers or a majority of them, or the
captain, if opposed to the majority, should consider certain measures necessary
they may be executed under his responsibility, without prejudice to the right of
the shippers to proceed against the captain before the competent judge or court,
if they can prove that he acted with malice, lack of skill, or negligence.
If the persons interested in the cargo, being on board the vessel, have not been
heard, they shall not contribute to the gross average, their share being
chargeable against the captain, unless the urgency of the case should be such
that the time necessary for previous deliberations was wanting.
11 Art 814. The resolution adopted to cause the damages which constitute
general average must necessarily be entered in the log book, stating the motives
and reasons for the dissent, should there be any, and the irresistible and urgent
causes which impelled the captain if he acted of his own accord.
In the first case the minutes shall be signed by all the persons present who could
do so before taking action, if possible; and if not, at the first opportunity. In the
second case, it shall be signed by the captain and by the officers of the vessel.
In the minutes, and after the resolution, shall be stated in detail all the goods
jettisoned, and mention shall be made of the injuries caused to those kept on
board. The captain shall be obliged to deliver one copy of these minutes to the
maritime judicial authority of the first port he may make, within twenty-four hours
after his arrival, and to ratify it immediately under oath.
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 118664 August 7, 1998
JAPAN AIRLINES, petitioner,

vs.
THE COURT OF APPEALS, ENRIQUE AGANA., MARIA ANGELA NINA AGANA, ADALIA B.
FRANCISCO and JOSE MIRANDA, respondents.
ROMERO, J.:
Before us is an appeal by certiorari filed by petitioner Japan Airlines, Inc. (JAL) seeking the reversal of the
decision of the Court of Appeals, 1 which affirmed with modification the award of damages made by the
trial court in favor of herein private respondents Enrique Agana, Maria Angela Nina Agana, Adelia
Francisco and Jose Miranda.
On June 13, 1991, private respondent Jose Miranda boarded JAL flight No. JL 001 in San Francisco,
California bound for Manila. Likewise, on the same day private respondents Enrique Agana, Maria Angela
Nina Agana and Adelia Francisco left Los Angeles, California for Manila via JAL flight No. JL 061. As an
incentive for travelling on the said airline, both flights were to make an overnight stopover at Narita,
Japan, at the airlines' expense, thereafter proceeding to Manila the following day.
Upon arrival at Narita, Japan on June 14, 1991, private respondents were billeted at Hotel Nikko Narita
for the night. The next day, private respondents, on the final leg of their journey, went to the airport to take
their flight to Manila. However, due to the Mt. Pinatubo eruption, unrelenting ashfall blanketed Ninoy
Aquino International Airport (NAIA), rendering it inaccessible to airline traffic. Hence, private respondents'
trip to Manila was cancelled indefinitely.
To accommodate the needs of its stranded passengers, JAL rebooked all the Manila-bound passengers
on flight No. 741 due to depart on June 16, 1991 and also paid for the hotel expenses for their
unexpected overnight stay. On June 16, 1991, much to the dismay of the private respondents, their long
anticipated flight to Manila was again cancelled due to NAIA's indefinite closure. At this point, JAL
informed the private respondents that it would no longer defray their hotel and accommodation expense
during their stay in Narita.
Since NAIA was only reopened to airline traffic on June 22, 1991, private respondents were forced to pay
for their accommodations and meal expenses from their personal funds from June 16 to June 21, 1991.
Their unexpected stay in Narita ended on June 22, 1991 when they arrived in Manila on board JL flight
No. 741.
Obviously, still reeling from the experience, private respondents, on July 25, 1991, commenced an action
for damages against JAL before the Regional Trial Court of Quezon City, Branch 104. 2 To support their
claim, private respondents asserted that JAL failed to live up to its duty to provide care and comfort to its
stranded passengers when it refused to pay for their hotel and accommodation expenses from June 16 to
21, 1991 at Narita, Japan. In other words, they insisted that JAL was obligated to shoulder their expenses
as long as they were still stranded in Narita. On the other hand, JAL denied this allegation and averred
that airline passengers have no vested right to these amenities in case a flight is cancelled due to "force
majeure."
On June 18, 1992, the trial court rendered its judgment in favor of private respondents holding JAL liable
for damages, viz.:
WHEREFORE, judgment is rendered in favor of plaintiffs ordering the defendant Japan Airlines to pay the plaintiffs
Enrique Agana, Adalia B. Francisco and Maria Angela Nina Agana the sum of One million Two Hundred forty-six
Thousand Nine Hundred Thirty-Six Pesos (P1,246,936.00) and Jose Miranda the sum of Three Hundred Twenty
Thousand Six Hundred sixteen and 31/100 (P320,616.31) as actual, moral and exemplary damages and pay attorney's
fees in the amount of Two Hundred Thousand Pesos (P200,000.00), and to pay the costs of suit.
Undaunted, JAL appealed the decision before the Court of Appeals, which, however, with the exception of
lowering the damages awarded affirmed the trial court's finding, 3 thus:
Thus, the award of moral damages should be as it is hereby reduced to P200,000.00 for each of the plaintiffs, the
exemplary damages to P300,000.00 and the attorney's fees to P100,000.00 plus the costs.
WHEREFORE, with the foregoing Modification, the judgment appealed from is hereby AFFIRMED in all other respects.
JAL filed a motion for reconsideration which proved futile and

