SECOND DIVISION

[G.R. No. 120874. July 31, 2003]

NAPOLEON TUGADE, SR., and RIZALINA FABRO-TUGADE, substituted
by her heirs, namely, Napoleon Sr., Napoleon Jr., and Zenaida,
all surnamed TUGADE, petitioners, vs. COURT OF APPEALS and
PANGASINAN ELECTRIC COOPERATIVE, INC., respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
While this Court is not a trier of facts, there are instances
however when we are called upon to re-examine the factual findings of
the trial court and the Court of Appeals and weigh, after considering
the records of the case, which of the conflicting findings is more in
accord with law and justice.[1] Such is the case at bar.
The antecedent facts of this case are as follows:
On June 12, 1980 at around 12:00 noon, Engr. Henry Tugade of
the Pangasinan Electric Cooperative, Inc. (Panelco) rode in a company
rover jeep together with four other employees bound from the Panelco
compound in Bani to Bolinao, Pangasinan. Somewhere in Tiep,
Pangasinan, a Dagupan bus that was also headed for Bolinao, began
to follow the rover jeep. While the bus was trying to overtake the jeep,
the latter turned turtle and caused four of its five occupants to fall out
of the jeep causing the death of Tugade and another passenger by the
name of Consuelo Estolonio.[2]
Separate cases for damages, docketed as Civil Cases Nos. A-1368
and A-1384 were filed by the heirs of the two deceased before the
Regional Trial Court of Pangasinan against Panelco and Dagupan Bus
Co. and their respective drivers, Honorato Areola and Renato
Quiambao. It is Civil Case No. A-1368 filed by the heirs of Henry
Tugade, which is now the subject of the present petition.
The Regional Trial Court of Pangasinan (Branch 55) held Panelco
and its driver liable, thus:
As a consequence and in view of the evidence on record, the Court
holds and so finds that the accident occurred due to the fault or
negligence of Panelco and its driver Honorato Areola. The negligence
of Panelco consists in having allowed its rover jeep which is
mechanically defective, unsafe and not roadworthy to be operated on
a highway. On the other hand, the defendant-driver Honorato Areola
was likewise, negligent in driving a vehicle which was not roadworthy,
unsafe and with a mechanical defect.
The Court finds that the defendants Panelco and Honorato Areola are
liable to pay to the plaintiffs in Civil Case No. A-1368 damages, as
follows: actual damages, P99,131.00 (Exhibits H to H-3, I to I-4 and K),
attorneys fees, P20,000.00, moral damages, P20,000.00 and
exemplary damages, P10,000.00
As to loss of earning capacity, it has been held in Villa-Rey Transit vs.
Court of Appeals, 31 SCRA 511, that this is based on net earnings and
not gross earnings. No evidence was introduced to show the net

earnings. However, under the Circumstances, the Court holds that a

monthly net earning of P500.00 would be reasonable. Using the
formula in the Villa-Rey case, the life expectancy of the late Henry
Tugade would be 36 years, hence the Court awards P216,000.00 for
loss of earning capacity.
WHEREFORE, the Court hereby renders judgment:
1. Dismissing the complaint and cross-claim as against
Dagupan Bus in Civil Case No. A-1368;
2. Dismissing the complaint in Civil Case No. A-1384;
3. In Civil Case No. A-1368, ordering the defendants
Pangasinan Electric Cooperative, Inc., and
Honorato Areola to pay, jointly and severally,
to the plaintiffs, the following:
P 99,131.00
as
actual
damages;
216,000.00
for
loss
of
earning capacity;
20,000.00 moral damages;
and
10,000.00
exemplary
damages; and
20,000.00 attorneys fees
With costs against said defendants.[3]
In arriving at its decision, the trial court explained that:
xxx Rosie Castrence, a passenger of Bus No. 244 who saw the accident
testified categorically that the rover jeep turned turtle in front of the
Dagupan Bus when the jeep was about 5 meters in front of the Bus
and the jeep turned turtle even without being bumped by the Dagupan
Bus. The Court considers this witness as an unbiased witness as she
appears not to be an interested party. She was also in a good position
to observe in detail what actually happened at the scene of the
accident as she was seated on the right front seat of the bus. The
Court believes this witness more than the other witnesses who do not
appear to be disinterested.
Furthermore, it is not credible that if the rover jeep was hit on its left
rear, it will turn turtle on its left side. The natural effect or tendency is
for the jeep to be pushed or even thrown towards its right side. If the
jeep turned turtle towards the left, it must have been due to some
other cause than being hit by the bus on its left side.
The physical facts which do not lie as well as testimonial evidence
support the stand of Dagupan Bus that the bus did not hit the left rear
of the rover jeep.
If the bus did not hit the left rear of the jeep what then caused the
latter to turn turtle. There is merit in the contention of defendant
Dagupan Bus that the cause was due to some mechanical defect. By
Defendant Areolas own admission, the rover jeep was being fixed by

the Chief mechanic at the motor pool of Panelco, when he arrived at

their compound, and that the jeep was Quite old.
Likewise, Rosie Castrence also testified that when she first saw the
Panelco jeep at Tiep, Bani, Pangasinan, the jeep was already zigzagging and wiggling, a sign that indeed the jeep had some
mechanical defect.
Another mark of a mechanical defect in the jeep was the fact that the
right front wheel and rear wheel of the jeep were detached because
their spindles were broken. This came from the mouth of Panelcos
witness Florencio Celeste.
The next issue to be resolved is what was the cause of death of Henry
Tugade? Plaintiffs theory is, of course, that Henry Tugade died because
he was run over and pinned under the left front wheel of Dagupan Bus
No. 244 crushing his head and upper body. This is the same theory of
defendants Panelco and Areola. Defendants Dagupan Bus and
Quiambao deny this claim and their theory is that Henry Tugades
death was caused by the violent impact of his head against the hard
pavement of the road when he was thrown out of the rover jeep.
The plaintiffs theory is, however, contradicted by their own medico
legal expert Dr. Wilfredo Nazareno who testified positively that the
fatal injury which caused the death of Henry Tugade were the fractures
on his head which could have been due to the impact of the head
against the asphalted road.
Again plaintiffs theory is contradicted by Panelcos own witness
Florencio Celeste, Chief Engineer, who was the only one who did not
fall out of the jeep, when he testified that the left front wheel of the
bus did not rest on the head of Henry Tugade and the wheel of the bus
did not run over the head of the victim.
Rosie Castrence, a disinterested witness, also declared that the left
front tire of the bus did not run over the head of Henry Tugade. [4]
Petitioners went to the Court of Appeals questioning only the
award of damages and attorneys fees. [5] They claimed that the lower
court erred in: finding that the monthly earnings of the late Henry
Tugade at the time of his death was only P500.00; disregarding the
evidence on record showing the monthly earnings of the late Henry
Tugade; not considering the social, educational and economic status of
the plaintiffs in its assessment of the moral and exemplary damages;
and setting the sum of P20,000.00 as attorneys fees.[6]
Respondent Panelco also appealed to the Court of Appeals from
the decision of the trial court and assailed its ruling that the
negligence of Panelco and its driver was the proximate cause of the
accident.[7]
In its decision dated September 7, 1994, [8] the Court of Appeals
reversed the findings of the trial court, declared that Dagupan Bus, as
an employer, had exercised due diligence in the selection and
supervision of its employees and disposed of the case in this wise:

WHEREFORE, in view of all the foregoing, the decision of the court a

quo is reversed, but only insofar as it holds defendant Pangasinan
Electric Cooperative, Inc. liable, and defendant Renato Quiambao is
ordered to pay to defendant-appellant Pangasinan Electric
Cooperative, Inc., P7,500.00 as temperate damages, P10,000.00 as
attorneys fees and costs of suit.[9]
The appellate court explained, thus:
The testimony of Castrence, on which the court a quo heavily relied in
its finding of facts, is contradicted by the greater weight of evidence
on record.
First, there is no evidence whatsoever --- for either one of the parties
--- of a blown-out tire. What the evidence on record indicates is that
the two right wheels of the jeep were detached. The testimony
regarding a blown-out tire is not even in consonance with the theory of
Dagupan, that is, that the wheels were detached due to mechanical
defects.
Second, her testimony that the jeep was wiggling and zigzagging is
contradicted by the testimonies of Florencio Celeste and Cipriano
Nacar, passengers of the jeep and witnesses for plaintiffs Tugade, to
the effect that their ride was smooth and normal. (TSN, September 29,
1983, pp. 10, 43 & 66; November 20, 1984, p. 7)
Third, her testimony regarding the sitting arrangement of passengers
of the jeep is contradicted by the testimony of Cipriano Nacar,
passenger of the jeep and witness for plaintiffs Tugade. According to
Nacar, he and Estolonio were seated at the rear of the jeep; the driver
Areola was behind the steering wheel, with Celeste to his right and
Tugade on the rightmost. In other words, Celeste was between Areola
and Tugade, and no one was seated to the left of the driver. (TSN,
September 29, 1983, pp. 9-10)
Fourth, her testimony that Tugades head was about one foot from the
left front tire of the bus is likewise contradicted by the testimonies of
Cipriano Nacar and Honorato Areola that the tire of the bus was partly
resting on the head of Tugade. In fact, the bus driver Renato Quiambao
even had to back up the bus so that Tugades body may be pulled out
from below. (ibid., pp. 22-23)
Fifth, her testimony that Tugades shirt was checkered is also
contradicted by Exhibit G, a photograph of the deceased as he lay on
the ground. The photograph shows Tugade wearing a plain white shirt.
Finally, her testimony that she did not see Estolonio after the accident
because the latter was inside the jeep is again contradicted by the
finding of the court a quo that all the passengers of the rover jeep
were thrown out of the vehicle except Florencio Celeste and the body
of Henry Tugade landed on the left lane of the road and was in front of
the left front wheel of Bus No. 244. (underscoring ours, Decision, p. 2)
In other words, Estolonio, just like Tugade, was sprawled on the
ground. (ibid., p. 22)
Castrences testimony is also marred by improbabilities.

First, she claims to have noticed the color of Tugades pants who was
seated --- in the front of the jeep. It is quite improbable that Castrence,
being seated inside the bus, could see the color of the pants of Tugade
who was seated on the front seat of the jeep. Second, while she
noticed the passengers in the front of the jeep --- indeed she even
noticed the color of the pants one of them was wearing --- she could
not tell whether or not there were passengers at the back. Third, it is
also improbable that the driver and the passengers of the jeep simply
continued with their journey, oblivious to the wiggling and zigzagging
of their vehicle.
Moreover, even disregarding the incredibility of Castrences testimony,
still the version that the accident was due to a mechanical defect that
allowed the wheels to be detached cannot be given credence. If the
cause of the accident was that both wheels on the right side were
detached, then the jeep would not have turned turtle to its left, but to
its right. If there had been no wheels to support its right side, the jeep
should have turned turtle to its right, but it turned to its left instead.
The court a quo reasons that it is not credible that if the rover jeep
was hit on its left rear, it will turn turtle on its left side. The natural
effect or tendency is for the jeep to be pushed or even thrown towards
its right side. (Decision, p. 3) The court a quo, however, seems to have
disregarded the testimony of Honorato Areola that the jeep first
swerved to the right, then to the left. (TSN, October 15, 1984, p. 48) To
be noted also is that a jeep is inherently maneuverable, and may
easily swerve from side to side when hit from its left rear
portion. Moreover, after the accident, both the jeep and the bus were
at the left side of the highway. If the bus were not attempting to
overtake the jeep, why then was it at the left side of the highway?
As may be seen from the foregoing, the court a quo failed to take into
account the discrepancies and inconsistencies of Castrences testimony
vis--vis established facts and other evidence on record.
Moreover, the court a quo misappreciated the testimony of Areola that
the jeep was being checked up at the Panelco motor pool, and
interpreted such testimony to mean that the jeep was being fixed or
repaired due to a mechanical defect. First, the mere fact that the jeep
was at the motor pool does not mean that it was there due to a
mechanical defect.As testified by Areola, it was being subjected to a
check-up (TSN, October 9, 1984, pp. 41-42), which may have been
simply routinary. Second, even assuming that the jeep had a
mechanical defect, its presence at the motor pool may also mean that
such defect had been repaired and that the jeep was quite old does
not necessarily mean that it had a mechanical defect. That two wheels
were detached from the jeep and that its spindle was broken can be
just as reasonably explained by the fact that the jeep turned turtle
after being sideswiped by an overtaking bus.
On the contrary, Celeste and Nacar, witnesses for the plaintiffs
Tugade, consistently testified that their ride was normal and smooth.

In light of the foregoing, the conclusion must be that the accident was
caused by the negligence of Quiambao in driving Bus No. 244, as
testified to by Areola, Nacar and Celeste, for which he must be held
civilly liable.[10]xxx
Hence, petitioner filed the present petition for certiorari [11] of the
decision of the Court of Appeals and the resolution dated June 27,
1995 denying petitioners motion for reconsideration.
Petitioners contend that the Court of Appeals:
I
COMMITTED AN ERROR OF LAW AND VIOLATED THE RULES OF
EVIDENCE BY REJECTING THE TESTIMONY OF A DISINTERESTED
WITNESS AND ADMITTED THE BIASED TESTIMONIES OF THE
EMPLOYEES-WITNESSES FOR PRIVATE RESPONDENT PANELCO.
II
COMMITTED AN ERROR OF LAW BY SUBSTITUTING ITS FINDINGS OF
FACTS TO THAT OF THE TRIAL COURT WHICH WAS IN A BETTER
POSITION TO EVALUATE AT FIRST HAND THE EVIDENCE ADDUCED BY
THE PARTIES, PARTICULARLY THE SITUATION, DEMEANOR AND
SINCERITY OF THE WITNESSES.
III
MISINTERPRETED, IF NOT DELIBERATELY DISREGARDED, THE
BREAKING OF THE SPINDLE AND THE DETACHMENTS OF THE FRONT
RIGHT AND REAR WHEELS OF THE ROVER JEEP OF PRIVATE
RESPONDENT PANELCO WHICH ARE CONCLUSIVE PROOF OF THE ROAD
UNWORTHINESS OF THE ROVER JEEP THAT TURNED TURTLE CAUSING
THE DEATH OF THE LATE HENRY TUGADE.
IV
ERRED IN ARRIVING AT A CONCLUSION THAT PRIVATE RESPONDENT
WAS NOT NEGLIGENT AT THE TIME OF THE ACCIDENT AND IS NOT
THEREFORE LIABLE FOR THE UNTIMELY DEATH OF HENRY TUGADE.
V
ERRED IN NOT APPLYING PERTINENT JURISPRUDENCE AND PROVISIONS
OF LAWS IN REVERSING THE DECISION OF THE TRIAL COURT. [12]
Petitioners stress that they only questioned before the Court of
Appeals the amount of damages, loss of earning capacity and
attorneys fees awarded by the trial court in its decision, but the
appellate court disregarded the factual findings and conclusions of the
trial court and substituted its own findings of fact. Petitioners claim
that this violates the doctrine that the findings of the trial court on the
credibility of witnesses are entitled to great weight on appeal as it is in
a better position to decide the question on credibility having seen and
heard the witnesses themselves. Petitioners further claim that: the
Court of Appeals erroneously disregarded the testimony of Rosie
Castrence which the trial court found to be a disinterested party,
based on minor and trivial inconsistencies; [13] the appellate court
overlooked or failed to consider the breaking of the spindles and the
detachment of the front and rear wheels of the rover jeep owned by

and belonging to respondent Panelco which led the trial court to

conclude that the accident was due to the negligence of private
respondent as it allowed its rover jeep which is mechanically defective
and not roadworthy to be operated on a highway and due to the
negligence of defendant Honorato Areola in driving a vehicle which
was not roadworthy.[14]
In its Comment, respondent Panelco points out that the factual
findings of the Court of Appeals is not reviewable by the Supreme
Court.[15]
Petitioners in their Reply, meanwhile, argue that where the
findings of the Court of Appeals and the trial court are contrary to
each other, such as in this case, the Supreme Court may scrutinize the
evidence on record.[16]
In its Rejoinder, respondent Panelco reiterates that: the
petitioners raised only factual issues which in effect will make this
Court a trier of facts; the Court of Appeals, contrary to the contention
of petitioners, actually set the record straight by carefully scrutinizing
the factual evidence; the appellate court pointed out in detail the
inconsistencies in the findings of the lower court unlike the haphazard
way by which the lower court reached its conclusions. [17]
We find the petition to be impressed with merit.
As mentioned earlier, it is settled that as a rule, our jurisdiction in
cases brought to us from the Court of Appeals is limited to the review
and revision of errors of law allegedly committed by the appellate
court, as its findings of fact are deemed conclusive and we are not
duty-bound to analyze and weigh all over again the evidence already
considered in the proceedings below.[18]
However, we have consistently enunciated that we may review
the findings of fact of the Court of Appeals:
(a) where there is grave abuse of discretion; (b) when the finding is
grounded entirely on speculations, surmises or conjectures; (c) when
the inference made is manifestly mistaken, absurd or impossible; (d)
when the judgment of the Court of Appeals was based on a
misapprehension of facts; (e) when the factual findings are conflicting;
(f) when the Court of Appeals, in making its findings, went beyond the
issues of the case and the same are contrary to the admissions of both
appellant and appellee; (g) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion;
and, (h) where the findings of fact of the Court of Appeals are contrary
to those of the trial court, or are mere conclusions without citation of
specific evidence, or where the facts set forth by the petitioner are not
disputed by the respondent, or where the findings of fact of the Court
of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.[19] [Emphasis ours]

In this case, the factual findings of the trial court and the Court of
Appeals are conflicting. Thus, it behooves this Court to review the
findings of facts of the lower courts.
The trial court gave weight to the testimony of Rosie Castrence, a
passenger of Dagupan bus who testified that the Panelco rover jeep
turned turtle without being hit by the bus from behind; while the Court
of Appeals pointed out inconsistencies in her testimony and gave
weight to the version of the employees of Panelco that the jeep turned
turtlebecause it was hit by the bus from behind.
The trial court reasoned that Castrence, a fish vendor who
happened to be a passenger at the time of the accident, was credible
and unbiased being a disinterested witness, unlike the other witnesses
who are employees of Panelco. It also explained that she was in a
good position to observe in detail what actually happened at the scene
of the accident as she was seated at the right front seat of the bus. [20]
On the other hand, the Court of Appeals considered her testimony
not worthy of belief because of inconsistencies especially vis-a-vis the
testimonies of the employees of Panelco, namely: Areola, Nacar and
Celeste,[21] to which the appellate court gave greater weight and on
which basis it concluded that the accident was caused by the
negligence of Quiambao in driving Bus No. 244 for which he must be
held civilly liable.[22]
In ascertaining the facts of the case, it would have greatly aided
the courts if photographs of the vehicles were presented during the
trial. However, none was presented.Hence, we are constrained to rely
mainly on the testimonies of the witnesses.
After reviewing the entire records of the case, we find compelling
reasons to reverse the findings of the Court of Appeals, and affirm the
appreciation of facts of the trial court.
It is basic that findings of facts of trial courts are accorded by
appellate courts with great, if not conclusive effect. This is because of
the unique advantage enjoyed by trial courts of observing at close
range the demeanor, deportment and conduct of witnesses as they
give their testimonies.[23] Trial courts have the unique advantage of
being able to observe that elusive and incommunicable evidence of
the witness deportment on the stand while testifying --- the brazen
face of the liar, the glibness of the schooled witness in reciting a
lesson, the itching over-eagerness of the swift witness, as well as the
honest face of the truthful one. [24] Indeed, assignment of values to
declarations on the witness stand is best done by the trial judge who,
unlike appellate magistrates, can weigh firsthand the testimony of a
witness.[25]
While there may be inaccuracies in Castrences testimony as
pointed out by the appellate court---the mention of a blown out tire,
the seating arrangement of the passengers of the rover jeep, the color
of the shirt of the deceased, and the location of all the passengers of
the jeep after it turned turtle---we deem such discrepancies negligible

considering the totality of her testimony. Records show that she was
called to the witness stand six years after the accident happened. It is
therefore understandable that she would miss recalling some details.
As we held in the recent case of People vs. Delim:
The inconsistencies in the testimonies of [witnesses] do not render
them incredible or their testimonies barren of probative weight. It
must be borne in mind that human memory is not as unerring as a
photograph and a persons sense of observation is impaired by many
factors A truth-telling witness is not always expected to give an errorfree testimony considering the lapse of time and the treachery of
human memory. What is primordial is that the mass of testimony jibes
on material points, the slight clashing of statements dilute neither the
witnesses credibility nor the veracity of his testimonyInconsistencies
on minor and trivial matters only serve to strengthen rather than
weaken the credibility of witnesses for they erase the suspicion of
rehearsed testimony.[26]
In her testimony, Rosie Castrence said that she saw the jeep turn
turtle in front of their bus.
Q Mrs. Witness, you testified that the PANELCO jeep turned
turtle infront of the Dagupan Bus, how close was the
Dagupan Bus to the PANELCO jeep when you saw it turn
turtle?
A About five (5) meters infront the Dagupan Bus when it turn
(sic) turtle, sir.
Q In other words, the jeep turned turtle even without being
bumped by the Dagupan Bus?
A Yes, sir.[27]
She also testified that before the jeep turned turtle she saw that it
was wiggling.
A When we were still at Barangay Tiep I have seen already
that jeep.
xxx xxx xxx
Q What did you observe if any about the jeep that you were
following?
A The jeep was already wiggling and was zigzagging along
the way.[28]
We find this testimony not only credible but also consistent with
the physical evidence as well as the testimonies of Panelcos own
employees.
Engr. Florencio Celeste, who was seated beside Henry Tugade,
testified that after the jeep turned turtle he saw that the right wheels
were detached and that the spindle was broken.
Q If it turned turtle, did you observe the jeep suffered (sic)
any mechanical defect or parts were broken?
A After the jeep turned turtle, I noticed that the right front
wheel and rear wheel of the jeep were detached, sir.
xxx xxx xxx

Q Did you see how the wheels were detached?

A The spindle were (sic) broken, sir.[29]
Engr. Agustin Erezo, the Officer In Charge of the Motorpool of
Panelco at the time of the accident, also admitted in his testimony that
the rover jeep was merely assembled in their motorpool, thus:
Q You mentioned that the rover jeep was assembled in
February 1980, if it was assembled in February 1980,
what was the condition before you assembled? (sic)
A We put all the spare parts new, we bought all the spare
parts new, all spare parts are new.
Q So you want to make us understand that it was almost a
junk at the time you repair it?
A We bought the chassis, the engine and everything so all
the spare parts are new.
Q At the time you repaired it in 1980 (interruption)
A I assembled it.[30]
xxx xxx xxx
Q Before you repaired it in February 1980, was it in running
condition?
A Before we repaired it, it was not in running condition, there
was no jeep before the repair, they are all spare parts
and we assembled it.[31]
The driver of the jeep and one of the defendants, Honorato
Areola, also admitted that the engine of the jeep at the time of the
accident was already old.
Q And what year Mr. Witness is the model of the rover jeep if
you really know the model of the different vehicles?
A I already forgot, sir. It is diesel model.
Q To make specific Mr. Witness, what year was this model,
was it the model 69, 65 or what?
A I cannot remember, sir.
Q But in your experience as driver, did this rover jeepney,
new or old, at the time you drove it on June 12, 1980.
A Quite old already, sir.
Q What about the body of the jeepney, also old like the
engine?
A The body is newly assembled, sir.[32]
Worth noting also is the admission of Engr. Celeste that the jeep
did not have a speedometer.
Q Now, you estimated the speed of the jeep at 45 to 50
kilometers per hour, because according to you you are
also a driver and you always look at the speedometer is
that correct?
A Yes, sir.
Q This rover jeep having been made, home made at the
Panelco Motor pool, did not have speedometer, is that
correct?