unavailing. 4
Failing in its bid to reconsider the decision, JAL has now filed this instant petition.
The issue to be resolved is whether JAL, as a common carrier has the obligation to shoulder the hotel and
meal expenses of its stranded passengers until they have reached their final destination, even if the delay
were caused by "force majeure."
To begin with, there is no dispute that the Mt. Pinatubo eruption prevented JAL from proceeding to Manila
on schedule. Likewise, private respondents concede that such event can be considered as "force
majeure" since their delayed arrival in Manila was not imputable to JAL. 5
However, private respondents contend that while JAL cannot be held responsible for the delayed arrival in
Manila, it was nevertheless liable for their living expenses during their unexpected stay in Narita since
airlines have the obligation to ensure the comfort and convenience of its passengers. While we
sympathize with the private respondents' plight, we are unable to accept this contention.
We are not unmindful of the fact that in a plethora of cases we have consistently ruled that a contract to
transport passengers is quite different in kind, and degree from any other contractual relation. It is safe to
conclude that it is a relationship imbued with public interest. Failure on the part of the common carrier to
live up to the exacting standards of care and diligence renders it liable for any damages that may be
sustained by its passengers. However, this is not to say that common carriers are absolutely responsible
for all injuries or damages even if the same were caused by a fortuitous event. To rule otherwise would
render the defense of "force majeure," as an exception from any liability, illusory and ineffective.
Accordingly, there is no question that when a party is unable to fulfill his obligation because of "force
majeure," the general rule is that he cannot be held liable for damages for non-performance. 6 Corollarily,
when JAL was prevented from resuming its flight to Manila due to the effects of Mt. Pinatubo eruption,
whatever losses or damages in the form of hotel and meal expenses the stranded passengers incurred,
cannot be charged to JAL. Yet it is undeniable that JAL assumed the hotel expenses of respondents for
their unexpected overnight stay on June 15, 1991.
Admittedly, to be stranded for almost a week in a foreign land was an exasperating experience for the
private respondents. To be sure, they underwent distress and anxiety during their unanticipated stay in
Narita, but their predicament was not due to the fault or negligence of JAL but the closure of NAIA to
international flights. Indeed, to hold JAL, in the absence of bad faith or negligence, liable for the amenities
of its stranded passengers by reason of a fortuitous event is too much of a burden to assume.
Furthermore, it has been held that airline passengers must take such risks incident to the mode of travel. 7
In this regard, adverse weather conditions or extreme climatic changes are some of the perils involved in
air travel, the consequences of which the passenger must assume or expect. After all, common carriers
are not the insurer of all risks. 8
Paradoxically, the Court of Appeals, despite the presence of "force majeure," still ruled against JAL
relying in our decision in PAL v. Court of Appeals, 9 thus:
The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard required by law.
Undisputably, PAL's diversion of its flight due to inclement weather was a fortuitous event. Nonetheless, such
occurrence did not terminate PAL's contract with its passengers. Being in the business of air carriage and the sole one
to operate in the country, PAL is deemed equipped to deal with situations as in the case at bar. What we said in one
case once again must be stressed, i.e., the relation of carrier and passenger continues until the latter has been landed
at the port of destination and has left the carrier's premises. Hence, PAL necessarily would still have to exercise
extraordinary diligence in safeguarding the comfort, convenience and safety of its stranded passengers until they have