A It does not have speedometer, so the speedometer does

not function, sir.
Q Aside from the speedometer there were many parts of the
jeep which were not functioning is that correct?
A All of those parts in the Panel board except its
speedometer cable.
Q And so, when you said that the jeep was running about 45
to 50 kilometers the truth is the speed could have been
even less than 45 kilometers or more than 50
kilometers.
A That is approximate, sir.[33]
In sum, we find that with the testimony of Castrence, the broken
spindle of the rover jeep and the admissions of Panelcos own
employees that the jeep was merely assembled, had an old engine,
and did not have any speedometer, manifest gross negligence on the
part of Panelco and its driver Honorato Areola for which they should be
held liable to pay damages. The trial court correctly held both Panelco
and its driver liable for using an unsafe vehicle in transporting
Panelcos employees.
As provided for in the New Civil Code:
Art. 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done
Art. 2180. The obligation imposed by Article 2176 is demandable not
only for ones own acts or omissions, but also for those of persons for
whom one is responsible.
xxx xxx xxx
Employers shall be liable for the damage caused by their employees
and household helpers acting within the scope of their assigned tasks,
even though the former are not engaged in any business or industry.
xxx xxx xxx
The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the diligence of
a good father of a family to prevent damage.
Areola, as driver of the vehicle, did not personally check the
condition of the vehicle before using it.
Q And when you arrive at the Panelco compound this jeep
was already ready to be driven?
A It was in the motor pool we were checking up.
Q But you yourself did not go to the motor pool to get the
jeep?
A I just see the jeep but I did not go under the jeep, sir.
Q You mean to say that the jeep was in an elevated flat (sic)
form at the time when you saw it at the Panelco
compound being checked up?
A Its not in the elevated place but it was in the Panelco
compound, I am looking for the Chief Mechanic checking

up the jeep. I was looking at the jeep being checked up

by the Chief Mechanic, sir.
Q How many mechanics were attending this rover jeep at the
time you were looking at the jeep?
A They were many but who was looking after was the Chief
Mechanic, sir.
xxx xxx xxx
Q And these mechanics of the Panelco were helping or
attending the Chief Mechanic?
A I do not know, sir, because they were doing something.
Q So all these persons were working on the rover jeep, is
that correct?
A No, sir.[34] (sic)
What was admitted was the fact that it was his first time to drive
said vehicle[35] and that he did not know whether or not the vehicle
was registered at the time of the accident.
Q xxx You are aware that the rover jeep was not registered
for that year 1980, the jeep you were driving, is that
correct?
A That is what I do not know, sir.
xxx xxx xxx
Q Is it a matter of your practice, that when you drive a
vehicle you do not determine and find out anymore
whether the registration certificate is found in the
vehicle?
A I relied that the papers are complete, sir.
Q But you yourself do not examine anymore whether the
vehicle that you are driving, that you are going to drive
has with the registration certificate.
A No more, sir.[36]
Panelco meanwhile is liable both as owner of the mechanically
defective vehicle under Art. 2176 and as employer of the negligent
driver under Art. 2180.
Under Art. 2180, Panelco as employer of Areola is primarily and
solidarily liable for the quasi-delict committed by the latter. It is
presumed to be negligent in the selection and supervision of its
employees by operation of law and may be relieved of responsibility
for the negligent acts of its driver, who at the time was acting within
the scope of his assigned task, only if it can show that it observed all
the diligence of a good father of a family to prevent damage. [37]
In this case, Panelco failed to show that it exercised the diligence
of a good father of a family to prevent the damage and that it was
diligent in the selection and supervision of its employees.
Areola in his testimony admitted that he did not undergo physical
examination when he was hired as driver of the company [38] and that
there were no records of his examination and interview during his
application for employment.[39] He also admitted that Panelco never

gave them seminars regarding driving but only received personal

advice from the managers.[40]
The use of a vehicle with a defective speedometer has been held
by this Court as an indication of the owners laxity in the operation of
its business and in the supervision of its employees; clearly, a conduct
below the diligence required by law.[41] In this case, the rover jeep of
Panelco did not have a speedometer at all.
Finding both Panelco and its driver liable for the death of Henry
Tugade, we now consider the amount of damages that should be
awarded to the heirs of the deceased.
Following Art. 2206 of the Civil Code and recent jurisprudence,
the heirs of the victim in this case are automatically entitled to
P50,000.00 as indemnity for the death of Henry Tugade.[42]
Actual damages to be recoverable, must actually be proved and
supported by receipts. In this case, the petitioners failed to present
any receipt to prove the expenses they incurred. Nonetheless,
temperate damages may still be given to the heirs of the victim under
Art. 2224 of the Civil Code.[43] Based on prevailing jurisprudence, the
amount ofP25,000.00 as temperate damages is in order.[44]
We also find that petitioners are entitled to the award of attorneys
fees which is proper where the acts and omissions of a party have
compelled another to litigate or incur expenses to protect his rights
and when deemed by the court as just and equitable. [45] We find no
cogent reason to disturb the award of P20,000.00 as attorneys fees
fixed by the trial court.
Moral damages should also be awarded for the mental anguish
and moral suffering suffered by the heirs of Henry Tugade brought
about by his untimely demise. As held by this Court, the award of
moral damages is aimed at a restoration, within the limits possible, of
the spiritual status quo ante and therefore must be proportionate to
the suffering inflicted.[46]
In this case, Napoleon Tugade, father of the deceased, testified as
follows:
Q How many children do you have?
A We have three (3), sir.
xxx xxx xxx
Q about your second child, what is his profession or
employment at present, will you name your second
child?
A He is the late Henry Tugade, an Agricultural Engineer.
xxx xxx xxx
Q At the time you learn the death of your son Henry, how did
you feel?
A I was shocked and had a little mental torture because its a
shock that he is still young to die and professional and
he is the only one earning among my children, so there
was mental torture also to my wife and to my family. [47]

Rizalina Tugade, mother of the victim, also testified as follows:

Q And Mrs. Witness, at the time your son died do you know if
he was a member of some civic organizations or
associations?
A During his lifetime when he was studying, when he was
student, at the Araneta Univeristy, he was the President
of the Engineers Club Society.
Q And of course as a mother, having his son that caliber, if
said Henry your son, how did you feel on those
occasions, as he was a member of some organizations.
A I had a feeling of great pride, sir.
Q This pride enjoyed as a mother, did it continue to be still in
you as a pride enjoyed by a mother.
A Well, my pride is no more sir, he already died.
Q And when at the time you learned for the first time of the
death of your son Mrs. Witness, how did you feel as
mother.
A I was miserably shocked, sir.
Q Aside from the shock, what else.
A Well, I lost my hope, my pride and happiness.[48]
Under Art. 2206 of the Civil Code, the ascendants of the deceased
may demand moral damages for mental anguish by reason of the
death of the deceased. Under the circumstances of the case at bar an
award of P100,000.00 would be appropriate.[49]
As to indemnity for loss of earning capacity, we take note of Exh.
L-1[50] showing Henry Tugades compensation to be Eight Hundred
Three Pesos (P803.00) a month which amounts to an annual income
of P9,636.00. He was 26 years old at the time of his death. Using the
formula enunciated in People vs. Napalit,[51] we compute his lost
earning capacity thus:
Net earning capacity = 2/3 x (80-26) x [P9,636.00 (P9,636.00)]
= 2/3 x (54) x P4,818.00
= 36 x P4,818.00
= P 173,448.00
WHEREFORE, we REVERSE and SET ASIDE the decision of the
Court of Appeals; AFFIRM the decision of the Regional Trial Court dated
July 24, 1990 with the MODIFICATION that Pangasinan Electric
Cooperative, Inc. (PANELCO) and Honorato Areola are ordered to pay
jointly and severally the following amounts to the heirsof Henry
Tugade:
1. Death indemnity in the amount of Fifty Thousand Pesos
(P50,000.00);
2. Temperate damages in the amount of Twenty-Five
Thousand Pesos (P25,000.00);
3. Attorneys fees in the amount of Twenty Thousand Pesos
(P20,000.00);

4. Moral damages in the amount of One Hundred Thousand

Pesos (P100,000.00);
5. Loss of earning capacity in the amount of One
Hundred Seventy Three Thousand, Three Hundred and
Forty Eight Pesos (P173,448.00); and
6. the costs of suit.
SO ORDERED.
Bellosillo, (Chairman), Quisumbing, Callejo, Sr., and Tinga,
JJ., concur.

VOL. 138, SEPTEMBER 13, 1985

553
Vasquez vs. Court of Appeals
No. L-42926. September 13, 1985.*
PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA
VIRTUDES,
ROMEO
VASQUEZ
and
MAXIMINA
CAINAY,
petitioners, vs. THE COURT OF APPEALS and FILIPINAS PIONEER LINES,
INC., respondents.
Torts; Common Carriers; Damages;Elements to consider in
sustaining a case of caso fortuito.Upon the evidence and the
applicable law, we sustain the trial Court. To constitute a caso
fortuito that would exempt a person from responsibility, it is necessary
that (1) the event must be independent of the human will; (2) the
occurrence must render it impossible for the debtor to fulfill the
obligation in a normal manner; and that (3) the obligor must be free of
participation in, or aggravation of, the injury to the creditor. In the
language of the law, the event must have been impossible to foresee,
or if it could be foreseen, must have been impossible to avoid. There
must be an entire exclusion of human agency from the cause of injury
or loss.
Same; Same; Same; There is no caso fortuito where a ship
captain proceeded en route despite a typhoon advice close to the area
where vessel will pass.Under the circumstances, while, indeed, the
typhoon was an inevitable occurrence, yet, having been kept posted
on the course of the typhoon by weather bulletins at intervals of six
hours, the captain and crew were well aware of the risk they were
taking as they hopped from island to island from Romblon up to
Tanguingui. They held frequent conferences, and oblivious of the
utmost diligence required of very cautious persons, they decided to
take a calculated risk. In so doing, they failed to observe that
extraordinary diligence required of them explicitly by law for the
safety of the passengers transported by them with due regard for all
circumstances and unnecessarily exposed the vessel and passengers
to the tragic mishap. They failed to overcome that presumption of
fault or negligence that arises in cases of death or injures to
passengers.
Same; Same; Same; Board of Marine Inquirys conclusion that
ship captain was not negligent is not binding on the Court where said
finding is not complete.While the Board of Marine Inquiry, which
investigated the disaster, exonerated the captain from any
__________________
* FIRST DIVISION.
554
554
SUPREME COURT REPORTS ANNOTATED
Vasquez vs. Court of Appeals
negligence, it was because it had considered the question of
negligence as moot and academic, the captain having lived up to

the true tradition of the profession. While we are bound by the

Boards factual findings, we disagree with its conclusion since it
obviously had not taken into account the legal responsibility of a
common carrier towards the safety of the passengers involved.
Same; Same; Same; Liability of shipowner extends to value of
vessel and insurance proceeds thereon.With respect to private
respondents submission that the total loss of the vessel extinguished
its liability pursuant to Article 587 of the Code of Commerce as
construed in Yangco vs. Laserna, 73 Phil. 330 [1941], suffice it to state
that even in the cited case, it was held that the liability of a shipowner
is limited to the value of the vessel or to the insurance thereon.
Despite the total loss of the vessel therefore, its insurance answers for
the damages that a shipowner or agent may be held liable for by
reason of the death of its passengers.
PETITION to review the judgment of the Court of Appeals.
The facts are stated in the opinion of the Court.
Emilio D. Castellanes for petitioners.
Apolinario A. Abantao for private respondents.
MELENCIO-HERRERA, J.:
This litigation involves a claim for damages for the loss at sea of
petitioners respective children after the shipwreck of MV Pioneer Cebu
due to typhoon Klaring in May of 1966.
The factual antecedents, as summarized by the trial Court and
adopted by respondent Court, and which we find supported by the
record, read as follows:
When the interisland vessel MV Pioneer Cebu left the Port of Manila
in the early morning of May 15, 1966 bound for Cebu, it had on board
the spouses Alfonso Vasquez and Filipinas Bagaipo and a four-year old
boy, Mario Marlon Vasquez, among her passengers. The MV Pioneer
Cebu encountered typhoon Klaring and struck a reef on the southern
part of Malapascua Island, located somewhere north of the island of
Cebu and subsequently sunk. The aforementioned passengers were
unheard from since then.
555
VOL. 138, SEPTEMBER 13, 1985
555
Vasquez vs. Court of Appeals
Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of
Alfonso Vasquez; plaintiffs Cleto Bagaipo and Agustina Virtudes are the
parents of Filipinas Bagaipo; and plaintiffs Romeo Vasquez and
Maximina Cainay are the parents of the child, Mario Marlon Vasquez.
They seek the recovery of damages due to the loss of Alfonso
Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said
voyage.
At the pre-trial, the defendant admitted its contract of carriage
with Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez, and
the fact of the sinking of the MV Pioneer Cebu. The issues of the case
were limited to the defenses alleged by the defendant that the sinking

of the vessel was caused by force majeure, and that the defendants
liability had been extinguished by the total loss of the vessel.
The evidence on record as to the circumstances of the last voyage
of the MV Pioneer Cebu came mainly, if not exclusively, from the
defendant. The MV Pioneer Cebu was owned and operated by the
defendant and used in the transportation of goods and passengers in
the interisland shipping. Scheduled to leave the Port of Manila at 9:00
p.m. on May 14, 1966, it actually left port at 5:00 a.m. the following
day, May 15, 1966. It had a passenger capacity of three hundred
twenty-two (322) including the crew. It undertook the said voyage on a
special permit issued by the Collector of Customs inasmuch as, upon
inspection, it was found to be without an emergency electrical power
system. The special permit authorized the vessel to carry only two
hundred sixty (260) passengers due to the said deficiency and for lack
of safety devices for 322 passengers (Exh. 2). A headcount was made
of the passengers on board, resulting on the tallying of 168 adults and
20 minors, although the passengers manifest only listed 106
passengers. It has been admitted, however, that the headcount is not
reliable inasmuch as it was only done by one man on board the vessel.
When the vessel left Manila, its officers were already aware of the
typhoon Klaring building up somewhere in Mindanao. There being no
typhoon signals on the route from Manila to Cebu, and the vessel
having been cleared by the Customs authorities, the MV Pioneer
Cebu left on its voyage to Cebu despite the typhoon. When it reached
Romblon Island, it was decided not to seek shelter thereat, inasmuch
as the weather condition was still good. After passing Romblon and
while near Jintotolo island, the barometer still indicated the existence
of good weather condition continued until the vessel approached
Tanguingui island. Upon passing the latter island,
556
556
SUPREME COURT REPORTS ANNOTATED
Vasquez vs. Court of Appeals
however, the weather suddenly changed and heavy rains fell. Fearing
that due to zero visibility, the vessel might hit Chocolate island group,
the captain ordered a reversal of the course so that the vessel could
weather out the typhoon by facing the winds and the waves in the
open. Unfortunately, at about noontime on May 16, 1966, the vessel
struck a reef near Malapascua island, sustained leaks and eventually
sunk, bringing with her Captain Floro Yap who was in command of the
vessel.
Due to the loss of their children, petitioners sued for damages before
the Court of First Instance of Manila (Civil Case No. 67139).
Respondent defended on the plea of force ma-jeure, and the extinction
of its liability by the actual total loss of the vessel.
After proper proceedings, the trial Court awarded damages, thus:
WHEREFORE, judgment is hereby rendered ordering the defendant to
pay:

1. (a)Plaintiffs Pedro Vasquez and Soledad Ortega the sums of

P15,000.00 for the loss of earning capacity of the deceased
Alfonso Vasquez, P2,100.00 for support, and P10,000.00 for
moral damages;
2. (b)Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of
P17,000.00 for loss of earning capacity of deceased Filipinas
Bagaipo, and P10,00.00 for moral damages; and
3. (c)Plaintiffs Romeo Vasquez and Maximina Cainay the sum of
P10,000.00 by way of moral damages by reason of the death
of Mario Marlon Vasquez.
On appeal, respondent Court reversed the aforementioned judgment
and absolved private respondent from any and all liability.
Hence, this Petition for Review on Certiorari, the basic issue being
the liability for damages of private respondent for the presumptive
death of petitioners children.
The trial Court found the defense of caso fortuito untenable due to
various decisive factors, thus:
x x x It is an admitted fact that even before the vessel left on its last
voyage, its officers and crew were already aware of the
557
VOL. 138, SEPTEMBER 13, 1985
557
Vasquez vs. Court of Appeals
typhoon brewing somewhere in the same general direction to which
the vessel was going. The crew of the vessel took a calculated risk
when it proceeded despite the typhoon advisory. This is quite evident
from the fact that the officers of the vessel had to conduct
conferences amongst themselves to decide whether or not to proceed.
The crew assumed a greater risk when, instead of seeking shelter in
Romblon and other islands the vessel passed enroute, they decided to
take a change on the expected continuation of the good weather the
vessel was encountering, and the possibility that the typhoon would
veer to some other directions. The eagerness of the crew of the vessel
to proceed on its voyage and to arrive at its destination is readily
understandable. It is undeniably lamentable, however, that they did so
at the risk of the lives of the passengers on board.
Contrariwise, respondent Appellate Court believed that the calamity
was caused solely and proximately by fortuitous event which not even
extraordinary diligence of the highest degree could have guarded
against; and that there was no negligence on the part of the common
carrier in the discharge of its duties.
Upon the evidence and the applicable law, we sustain the trial
Court. To constitute a caso fortuito that would exempt a person from
responsibility, it is necessary that (1) the event must be independent
of the human will; (2) the occurrence must render it impossible for the
debtor to fulfill the obligation in a normal manner; and that (3) the
obligor must be free of participation in, or aggravation of, the injury to
the creditor.1In the language of the law, the event must have been

impossible to foresee, or if it could be foreseen, must have been

impossible to avoid.2 There must be an entire exclusion of human
agency from the cause of injury or loss.3
Turning to this case, before they sailed from the port of Manila, the
officers and crew were aware of typhoon Klaring that was reported
building up at 260 kms. east of Surigao. In fact, they had lashed all the
cargo in the hold before sailing in
____________________
1
Lasam vs. Smith, 45 Phil. 657, 661 [1924]; Austria vs. Court of
Appeals, 39 SCRA 527 [1971].
2
Art. 1174, Civil Code; Lasam vs. Smith, 45 Phil. 657 [1924].
3
Tolentino, Commentaries on the Civil Code, Vol. V, p. 252.
558
558
SUPREME COURT REPORTS ANNOTATED
Vasquez vs. Court of Appeals
anticipation of strong winds and rough waters. 4 They proceeded on
their way, as did other vessels that day. Upon reaching Romblon, they
received the weather report that the typhoon was 154 kms. east
southeast of Tacloban and was moving west northwest. 5 Since they
were still not within the radius of the typhoon and the weather was
clear, they deliberated and decided to proceed with the course. At
Jintotolo Island, the typhoon was already reported to be reaching the
mainland of Samar.6 They still decided to proceed noting that the
weather was still good although, according to the Chief Forecaster of
the Weather Bureau, they were already within the typhoon zone. 7 At
Tanguingui Island, about 2:00 A.M. of May 16, 1966, the typhoon was
in an area quite close to Catbalogan, placing Tanguingui also within
the typhoon zone. Despite knowledge of that fact, they again decided
to proceed relying on the forecast that the typhoon would weaken
upon crossing the mainland of Samar. 8 After about half an hour of
navigation towards Chocolate Island, there was a sudden fall of the
barometer accompanied by heavy downpour, big waves, and zero
visibility. The Captain of the vessel decided to reverse course and face
the waves in the open sea but because the visibility did not improve
they were in total darkness and, as a consequence, the vessel ran
aground a reef and sank on May 16, 1966 around 12:45 P.M. near
Malapascua Island somewhere north of the island of Cebu.
Under the circumstances, while, indeed, the typhoon was an
inevitable occurrence, yet, having been kept posted on the course of
the typhoon by weather bulletins at intervals of six hours, the captain
and crew were well aware of the risk they were taking as they hopped
from island to island from Romblon up to Tanguingui. They held
frequent conferences, and oblivious of the utmost diligence required of
very cautious persons,9 they decided to take a calculated risk. In so
doing,
________________
4
T.s.n., August 8, 1967, p. 22.

Domestic Bulletin No. 16 of the Weather Bureau.

Domestic Bulletin No. 17.
7
T.s.n., December 15, 1967, p. 21.
8
Domestic Bulletin No. 18.
9
Arts. 1755, 1756, Civil Code.
559
VOL. 138, SEPTEMBER 13, 1985
559
Vasquez vs. Court of Appeals
they failed to observe that extraordinary diligence required of them
explicitly by law for the safety of the passengers transported by them
with due regard for all circumstances 10 and unnecessarily exposed the
vessel and passengers to the tragic mishap. They failed to overcome
that presumption of fault or negligence that arises in cases of death or
injuries to passengers.11
While the Board of Marine Inquiry, which investigated the disaster,
exonerated the captain from any negligence, it was because it had
considered the question of negligence as moot and academic, the
captain having lived up to the true tradition of the profession. While
we are bound by the Boards factual findings, we disagree with its
conclusion since it obviously had not taken into account the legal
responsibility of a common carrier towards the safety of the
passengers involved.
With respect to private respondents submission that the total loss
of the vessel extinguished its liability pursuant to Article 587 of the
Code of Commerce12 as construed in Yangco vs. Laserna, 73 Phil.
330 [1941], suffice it to state that even in the cited case, it was held
that the liability of a shipowner is limited to the value of the vessel or
to the insurance thereon. Despite the total loss of the vessel therefore,
its insurance answers for the damages that a shipowner or agent may
be held liable for by reason of the death of its passengers.
WHEREFORE, the appealed judgment is hereby REVERSED and the
judgment of the then Court of First Instance of Manila, Branch V, in
Civil Case No. 67139, is hereby reinstated No costs.
SO ORDERED.
_________________
10
Art. 1733, ibid.
11
Art. 1756, ibid.
12
Art. 587. The ship agent shall also be civilly liable for the
indemnities in favor of third persons which may 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.
560
560
SUPREME COURT REPORTS ANNOTATED
Arcilla vs. Arcilla
5
6

Teehankee (Chairman), Plana,Relova, Gutierrez,

Fuente andPatajo, JJ., concur.
Judgment reversed.
o0o

Jr., De

la

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-45637 May 31, 1985
ROBERTO JUNTILLA, petitioner,
vs.
CLEMENTE FONTANAR, FERNANDO BANZON and BERFOL
CAMORO, respondents.
Valentin A. Zozobrado for petitioner.
Ruperto N. Alfarara for respondents.
GUTIERREZ, JR., J.:
This is a petition for review, on questions of law, of the decision of the
Court of First Instance of Cebu which reversed the decision of the City
Court of Cebu and exonerated the respondents from any liability
arising from a vehicular accident.
The background facts which led to the filing of a complaint for breach
of contract and damages against the respondents are summarized by
the Court of First Instance of Cebu as follows:
The facts established after trial show that the plaintiff
was a passenger of the public utility jeepney bearing
plate No. PUJ-71-7 on the course of the trip from Danao
City to Cebu City. The jeepney was driven by
defendant Berfol Camoro. It was registered under the
franchise of defendant Clemente Fontanar but was
actually owned by defendant Fernando Banzon. When
the jeepney reached Mandaue City, the right rear tire
exploded causing the vehicle to turn turtle. In the
process, the plaintiff who was sitting at the front seat
was thrown out of the vehicle. Upon landing on the
ground, the plaintiff momentarily lost consciousness.
When he came to his senses, he found that he had a
lacerated wound on his right palm. Aside from this, he
suffered injuries on his left arm, right thigh and on his
back. (Exh. "D"). Because of his shock and injuries, he
went back to Danao City but on the way, he
discovered that his "Omega" wrist watch was lost.
Upon his arrival in Danao City, he immediately entered
the Danao City Hospital to attend to his injuries, and
also requested his father-in-law to proceed
immediately to the place of the accident and look for
the watch. In spite of the efforts of his father-in-law,

the wrist watch, which he bought for P 852.70 (Exh.

"B") could no longer be found.
xxx xxx xxx
Petitioner Roberto Juntilla filed Civil Case No. R-17378 for breach of
contract with damages before the City Court of Cebu City, Branch I
against Clemente Fontanar, Fernando Banzon and Berfol Camoro.
The respondents filed their answer, alleging inter alia that the accident
that caused losses to the petitioner was beyond the control of the
respondents taking into account that the tire that exploded was newly
bought and was only slightly used at the time it blew up.
After trial, Judge Romulo R. Senining of the Civil Court of Cebu
rendered judgment in favor of the petitioner and against the
respondents. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiff and against the defendants and the latter
are hereby ordered, jointly and severally, to pay the
plaintiff the sum of P750.00 as reimbursement for the
lost Omega wrist watch, the sum of P246.64 as
unrealized salary of the plaintiff from his employer, the
further sum of P100.00 for the doctor's fees and
medicine, an additional sum of P300.00 for attorney's
fees and the costs.
The respondents appealed to the Court of First Instance of Cebu,
Branch XIV.
Judge Leonardo B. Canares reversed the judgment of the City Court of
Cebu upon a finding that the accident in question was due to a
fortuitous event. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered
exonerating the defendants from any liability to the
plaintiff without pronouncement as to costs.
A motion for reconsideration was denied by the Court of First Instance.
The petitioner raises the following alleged errors committed by the
Court of First Instance of Cebu on appeal
a. The Honorable Court below committed grave abuse
of discretion in failing to take cognizance of the fact
that defendants and/or their employee failed to
exercise "utmost and/or extraordinary diligence"
required of common carriers contemplated under Art.
1755 of the Civil Code of the Philippines.

b. The Honorable Court below committed grave abuse

of discretion by deciding the case contrary to the
doctrine laid down by the Honorable Supreme Court in
the case of Necesito et al. v. Paras, et al.
We find the petition impressed with merit.
The City Court and the Court of First Instance of Cebu found that the
right rear tire of the passenger jeepney in which the petitioner was
riding blew up causing the vehicle to fall on its side. The petitioner
questions the conclusion of the respondent court drawn from this
finding of fact.
The Court of First Instance of Cebu erred when it absolved the carrier
from any liability upon a finding that the tire blow out is a fortuitous
event. The Court of First Instance of Cebu ruled that:
After reviewing the records of the case, this Court finds
that the accident in question was due to a fortuitous
event. A tire blow-out, such as what happened in the
case at bar, is an inevitable accident that exempts the
carrier from liability, there being absence of a showing
that there was misconduct or negligence on the part of
the operator in the operation and maintenance of the
vehicle involved. The fact that the right rear tire
exploded, despite being brand new, constitutes a clear
case of caso fortuito which can be a proper basis for
exonerating the defendants from liability. ...
The Court of First Instance relied on the ruling of the Court of Appeals
in Rodriguez v. Red Line Transportation Co.,CA G.R. No. 8136,
December 29, 1954, where the Court of Appeals ruled that:
A tire blow-out does not constitute negligence unless
the tire was already old and should not have been
used at all. Indeed, this would be a clear case of
fortuitous event.
The foregoing conclusions of the Court of First Instance of Cebu are
based on a misapprehension of overall facts from which a conclusion
should be drawn. The reliance of the Court of First Instance on
the Rodriguez case is not in order. In La Mallorca and Pampanga Bus
Co. v. De Jesus, et al. (17 SCRA 23), we held that:
Petitioner maintains that a tire blow-out is a fortuitous
event and gives rise to no liability for negligence,
citing the rulings of the Court of Appeals in Rodriguez
v. Red Line Transportation Co., CA G.R. No. 8136,

December 29, 1954, and People v. Palapad, CA-G.R.