reached their final destination. On this score, PAL grossly failed considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City and the fact that the private respondent was a stranger to the
place.
The reliance is misplaced. The factual background of the PAL case is different from the instant petition. In
that case there was indeed a fortuitous event resulting in the diversion of the PAL flight. However, the
unforeseen diversion was worsened when "private respondents (passenger) was left at the airport and
could not even hitch a ride in a Ford Fiera loaded with PAL personnel," 10 not to mention the apparent
apathy of the PAL station manager as to the predicament of the stranded passengers. 11 In light of these
circumstances, we held that if the fortuitous event was accompanied by neglect and malfeasance by the
carrier's employees, an action for damages against the carrier is permissible. Unfortunately, for private
respondents, none of these conditions are present in the instant petition.
We are not prepared, however, to completely absolve petitioner JAL from any liability. It must be noted
that private respondents bought tickets from the United States with Manila as their final destination. While
JAL was no longer required to defray private respondents' living expenses during their stay in Narita on
account of the fortuitous event, JAL had the duty to make the necessary arrangements to transport
private respondents on the first available connecting flight to Manila. Petitioner JAL reneged on its
obligation to look after the comfort and convenience of its passengers when it declassified private
respondents from "transit passengers" to "new passengers" as a result of which private respondents were
obliged to make the necessary arrangements themselves for the next flight to Manila. Private respondents
were placed on the waiting list from June 20 to June 24. To assure themselves of a seat on an available
flight, they were compelled to stay in the airport the whole day of June 22, 1991 and it was only at 8:00
p.m. of the aforesaid date that they were advised that they could be accommodated in said flight which
flew at about 9:00 a.m. the next day.
We are not oblivious to the fact that the cancellation of JAL flights to Manila from June 15 to June 21,
1991 caused considerable disruption in passenger booking and reservation. In fact, it would be
unreasonable to expect, considering NAIA's closure, that JAL flight operations would be normal on the
days affected. Nevertheless, this does not excuse JAL from its obligation to make the necessary
arrangements to transport private respondents on its first available flight to Manila. After all, it had a
contract to transport private respondents from the United States to Manila as their final destination.
Consequently, the award of nominal damages is in order. Nominal damages are adjudicated in order that
a right of a plaintiff, which has been violated or invaded by the defendant, may be vindicated or
recognized and not for the purpose of indemnifying any loss suffered by him. 12 The court may award
nominal damages in every obligation arising from any source enumerated in article 1157, or in every case
where any property right has been invaded. 13
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated December 22, 1993 is
hereby MODIFIED. The award of actual, moral and exemplary damages is hereby DELETED. Petitioner
JAL is ordered to pay each of the private respondents nominal damages in the sum of P100,000.00 each
including attorney' s fees of P50,000.00 plus costs.
SO ORDERED.
Narvasa, C.J., Kapunan and Purisima, JJ., concur.
Footnotes
1 CA - G.R. CV No. 39089, penned by Associate Justice Oscar Herrera with Justices Consuelo Ynares-Santiago and
Corona Ibay-Somera, concurring. Rollo, pp. 34-55.
2 RTC Records, p. 150.
3 Rollo, p. 55.
4 Rollo, p. 57.
5 Rollo, p. 61.
6 Tolentino, Civil Code of the Philippines, Vol. IV, p. 128.
7 8 AmJur 2d citing Thomas v. American Airlines, US Av 102.
8 Pilapil v. Court of Appeals. 180 SCRA 546 (1988).
9 226 SCRA 423 (1993).
10 Ibid, p. 428.
11 Id., p. 430.