No. 18480, June 27, 1958. These rulings, however, not
only are not binding on this Court but were based on
considerations quite different from those that obtain in
the case at bar. The appellate court there made no
findings of any specific acts of negligence on the part
of the defendants and confined itself to the question of
whether or not a tire blow-out, by itself alone and
without a showing as to the causative factors, would
generate liability. ...
In the case at bar, there are specific acts of negligence on the part of
the respondents. The records show that the passenger jeepney turned
turtle and jumped into a ditch immediately after its right rear tire
exploded. The evidence shows that the passenger jeepney was
running at a very fast speed before the accident. We agree with the
observation of the petitioner that a public utility jeep running at a
regular and safe speed will not jump into a ditch when its right rear
tire blows up. There is also evidence to show that the passenger
jeepney was overloaded at the time of the accident. The petitioner
stated that there were three (3) passengers in the front seat and
fourteen (14) passengers in the rear.
While it may be true that the tire that blew-up was still good because
the grooves of the tire were still visible, this fact alone does not make
the explosion of the tire a fortuitous event. No evidence was presented
to show that the accident was due to adverse road conditions or that
precautions were taken by the jeepney driver to compensate for any
conditions liable to cause accidents. The sudden blowing-up, therefore,
could have been caused by too much air pressure injected into the tire
coupled by the fact that the jeepney was overloaded and speeding at
the time of the accident.
In Lasam v. Smith (45 Phil. 657), we laid down the following essential
characteristics of caso fortuito:
xxx xxx xxx
... In a legal sense and, consequently, also in relation
to contracts, a caso fortuito presents the following
essential characteristics: (1) The cause of the
unforeseen and unexpected occurrence, or of the
failure of the debtor to comply with his obligation,
must be independent of the human will. (2) It must be
impossible to foresee the event which constitutes
the caso fortuito, or if it can be foreseen, it must be
impossible to avoid. (3) The occurrence must be such

as to render it impossible for the debtor to fulfill his

obligation in a normal manner. And (4) the obligor
(debtor) must be free from any participation in the
aggravation of the injury resulting to the creditor.
(5 Encyclopedia Juridica Espanola, 309.)
In the case at bar, the cause of the unforeseen and unexpected
occurrence was not independent of the human will. The accident was
caused either through the negligence of the driver or because of
mechanical defects in the tire. Common carriers should teach their
drivers not to overload their vehicles, not to exceed safe and legal
speed limits, and to know the correct measures to take when a tire
blows up thus insuring the safety of passengers at all times. Relative
to the contingency of mechanical defects, we held in Necesito, et al. v.
Paras, et al. (104 Phil. 75), that:

It is sufficient to reiterate that the source of a common carrier's legal

liability is the contract of carriage, and by entering into the said
contract, it binds itself to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of a very
cautious person, with a due regard for all the circumstances. The
records show that this obligation was not met by the respondents.
The respondents likewise argue that the petitioner cannot recover any
amount for failure to prove such damages during the trial. The
respondents submit that if the petitioner was really injured, why was
he treated in Danao City and not in Mandaue City where the accident
took place. The respondents argue that the doctor who issued the
medical certificate was not presented during the trial, and hence not
cross-examined. The respondents also claim that the petitioner was
not wearing any wrist watch during the accident.

... The preponderance of authority is in favor of the

doctrine that a passenger is entitled to recover
damages from a carrier for an injury resulting from a
defect in an appliance purchased from a manufacturer,
whenever it appears that the defect would have been
discovered by the carrier if it had exercised the degree
of care which under the circumstances was incumbent
upon it, with regard to inspection and application of
the necessary tests. For the purposes of this doctrine,
the manufacturer is considered as being in law the
agent or servant of the carrier, as far as regards the
work of constructing the appliance. According to this
theory, the good repute of the manufacturer will not
relieve the carrier from liability' (10 Am. Jur. 205, s,
1324; see also Pennsylvania R. Co. v. Roy, 102 U.S.
451; 20 L. Ed. 141; Southern R. Co. v. Hussey, 74 ALR
1172; 42 Fed. 2d 70; and Ed Note, 29 ALR 788.: Ann.
Cas. 1916E 929).

It should be noted that the City Court of Cebu found that the petitioner
had a lacerated wound on his right palm aside from injuries on his left
arm, right thigh and on his back, and that on his way back to Danao
City, he discovered that his "Omega" wrist watch was lost. These are
findings of facts of the City Court of Cebu which we find no reason to
disturb. More so when we consider the fact that the Court of First
Instance of Cebu impliedly concurred in these matters when it
confined itself to the question of whether or not the tire blow out was
a fortuitous event.

The rationale of the carrier's liability is the fact that

the passenger has neither choice nor control over the
carrier in the selection and use of the equipment and
appliances in use by the carrier. Having no privity
whatever with the manufacturer or vendor of the
defective equipment, the passenger has no remedy
against him, while the carrier usually has. It is but
logical, therefore, that the carrier, while not an insurer
of the safety of his passengers, should nevertheless be
held to answer for the flaws of his equipment if such
flaws were at all discoverable. ...

Teehankee (Chairman), Melencio-Herrera, Plana, Relova, De la Fuente

and Alampay, JJ., concur.

WHEREFORE, the decision of the Court of First Instance of Cebu,

Branch IV appealed from is hereby REVERSED and SET ASIDE, and the
decision of the City Court of Cebu, Branch I is REINSTATED, with the
modification that the damages shall earn interest at 12% per annum
and the attorney's fees are increased to SIX HUNDRED PESOS
(P600.00). Damages shall earn interests from January 27, 1975.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. Nos. 81100-01 February 7, 1990
BACOLOD-MURCIA MILLING CO., INC., petitioner,
vs.
HON. COURT OF APPEALS AND ALONSO GATUSLAO, respondents.
BACOLOD-MURCIA MILLING CO., INC., petitioner,
vs.
HON. COURT OF APPEALS, ALONSO GATUSLAO, AGRO-INDUSTRIAL
DEVELOPMENT OF SILAY-SARAVIA (AIDSISA) AND BACOLOD-MURCIA
AGRICULTURAL COOPERATIVE MARKETING ASSOCIATION (BM-ACMA),
respondents.
Jalandoni, Herrera, Del Castillo & Associates for petitioner.
Taada, Vico & Tan for respondent AIDSISA.
San Juan, Gonzalez, San Agustin & Sinense for respondents Alfonso
Gatuslao and BM-ACMA.
PARAS, J.:
This is a petition for review on certiorari of the decision of the Court of
Appeals in CA-G.R. CV Nos. 59716-59717 promulgated on September
11, 1987 affirming in toto the decision of the Court of First Instance of
Negros Occidental in two consolidated civil cases, the dispositive
portion of which reads as follows:
PREMISES CONSIDERED, the decision appealed from is
hereby affirmed in toto.
The uncontroverted facts of the case

are as follows:

1. xxx xxx xxx

2. BMMC is the owner and operator of the sugar
central in Bacolod City, Philippines;
3. ALONSO GATUSLAO is a registered planter of the
Bacolod-Murcia Mill District with Plantation Audit No. 379, being a registered owner of Lot Nos. 310, 140, 141
and 101-A of the Cadastral Survey of Murcia, Negros
Occidental, otherwise known as Hda. San Roque;
4. On May 24, 1957 BMMC and Alonso Gatuslao
executed an 'Extension and Modification of Milling
Contract (Annex 'A' of the complaint in both cases)
which was registered on September 17, 1962 in the
Office of the Register of Deeds of Negros Occidental,
and annotated on Transfer Certificates of Title Nos. T24207, RT-2252, RT-12035, and RT-12036 covering said
Lot Nos. 310, 140, 141 and 101-A;

5. That since the crop year 1957-1958 up to crop year

1967-1968, inclusive, Alonso Gatuslao has been
milling all the sugarcane grown and produced on said
Lot Nos. 310, 140, 141 and 101-A with the Mill of
BMMC;.
6. Since the crop year 1920-21 to crop year 19671968, inclusive, the canes of planters adhered to the
mill of BMMC were transported from the plantation to
the mill by means of cane cars and through railway
system operated by BMMC;
7. The loading points at which planters Alonso
Gatuslao was and should deliver and load all his canes
produced in his plantation, Hda. San Roque, were at
the Arimas Line, Switch 2, and from which loading
stations, BMMC had been hauling planter Gatuslao's
sugar cane to its mill or factory continuously until the
crop year 1967-68;
8. BMMC had not been able to use its cane cars and
railway system for the cargo crop year 1968-1969;
9. Planter Alonso Gatuslao on various dates requested
transportation facilities of BMMC to be sent to his
loading stations or switches for purposes of hauling
and milling his sugarcane crops of crop year 19681969;
10. The estimated gross production of Hda. San Roque
for the crop year 1968-1969 is 4,500 piculs.
The records show that since the crop year 1920-1921 to the crop year
1967-1968, the canes of the adhered planters were transported from
the plantation to the mill of BMMC by means of cane cars and through
a railway system operated by BMMC which traversed the land of the
adherent planters, corresponding to the rights of way on their lands
granted by the planters to the Central for the duration of the milling
contracts which is for "un periodo de cuarenta y cinco anos o cosechas
a contar desde la cosecha de 1920-1921" 2 (a period of 45 years or
harvests, beginning with a harvest of 1920-1921).
BMMC constructed the railroad tracks in 1920 and the adherent
planters granted the BMMC a right of way over their lands as provided
for in the milling contracts. The owners of the hacienda Helvetia were
among the signatories of the milling contracts. When their milling
contracts with petitioner BMMC expired at the end of the 1964-1965
crop year, the corresponding right of way of the owners of the
hacienda Helvetia granted to the Central also expired.
Thus, the BMMC was unable to use its railroad facilities during the crop
year 1968-1969 due to the closure in 1968 of the portion of the

railway traversing the hacienda Helvetia as per decision of the Court in

Angela Estate, Inc. and Fernando F. Gonzaga, Inc. v. Court of First
Instance of Negros Occidental, G.R. No. L-27084, (24 SCRA 500
[1968]). In the same case the Court ruled that the Central's
conventional right of way over the hacienda Helvetia ceased with the
expiration of its amended milling contracts with the landowners of the
hacienda at the end of the 1964-1965 crop year and that in the
absence of a renewal contract or the establishment of a compulsory
servitude of right of way on the same spot and route which must be
predicated on the satisfaction of the preconditions required by law,
there subsists no right of way to be protected.
Consequently, the owners of the hacienda Helvetia required the
Central to remove the railway tracks in the hacienda occupying at
least 3,245 lineal meters with a width of 7 meters or a total of 22,715
square meters, more or less. That was the natural consequence of the
expiration of the milling contracts with the landowners of the hacienda
Helvetia (Angela Estate, Inc. and Fernando Gonzaga, Inc. v. Court of
First Instance of Negros Occidental, ibid). BMMC filed a complaint for
legal easement against the owners of the hacienda, with the Court of
First Instance of Negros Occidental which issued on October 4, 1965
an ex partewrit of preliminary injunction restraining the landowners
from reversing and/or destroying the railroad tracks in question and
from impeding, obstructing or in any way preventing the passage and
operation of plaintiffs locomotives and cane cars over defendants'
property during the pendency of the litigation and maintained the
same in its subsequent orders of May 31, and November 26, 1966. The
outcome of the case, however, was not favorable to the plaintiff
BMMC. In the same case the landowners asked this Court to restrain
the lower court from enforcing the writ of preliminary injunction it
issued, praying that after the hearing on the merits, the restraining
order be made permanent and the orders complained of be annulled
and set aside. The Court gave due course to the landowner's petition
and on August 10, 1967 issued the writ of preliminary injunction
enjoining the lower court from enforcing the writ of preliminary
injunction issued by the latter on October 4, 1965.
The writ of preliminary injunction issued by the Court was lifted
temporarily on motion that through the mediation of the President of
the Philippines the Angela Estate and the Gonzaga Estate agreed with
the Central to allow the use of the railroad tracks passing through the
hacienda Helvetia during the 1967-1968 milling season only, for the
same purpose for which they had been previously used, but it was
understood that the lifting of the writ was without prejudice to the
respective rights and positions of the parties in the case and not
deemed a waiver of any of their respective claims and allegations in
G.R. No. L-27084 or in any other case between the same parties,
future or pending. The Court resolved to approve the motion only up to

and including June 30, 1968 to give effect to the agreement but to be
deemed automatically reinstated beginning July 1, 1968 (Angela
Estate, Inc. and Fernando F. Gonzaga, Inc. v. Court of First Instance of
Negros Occidental, ibid.).
The temporary lifting of the writ of preliminary injunction assured the
milling of the 1967-1968 crop but not the produce of the succeeding
crop years which situation was duly communicated by the President
and General Manager of the BMMC to the President of Bacolod-Murcia
Sugar Farmers Corporation (BMSFC) on January 2, 1968. 3
On October 30, 1968, Alonso Gatuslao, one of private respondents
herein, and his wife, Maria H. Gatuslao, filed Civil Case No. 8719 in the
Court of First Instance of Negros Occidental, against petitioner herein,
Bacolod-Murcia Milling Co., Inc. (BMMC), for breach of contract,
praying among others, for the issuance of a writ of preliminary
mandatory injunction ordering defendant to immediately send
transportation facilities and haul the already cut sugarcane to the mill
site and principally praying after hearing, that judgment be rendered
declaring the rescission of the milling contract executed by plaintiffs
and defendant in 1957 for seventeen (17) years or up to crop year
1973-74, invoking as ground the alleged failure and/or inability of
defendant to comply with its specific obligation of providing the
necessary transportation facilities to haul the sugarcane of Gatuslao
from plaintiffs plantation specifically for the crop year 1967-1968.
Plaintiffs further prayed for the recovery of actual and compensatory
damages as well as moral and exemplary damages and attorney's
fees. 4
In answer, defendant BMMC claimed that despite its inability to use its
railways system for its locomotives and cane cars to haul the
sugarcanes of all its adhered planters including plaintiffs for the 196869 crop year allegedly due to force majeure, in order to comply with
its obligation, defendant hired at tremendous expense, private trucks
as prime movers for its trailers to be used for hauling of the canes,
especially for those who applied for and requested transportation
facilities. Plaintiffs, being one of said planters, instead of loading their
cut canes for the 1968-69 crop on the cargo trucks of defendant,
loaded their cut canes on trucks provided by the Bacolod-Murcia
Agricultural Cooperative Marketing Association, Inc. (B-M ACMA) which
transported plaintiffs' canes of the 1968-69 sugarcanes crop.
Defendant prayed in its counterclaim for the dismissal of Civil Case No.
8719 for the recovery of actual damages, moral and exemplary
damages and for attorney's fees. 5
On November 21, 1968, BMMC filed in the same court Civil Case No.
8745 against Alonso Gatuslao, the Agro-Industrial Development of
Silay-Saravia (AIDSISA) and the Bacolod-Murcia Agricultural

Cooperative Marketing Associations, Inc. (B-M ACMA), seeking specific

performance under the mining contract executed on May 24, 1957
between plaintiff and defendant Alonso Gatuslao praying for the
issuance of writs of preliminary mandatory injunction to stop the
alleged violation of the contract by defendant Alonso Gatuslao in
confederation, collaboration and connivance with defendant BM-ACMA,
AIDSISA, and for the recovery of actual, moral and exemplary
damages and attorney's fees. 6
Defendant Alonso Gatuslao and the Bacolod-Murcia Agricultural
Cooperative Marketing Association, Inc. filed their answer on January
27, 1969 with compulsory counter-claims, stating by way of special
and affirmative defense, among others, that the case is barred by
another action pending between the same parties for the same cause
of action. 7
Defendant Agro-Industrial Development Corporation of Silay-Saravia,
Inc. filed its answer on February 8, 1969, alleging among others by
way of affirmative defense that before it agreed to mill the sugarcane
of its co-defendant Alonso Gatuslao, it carefully ascertained and
believed in good faith that: (a) plaintiff was incapable of the sugarcane
of AIDSISA's co-defendant planters as well as the sugarcane of other
planters formerly adherent to plaintiff, (b) plaintiff had in effect agreed
to a rescission of its milling contracts with its adhered planters,
including the defendant planter, because of inadequate means of
transportation. and had warned and advised them to mill their
sugarcane elsewhere, and had thus induced them to believe and act
on the belief, that it could not mill their sugarcane and that it would
not object to their milling with other centrals; and (c) up to now
plaintiff is incapable of hauling the sugarcane of AIDSISA's codefendants to plaintiffs mill site for milling purposes.
The two cases, Civil Cases Nos. 8719 and 8745 were consolidated for
joint trial before Branch II of the Court of First Instance of Negros
Occidental. 8 On September 8, 1969, the parties in both civil cases
filed their partial stipulation of facts which included a statement of the
issues raised by the parties. 9
On February 6, 1976, the lower court rendered judgment declaring the
milling contract dated May 24, 1957 rescinded. The dispositive portion
of the decision 10 reads:
WHEREFORE, judgment is hereby rendered as follows:
(1) In Civil Case No. 8719 the milling contract (Exh.
"121") dated May 24, 1957 is hereby declared
rescinded or resolved and the defendant BacolodMurcia Company, Inc. is hereby ordered to pay

plaintiffs Alonso Gatuslao and Maria H. Gatuslao the

amount of P2,625.00 with legal interest from the time
of the filing of the complaint by way of actual
damages; P5,000.00 as attorney's fees and the costs
of the suit; defendant's counterclaim is dismissed; and
(2) The complaint in Civil Case No. 8745 as well as the
counterclaims therein are ordered dismissed, without
costs.
Bacolod-Murcia Milling Co., Inc. defendant in Civil Case No. 8719 and
plaintiff in Civil Case No. 8745 appealed the case to respondent Court
of Appeals which affirmed in toto (Rollo, p. 81) the decision of the
lower court. The motion for reconsideration filed by defendantappellant Bacolod-Murcia Milling Company, petitioner herein, was
denied by the appellate court for lack of merit. 11 Hence, this petition.
The issues 12 raised by petitioner are as follows:
I
WHETHER OR NOT THE CLOSURE OF PETITIONER'S
RAIL ROAD LINES CONSTITUTE FORCE MAJEURE.
II
WHETHER OR NOT PRIVATE RESPONDENT GATUSLAO
HAS THE RIGHT TO RESCIND THE MILLING CONTRACT
WITH PETITIONER UNDER ARTICLE 1191 OF THE CIVIL
CODE.
III
WHETHER OR NOT PRIVATE RESPONDENT GATUSLAO
WAS JUSTIFIED IN VIOLATING HIS MILLING CONTRACT
WITH PETITIONER.
IV
WHETHER OR NOT PRIVATE RESPONDENTS GATUSLAO
AND B-M ACMA ARE GUILTY OF BAD FAITH IN THE
EXERCISE OF THEIR DUTIES AND ARE IN ESTOPPEL TO
QUESTION THE ADEQUACY OF THE TRANSPORTATION
FACILITIES OF PETITIONER AND ITS CAPACITY TO MILL
AND HAUL THE CANES OF ITS ADHERENT PLANTERS.
The crux of the issue is whether or not the termination of petitioner's
right of way over the hacienda Helvetia caused by the expiration of its
amended milling contracts with the landowners of the lands in
question is a fortuitous event or force majeure which will exempt
petitioner BMMC from fulfillment of its contractual obligations.
It is the position of petitioner Bacolod-Murcia Milling Co., Inc. (BMMC)
that the closure of its railroad lines constitute force majeure, citing
Article 1174 of the Civil Code, exempting a person from liability for
events which could not be foreseen or which though foreseen were
inevitable.

This Court has consistently ruled that when an obligor is exempted

from liability under the aforecited provision of the Civil Code for a
breach of an obligation due to an act of God, the following elements
must concur: (a) the cause of the breach of the obligation must be
independent of the wig of the debtor; (b) the event must be either
unforseeable or unavoidable; (c) the event must be such as to render
it impossible for the debtor to fulfill his obligation in a normal manner;
(d) the debtor must be free from any participation in, or aggravation of
the injury to the creditor (Vasquez v. Court of Appeals, 138 SCRA 553
[1985]; Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596
[1986]). Applying the criteria to the instant case, there can be no other
conclusion than that the closure of the railroad tracks does not
constitute force majeure.
The terms of the milling contracts were clear and undoubtedly there
was no reason for BAMC to expect otherwise. The closure of any
portion of the railroad track, not necessarily in the hacienda Helvetia
but in any of the properties whose owners decided not to renew their
milling contracts with the Central upon their expiration, was forseeable
and inevitable.
Petitioner Central should have anticipated and should have provided
for the eventuality before committing itself. Under the circumstances it
has no one to blame but itself and cannot now claim exemption from
liability.
In the language of the law, the event must have been impossible to
foresee, or if it could be foreseen, must have been impossible to avoid.
There must be an entire exclusion of human agency from the cause of
the injury or loss (Vasquez v. Court of Appeals, supra). In the case at
bar, despite its awareness that the conventional contract of lease
would expire in Crop Year 1964-1965 and that refusal on the part of
any one of the landowners to renew their milling contracts and the
corresponding use of the right of way on their lands would render
impossible compliance of its commitments, petitioner took a
calculated risk that all the landowners would renew their contracts.
Unfortunately, the sugar plantation of Angela Estate, Inc. which is
located at the entrance of the mill was the one which refused to renew
its milling contract. As a result, the closure of the railway located
inside said plantation paralyzed the entire transportation system.
Thus, the closure of the railway lines was not an act of God nor does it
constitute force majeure. It was due to the termination of the
contractual relationships of the parties, for which petitioner is charged
with knowledge. Verily, the lower court found that the Angela Estate,
Inc. notified BMMC as far back as August or September 1965 of its
intention not to allow the passage of the railway system thru its land

after the aforesaid crop year. Adequate measures should have been
adopted by BMMC to forestall such paralyzation but the records show
none. All its efforts were geared toward the outcome of the court
litigation but provided no solutions to the transport problem early
enough in case of an adverse decision.
The last three issues being inter-related will be treated as one. Private
respondent Gatuslao filed an action for rescission while BMMC filed in
the same court an action against Gatuslao, the Agro Industrial
Development Silay Saravia (AIDSISA) and the Bacolod-Murcia
Agricultural Cooperative Marketing Associations, Inc. (B-M ACMA) for
specific performance under the milling contract.
There is no question that the contract in question involves reciprocal
obligations; as such party is a debtor and creditor of the other, such
that the obligation of one is dependent upon the obligation of the
other. They are to be performed simultaneously so that the
performance of one is conditioned upon the simultaneous fulfillment of
the other (Boysaw v. Interphil Promotions, Inc., 148 SCRA 643 [1987]).
Under Article 1191 of the Civil Code, the power to rescind obligations
is implied in reciprocal ones in case one of the obligors should not
comply with what is incumbent upon him. In fact, it is well established
that the party who deems the contract violated may consider it
revoked or rescinded pursuant to their agreement and act accordingly,
even without previous court action (U.P. v. de los Angeles, 35 SCRA
102 [1970]; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43
SCRA 94 [1972]).
It is the general rule, however, that rescission of a contract will not be
permitted for a slight or casual breach, but only for such substantial
and fundamental breach as would defeat the very object of the parties
in making the agreement. The question of whether a breach of a
contract is substantial depends upon the attendant circumstances
(Universal Food Corporation v. Court of Appeals, et al., 33 SCRA 1
[1970]).
The issue therefore, hinges on who is guilty of the breach of the milling
contract.
Both parties are agreed that time is of the essence in the sugar
industry; so that the sugarcanes have to be milled at the right time,
not too early or too late, if the quantity and quality of the juice are to
be assured. As found by the trial court, upon the execution of the
amended milling contract on May 24, 1957 for a period of 17 crop
years, BMMC undertook expressly among its principal prestations not
only to mill Gatuslao's canes but to haul them by railway from the
loading stations to the mill. Atty. Solidum, Chief Legal Counsel and in