SUPREME COURT
Manila
THIRD DIVISION
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.
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.
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 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.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.

Obligations and Contracts Cases

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Obligations and Contracts Cases

Uploaded by

Copyright:

Available Formats

Republic of the Philippines

G.R. No. 116896 May 5, 1997

PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, petitioner,

DAVIDE, JR., J.:

The lease contract, executed on 18 November 1985, reads in part as follows:

Monthly Rate Period Applicable

P21,000.00 Starting on the 2nd year

P22,000.00 Starting on the 3rd year

P23,000.00 Starting on the 4th year

P24,000.00 Starting on the 5th year

3. TERMS OF PAYMENT — The rent stipulated in Paragraph 2 above shall be paid

4. USE OF LEASED PROPERTY — It is understood that the Property shall be used by

xxx xxx xxx

11. TERMINATION OF LEASE — This Agreement may be terminated by mutual

On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a

On 16 January 1986, private respondents wrote petitioner requesting payment of the

Private respondents refused to accede to petitioner's request for the pretermination of

Also worth noting is petitioner's earlier letter, thus:

[P]lease be advised of PNCC Management's decision to cancel or discontinue with the

The obligation to pay rentals 16 or deliver the thing in a contract of

With regard to the non-materialization of petitioner's particular purpose in entering into

1 Exhibit "A," Original Record (OR), 68.

2 Exhibit "C," OR, 77; Rollo, 57.

3 Exhibit "B," OR, 76.

4 Exhibit "D," OR, 78.

5 Exhibit "E," Id., 80.

6 Exhibit "F," Id., 81-82.

8 Order of 19 January 1989, OR, 129-130; Decision, 2-3.

9 OR 134-137; Rollo, 53-56. Per Judge Mariano M. Umali.

11 Exhibit "F-1," OR, 82.

12 Exhibit "D," Id., 78-79.

13 Articles 1159, 1308, 1315, and 1356 of the Civil Code.

14 DESIDERIO P. JURADO, Comments and Jurisprudence on Obligations and

15 IV ARTURO M. TOLENTINO, Commentaries and Jurisprudence on the Civil Code of

22 139 SCRA 46 [1985], citing Repide v. Afzelius, 39 Phil. 190 [1918].

23 V TOLENTINO 206 [1992]; V EDGARDO E. PARAS, Civil Code of the Philippines,

26 Ocampo v. Arboleda, 153 SCRA 374, 381 [1987].

43 Mutuc v. Court of Appeals, 190 SCRA 43, 49 [1990].

G.R. No. 117190 January 2, 1997

The second letter-proposal (Exh. "A") provides as follows:

One (1) lot — Float valve.

One (1) lot — Concreting materials foundation.

The contemporaneous and subsequent acts of the parties concerned effectively

WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE

Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

1 TSN, 20 December 1988, pp. 10-12.

2 Exh. "A" and Exh. "1."

5 Kasilag v. Rodriguez, 69 Phil. 217 (1939).

7 TSN, 13 April 1989, pp. 18-19.

8 TSN, 13 April 1989, p. 22.

9 Art. 1240, New Civil Code.

10 Arts. 1236 and 1237, New Civil Code.

12 See Note 11.

14 Sec. 3, par. (y), Rule 131, Revised Rules of Evidence.

15 Art. 1169, last par., New Civil Code.

16 See CA Decision, p. 7; Rollo, p. 27.

G.R. No. 102316 June 30, 1997

VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY INC., petitioner,

Defendant South Sea Surety and Insurance Company's counterclaim is hereby

In its assailed Decision, Respondent Court of Appeals held:

C. The lower court erred in holding defendant-appellant Seven Brothers Shipping

The primary issue to be resolved before us is whether defendants shipping corporation

Under American jurisprudence, a common carrier undertaking to carry a special cargo or