Charge of the Legal-Crop Loan Department of the BMMC Bacolod City

admits that the mode of transportation of canes from the fields to the
mill is a vital factor in the sugar industry; precisely for this reason the
mode of transportation or hauling the canes is embodied in the milling
contract. 13 But BMMC is now unable to haul the canes by railways as
stipulated because of the closure of the railway lines; so that
resolution of this issue ultimately rests on whether or not BMMC was
able to provide adequate and efficient transportation facilities of the
canes of Gatuslao and the other planters milling with BMMC during the
crop year 1968-1969. As found by both the trial court and the Court of
Appeals, the answer is in the negative.
Armando Guanzon, Dispatcher of the Transportation Department of
BMMC testified that when the Central was still using the railway lines,
it had between 900 to 1,000 cane cars and 10 locomotives, each
locomotive pulling from 30 to 50 cane cars with maximum capacity of
8 tons each. 14 This testimony was corroborated by Rodolfo Javelosa,
Assistant Crop Loan Inspector in the Crop Loan Department of
petitioner. 15 After the closure of the railway lines, petitioner on
February 5, 1968 through its President and General Manager, informed
the National Committee of the National Federation of Sugarcane
Planters that the trucking requirement for hauling adherent planters
produce with a milling average of 3,500 tons of canes daily at an
average load of 5 tons per truck is not less than 700 trucks daily plus
another 700 empty trucks to be shuttled back to the plantations to be
available for loading the same day. 16 Guanzon, however, testified that
petitioner had only 280 units of trailers, 20 tractors and 3 trucks plus
20 trucks more or less hired by the Central and given as repartos
(allotments) to the different planters. 17 The 180 trailers that the
Central initially had were permanently leased to some planters who
had their own cargo trucks while out of the 250 BMMC trailers existing
during the entire milling season only 70 were left available to the rest
of the planters pulled by 3 trucks. 18
It is true that BMMC purchased 20 units John Deere Tractors (prime
movers) and 230 units, Vanguard Trailers with land capacity of 3 tons
each but that was only on October 1968 as registered in the Land
Transportation Commission, Bacolod City. 19
The evidence shows that great efforts had been exerted by the
planters to enter into some concrete understanding with BMMC with a
view of obtaining a reasonable assurance that the latter would be able
to haul and mill their canes for the 1968-1969 crop year, but to no
avail. 20
As admitted by BMMC itself, in its communications with the planters, it
is not in a position to provide adequate transportation for the canes in
compliance with its commitment under the milling contract. Said
communications 21 were quoted by the Court of Appeals as follows:

We are sorry to inform you that unless we can work

out a fair and equitable solution to this problem of
closure of our railroad lines, the milling of your canes
for the crop year 1968-69 would be greatly hampered
to the great detriment of our economy and the near
elimination of the means of livelihood of most planters
and the possible starvation of thousands of laborers
working in the sugar District of Bacolod-Murcia Milling
Co.
and
We are fully conscious of our contractual obligations to
our existing Milling Contract. But, if prevented by
judicial order we will find ourselves unable to serve
you in the hauling of the canes through our railroad
lines. It is for this reason that we suggest you explore
other solutions to the problem in the face of such an
eventuality so that you may be able to proceed with
the planting of your canes with absolute peace of mind
and the certainty that the same will be properly milled
and not left to rot in the fields.
also,
In the meantime, and before July 1, 1968, the end of
the temporary arrangement we have with Fernando
Gonzaga, Inc. and the Angela Estate, Inc. for the use of
the rights of ways, our lawyers are studying the
possibility of getting a new injunction from the
Supreme Court or the Court of First Instance of Negros
Occidental based on the new grounds interposed in
said memorandum not heretofore raised previously
nor in the Capitol Subdivision case. And if we are doing
this, it is principally to prevent any injury to your crops
or foreclosure of your property, which is just in line
with the object of your plans.
On March 26, 1968 the President of the Bacolod-Murcia Sugar Farmer's
Corporation writing on behalf of its planter-members demanded to
know the plans of the Central for the crop year 1968-1969, stating that
if they fail to hear from the Central on or before the 15th of April they
will feel free to make their own plans in order to save their crops and
the possibility of foreclosure of their properties. 22
In its letter dated April 1, 1968, the president of BMMC simply
informed the Bacolod-Murcia Sugar Farmer's Corporation that they
were studying the possibility of getting a new injunction from the court
before expiration of their temporary arrangement with Fernando
Gonzaga, Inc. and the Angela Estate, Inc. 23

Pressing for a more definite commitment (not a mere hope or

expectation), on May 30, 1968 the Bacolod-Murcia Sugar Farmer's
Corporation requested the Central to put up a performance bond in
the amount of P13 million within a 5-day period to allay the fears of
the planters that their sugar canes can not be milled at the Central in
the coming milling season. 24
BMMC's reply was only to express optimism over the final outcome of
its pending cases in court.
Hence, what actually happened afterwards is that petitioner failed to
provide adequate transportation facilities to Gatuslao and other
adherent planters.
As found by the trial court, the experience of Alfonso Gatuslao at the
start of the 1968-1969 milling season is reflective of the inadequacies
of the reparto or trailer allotment as well as the state of
unpreparedness on the part of BMMC to meet the problem posed by
the closure of the railway lines.
It was established that after Gatuslao had cut his sugarcanes for
hauling, no trailers arrived and when two trailers finally arrived on
October 20, 1968 after several unheeded requests, they were left on
the national highway about one (1) kilometer away from the loading
station. Such fact was confirmed by Carlos Butog the driver of the
truck that hauled the trailers. 25
Still further, Javelosa, Assistant Crop Loan Inspector, testified that the
estimated production of Gatuslao for the crop year 1968-1969 was
4,400 piculs hauled by 10 cane cars a week with a maximum capacity
of 8 tons.26 Compared with his later schedule of only one trailer a week
with a maximum capacity of only 3 to 4 tons, 27 there appears to be no
question that the means of transportation provided by BMMC is very
inadequate to answer the needs of Gatuslao.
Undoubtedly, BMMC is guilty of breach of the conditions of the milling
contract and that Gatuslao is the injured party. Under the same Article
1191 of the Civil Code, the injured party may choose between the
fulfillment and the rescission of the obligation, with the payment of
damages in either case. In fact, he may also seek rescission even after
he had chosen fulfillment if the latter should become impossible.
Under the foregoing, Gatuslao has the right to rescind the milling
contract and neither the court a quo erred in decreeing the rescission
claimed nor the Court of Appeals in affirming the same.

Conversely, BMMC cannot claim enforcement of the contract. As ruled

by this Court, by virtue of the violations of the terms of the contract,
the offending party has forfeited any right to its enforcement (Boysaw
v. Interphil Promotions, Inc., 148 SCRA 645 [1987]).
Likewise, the Bacolod-Murcia Agricultural Cooperative Marketing
Association, Inc. (B-M ACMA) cannot be faulted for organizing itself to
take care of the needs of its members. Definitely, it was organized at
that time when petitioner could not assure the planters that it could
definitely haul and mill their canes. More importantly, as mentioned
earlier in a letter dated January 12, 1968, J. Araneta, President &
General Manager of the Central itself suggested to the Bacolod-Murcia
Sugar Farmer's Corporation that it explore solutions to the problem of
hauling the canes to the milling station in the face of the eventuality
of a judicial order permanently closing the railroad lines so that the
planters may be able to proceed with their planting of the canes with
absolute peace of mind and the certainty that they will be properly
milled and not left to rot in the fields. As a result, the signing of the
milling contract between private respondents AIDSISA and B-M-ACMA
on June 19, 1968 28 was a matter of self-preservation inasmuch as the
sugarcanes were already matured and the planters had crop loans to
pay. Further delay would mean tremendous losses. 29
In its defense AIDSISA stressed as earlier stated, that it agreed to mill
the sugarcanes of Gatuslao only after it had carefully ascertained and
believed in good faith that BMMC was incapable of milling the
sugarcanes of the adherent planters because of inadequate
transportation and in fact up to now said Central is incapable of
hauling the sugarcanes of the said planters to its mill site for milling
purposes.
As an extra precaution, AIDSISA provided in paragraph 15 30 of its
milling contract that
If any member of the planter has an existing milling
contract with other sugar central, then this milling
contract with the Central shall be of no force and
effect with respect to that member or those members
having such contract, if that other sugar central is
able, ready and willing, to mill said member or
members' canes in accordance with their said milling
contract. (Emphasis supplied)
The President of BANC himself induced the planters to believe and to
act on the belief that said Central would not object to the milling of
their canes with other centrals.
Under the circumstances, no evidence of bad faith on the part of
private respondents could be found much less any plausible reason to

disturb the findings and conclusions of the trial court and the Court of
Appeals.
PREMISES CONSIDERED, the petition is hereby DENIED for lack of
merit and the decision of the Court of Appeals is hereby AFFIRMED in
toto.
SO ORDERED.
Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado, JJ.,
concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 147324
May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE
CORPORATION, petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio
Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE
CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing the Decision of
the Court of Appeals, dated 27 February 2001, in CA-G.R. CV No.
63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio
Corporation, now Globe Telecom, Inc. (Globe), had been engaged in
the coordination of the provision of various communication facilities
for the military bases of the United States of America (US) in Clark Air
Base, Angeles, Pampanga and Subic Naval Base in Cubi Point,
Zambales. The said communication facilities were installed and
configured for the exclusive use of the US Defense Communications
Agency (USDCA), and for security reasons, were operated only by its
personnel or those of American companies contracted by it to operate
said facilities. The USDCA contracted with said American companies,
and the latter, in turn, contracted with Globe for the use of the
communication facilities. Globe, on the other hand, contracted with
local service providers such as the Philippine Communications Satellite
Corporation (Philcomsat) for the provision of the communication
facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement
whereby Philcomsat obligated itself to establish, operate and provide
an IBS Standard B earth station (earth station) within Cubi Point for the
exclusive use of the USDCA.2 The term of the contract was for 60
months, or five (5) years.3 In turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved.4
At the time of the execution of the Agreement, both parties knew that
the Military Bases Agreement between the Republic of the Philippines
and the US (RP-US Military Bases Agreement), which was the basis for

the occupancy of the Clark Air Base and Subic Naval Base in Cubi
Point, was to expire in 1991. Under Section 25, Article XVIII of the 1987
Constitution, foreign military bases, troops or facilities, which include
those located at the US Naval Facility in Cubi Point, shall not be
allowed in the Philippines unless a new treaty is duly concurred in by
the Senate and ratified by a majority of the votes cast by the people in
a national referendum when the Congress so requires, and such new
treaty is recognized as such by the US Government.
Subsequently, Philcomsat installed and established the earth station
at Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate
Resolution No. 141, expressing its decision not to concur in the
ratification of the Treaty of Friendship, Cooperation and Security and
its Supplementary Agreements that was supposed to extend the term
of the use by the US of Subic Naval Base, among others. 5 The last two
paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework for
the continuing relationship between the two countries in the
spirit of friendship, cooperation and sovereign equality: Now,
therefore, be it Resolved by the Senate, as it is hereby
resolved, To express its decision not to concur in the
ratification of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements, at the same time
reaffirming its desire to continue friendly relations with the
government and people of the United States of America. 6
On 31 December 1991, the Philippine Government sent a Note
Verbale to the US Government through the US Embassy, notifying it of
the Philippines termination of the RP-US Military Bases Agreement.
The Note Verbalestated that since the RP-US Military Bases
Agreement, as amended, shall terminate on 31 December 1992, the
withdrawal of all US military forces from Subic Naval Base should be
completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its
intention to discontinue the use of the earth station effective 08
November 1992 in view of the withdrawal of US military personnel
from Subic Naval Base after the termination of the RP-US Military
Bases Agreement. Globe invoked as basis for the letter of termination
Section 8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default
for any failure to perform its obligation under this Agreement if
such failure results directly or indirectly from force majeure or
fortuitous event. Either party is thus precluded from
performing its obligation until such force majeure or fortuitous
event shall terminate. For the purpose of this paragraph, force

majeure shall mean circumstances beyond the control of the

party involved including, but not limited to, any law, order,
regulation, direction or request of the Government of the
Philippines, strikes or other labor difficulties, insurrection riots,
national emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating
that "we expect [Globe] to know its commitment to pay the stipulated
rentals for the remaining terms of the Agreement even after [Globe]
shall have discontinue[d] the use of the earth station after November
08, 1992."7 Philcomsat referred to Section 7 of the Agreement, stating
as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the earth
station after it has been put into operation, a written notice
shall be served to PHILCOMSAT at least sixty (60) days prior to
the expected date of termination. Notwithstanding the non-use
of the earth station, [Globe] shall continue to pay PHILCOMSAT
for the rental of the actual number of T1 circuits in use, but in
no case shall be less than the first two (2) T1 circuits, for the
remaining life of the agreement. However, should PHILCOMSAT
make use or sell the earth station subject to this agreement,
the obligation of [Globe] to pay the rental for the remaining
life of the agreement shall be at such monthly rate as may be
agreed upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent
Globe a letter dated 24 November 1993 demanding payment of its
outstanding obligations under the Agreement amounting to
US$4,910,136.00 plus interest and attorneys fees. However, Globe
refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of
Makati a Complaint against Globe, praying that the latter be ordered
to pay liquidated damages under the Agreement, with legal interest,
exemplary damages, attorneys fees and costs of suit. The case was
raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was
constrained to end the Agreement due to the termination of the RP-US
Military Bases Agreement and the non-ratification by the Senate of the
Treaty of Friendship and Cooperation, which events constituted force
majeure under the Agreement. Globe explained that the occurrence of
said events exempted it from paying rentals for the remaining period
of the Agreement.

On 05 January 1999, the trial court rendered its Decision, the

dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Ordering the defendant to pay the plaintiff the
amount of Ninety Two Thousand Two Hundred Thirty
Eight US Dollars (US$92,238.00) or its equivalent in
Philippine Currency (computed at the exchange rate
prevailing at the time of compliance or payment)
representing rentals for the month of December 1992
with interest thereon at the legal rate of twelve
percent (12%) per annum starting December 1992
until the amount is fully paid;
2. Ordering the defendant to pay the plaintiff the
amount of Three Hundred Thousand (P300,000.00)
Pesos as and for attorneys fees;
3. Ordering the DISMISSAL of defendants counterclaim
for lack of merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial courts Decision to the Court of
Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the nonratification by the Senate of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements constitutes force
majeure which exempts Globe from complying with its obligations
under the Agreement; (2) Globe is not liable to pay the rentals for the
remainder of the term of the Agreement; and (3) Globe is not liable to
Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it
liable for payment of rent of the earth station for December 1992 and
of attorneys fees. It explained that it terminated Philcomsats services
on 08 November 1992; hence, it had no reason to pay for rentals
beyond that date.
On 27 February 2001, the Court of Appeals promulgated
its Decision dismissing Philcomsats appeal for lack of merit and
affirming the trial courts finding that certain events constituting force
majeure under Section 8 the Agreement occurred and justified the
non-payment by Globe of rentals for the remainder of the term of the
Agreement.
The appellate court ruled that the non-ratification by the Senate of the
Treaty of Friendship, Cooperation and Security, and its Supplementary
Agreements, and the termination by the Philippine Government of the
RP-US Military Bases Agreement effective 31 December 1991 as stated

in the Philippine Governments Note Verbale to the US Government,

are acts, directions, or requests of the Government of the Philippines
which constitute force majeure. In addition, there were circumstances
beyond the control of the parties, such as the issuance of a formal
order by Cdr. Walter Corliss of the US Navy, the issuance of the letter
notification from ATT and the complete withdrawal of all US military
forces and personnel from Cubi Point, which prevented further use of
the earth station under the Agreement.
However, the Court of Appeals ruled that although Globe sought to
terminate Philcomsats services by 08 November 1992, it is still liable
to pay rentals for the December 1992, amounting to US$92,238.00
plus interest, considering that the US military forces and personnel
completely withdrew from Cubi Point only on 31 December 1992. 10
Both parties filed their respective Petitions for Review assailing
the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following
assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING
A DEFINITION OF FORCE MAJEUREDIFFERENT FROM WHAT ITS
LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL
CODE, PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM
COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR
RENTALS FOR THE REMAINING TERM OF THE AGREEMENT,
DESPITE THE CLEAR TENOR OF SECTION 7 OF THE
AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING
THE TRIAL COURTS AWARD OF ATTORNEYS FEES IN FAVOR OF
PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR
EXEMPLARY DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases
Agreement cannot be considered a fortuitous event because the
happening thereof was foreseeable. Although the Agreement was
freely entered into by both parties, Section 8 should be deemed
ineffective because it is contrary to Article 1174 of the Civil Code.
Philcomsat posits the view that the validity of the parties definition
of force majeure in Section 8 of the Agreement as "circumstances
beyond the control of the party involved including, but not limited to,
any law, order, regulation, direction or request of the Government of

the Philippines, strikes or other labor difficulties, insurrection riots,

national emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God," should be deemed
subject to Article 1174 which defines fortuitous events as events
which could not be foreseen, or which, though foreseen, were
inevitable.13
Philcomsat further claims that the Court of Appeals erred in holding
that Globe is not liable to pay for the rental of the earth station for the
entire term of the Agreement because it runs counter to what was
plainly stipulated by the parties in Section 7 thereof. Moreover, said
ruling is inconsistent with the appellate courts pronouncement that
Globe is liable to pay rentals for December 1992 even though it
terminated Philcomsats services effective 08 November 1992,
because the US military and personnel completely withdrew from Cubi
Point only in December 1992. Philcomsat points out that it was Globe
which proposed the five-year term of the Agreement, and that the
other provisions of the Agreement, such as Section 4.114 thereof,
evince the intent of Globe to be bound to pay rentals for the entire
five-year term.15
Philcomsat also maintains that contrary to the appellate courts
findings, it is entitled to attorneys fees and exemplary damages. 16
In its Comment to Philcomsats Petition, Globe asserts that Section 8
of the Agreement is not contrary to Article 1174 of the Civil Code
because said provision does not prohibit parties to a contract from
providing for other instances when they would be exempt from
fulfilling their contractual obligations. Globe also claims that the
termination of the RP-US Military Bases Agreement constitutes force
majeure and exempts it from complying with its obligations under the
Agreement.17 On the issue of the propriety of awarding attorneys fees
and exemplary damages to Philcomsat, Globe maintains that
Philcomsat is not entitled thereto because in refusing to pay rentals for
the remainder of the term of the Agreement, Globe only acted in
accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the
Court of Appeals erred in finding it liable for the amount of
US$92,238.00, representing rentals for December 1992, since
Philcomsats services were actually terminated on 08 November
1992.20
In its Comment, Philcomsat claims that Globes petition should be
dismissed as it raises a factual issue which is not cognizable by the
Court in a petition for review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course to
Philcomsats Petition in G.R. No.

147324 and required the parties to submit their respective

memoranda.22
Similarly, on 20 August 2001, the Court issued a Resolution giving due
course to the Petition filed by Globe in G.R. No. 147334 and required
both parties to submit their memoranda.23
Philcomsat and Globe thereafter filed their respective Consolidated
Memoranda in the two cases, reiterating their arguments in their
respective petitions.
The Court is tasked to resolve the following issues: (1) whether the
termination of the RP-US Military Bases Agreement, the nonratification of the Treaty of Friendship, Cooperation and Security, and
the consequent withdrawal of US military forces and personnel from
Cubi Point constitute force majeure which would exempt Globe from
complying with its obligation to pay rentals under its Agreement with
Philcomsat; (2) whether Globe is liable to pay rentals under the
Agreement for the month of December 1992; and (3) whether
Philcomsat is entitled to attorneys fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing
the assailed Decision; hence the petitions are denied.
There is no merit is Philcomsats argument that Section 8 of the
Agreement cannot be given effect because the enumeration of events
constituting force majeure therein unduly expands the concept of a
fortuitous event under Article 1174 of the Civil Code and is therefore
invalid.
In support of its position, Philcomsat contends that under Article 1174
of the Civil Code, an event must be unforeseen in order to exempt a
party to a contract from complying with its obligations therein. It
insists that since the expiration of the RP-US Military Bases
Agreement, the non-ratification of the Treaty of Friendship,
Cooperation and Security and the withdrawal of US military forces and
personnel from Cubi Point were not unforeseeable, but were
possibilities known to it and Globe at the time they entered into the
Agreement, such events cannot exempt Globe from performing its
obligation of paying rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on
account of fortuitous events or force majeure, refers not only to events
that are unforeseeable, but also to those which are foreseeable,
but inevitable:
Art. 1174. Except in cases specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be

responsible for those events which, could not be foreseen, or

which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God," or
natural occurrences such as floods or typhoons,24 or an "act of man,"
such as riots, strikes or wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement that the
following events shall be deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the
Philippine Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but
beyond the control of the parties. There is nothing in the enumeration
that runs contrary to, or expands, the concept of a fortuitous event
under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a
contract may establish such stipulations, clauses, terms and
conditions as they may deem fit, as long as the same do not run
counter to the law, morals, good customs, public order or public
policy.27
Article 1159 of the Civil Code also provides that "[o]bligations arising
from contracts have the force of law between the contracting parties
and should be complied with in good faith."28 Courts cannot stipulate
for the parties nor amend their agreement where the same does not
contravene law, morals, good customs, public order or public policy,
for to do so would be to alter the real intent of the parties, and would
run contrary to the function of the courts to give force and effect
thereto.29
Not being contrary to law, morals, good customs, public order, or
public policy, Section 8 of the Agreement which Philcomsat and Globe
freely agreed upon has the force of law between them.30
In order that Globe may be exempt from non-compliance with its
obligation to pay rentals under Section 8, the concurrence of the
following elements must be established: (1) the event must be

independent of the human will; (2) the occurrence must render it

impossible for the debtor to fulfill the obligation in a normal manner;
and (3) the obligor must be free of participation in, or aggravation of,
the injury to the creditor.31
The Court agrees with the Court of Appeals and the trial court that the
abovementioned requisites are present in the instant case. Philcomsat
and Globe had no control over the non-renewal of the term of the RPUS Military Bases Agreement when the same expired in 1991, because
the prerogative to ratify the treaty extending the life thereof belonged
to the Senate. Neither did the parties have control over the
subsequent withdrawal of the US military forces and personnel from
Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US
Military Bases Agreement (and its Supplemental Agreements)
under its Resolution No. 141. (Exhibit "2") on September 16,
1991 is beyond the control of the parties. This resolution was
followed by the sending on December 31, 1991 o[f] a "Note
Verbale" (Exhibit "3") by the Philippine Government to the US
Government notifying the latter of the formers termination of
the RP-US Military Bases Agreement (as amended) on 31
December 1992 and that accordingly, the withdrawal of all
U.S. military forces from Subic Naval Base should be
completed by said date. Subsequently, defendant [Globe]
received a formal order from Cdr. Walter F. Corliss II
Commander USN dated July 31, 1992 and a notification from
ATT dated July 29, 1992 to terminate the provision of T1s
services (via an IBS Standard B Earth Station) effective
November 08, 1992. Plaintiff [Philcomsat] was furnished with
copies of the said order and letter by the defendant on August
06, 1992.
Resolution No. 141 of the Philippine Senate and the Note
Verbale of the Philippine Government to the US Government
are acts, direction or request of the Government of the
Philippines and circumstances beyond the control of the
defendant. The formal order from Cdr. Walter Corliss of the
USN, the letter notification from ATT and the complete
withdrawal of all the military forces and personnel from Cubi
Point in the year-end 1992 are also acts and circumstances
beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that
the afore-narrated circumstances constitute "force majeure or
fortuitous event(s) as defined under paragraph 8 of the
Agreement.

From the foregoing, the Court finds that the defendant is

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

issued by Cdr. Corliss of the US Navy, the date when they actually
ceased using the earth station subject of the Agreement was not
established during the trial.34 However, the trial court found that the
US military forces and personnel completely withdrew from Cubi Point
only on 31 December 1992.35 Thus, until that date, the USDCA had
control over the earth station and had the option of using the same.
Furthermore, Philcomsat could not have removed or rendered
ineffective said communication facility until after 31 December 1992
because Cubi Point was accessible only to US naval personnel up to
that time. Hence, the Court of Appeals did not err when it affirmed the
trial courts ruling that Globe is liable for payment of rentals until
December 1992.
Neither did the appellate court commit any error in holding that
Philcomsat is not entitled to attorneys fees and exemplary damages.
The award of attorneys fees is the exception rather than the rule, and
must be supported by factual, legal and equitable justifications. 36 In
previously decided cases, the Court awarded attorneys fees where a
party acted in gross and evident bad faith in refusing to satisfy the
other partys claims and compelled the former to litigate to protect his
rights;37 when the action filed is clearly unfounded,38 or where moral or
exemplary damages are awarded.39 However, in cases where both
parties have legitimate claims against each other and no party
actually prevailed, such as in the present case where the claims of
both parties were sustained in part, an award of attorneys fees would
not be warranted.40
Exemplary damages may be awarded in cases involving contracts or
quasi-contracts, if the erring party acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.41 In the present case, it
was not shown that Globe acted wantonly or oppressively in not
heeding Philcomsats demands for payment of rentals. It was
established during the trial of the case before the trial court that Globe
had valid grounds for refusing to comply with its contractual
obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The
assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619 is
AFFIRMED.
SO ORDERED.
Puno*, Quisumbing, Austria-Martinez, and Callejo, Sr., JJ., concur.

Republic of the Philippines

SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 179337
April 30, 2008
JOSEPH SALUDAGA, petitioner,
vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity
as President of FEU, respondents.
DECISION
YNARES-SANTIAGO, J.:
This Petition for Review on Certiorari1 under Rule 45 of the Rules of
Court assails the June 29, 2007 Decision2 of the Court of Appeals in
CA-G.R. CV No. 87050, nullifying and setting aside the November 10,
2004 Decision3 of the Regional Trial Court of Manila, Branch 2, in Civil
Case No. 98-89483 and dismissing the complaint filed by petitioner; as
well as its August 23, 2007 Resolution4 denying the Motion for
Reconsideration.5
The antecedent facts are as follows:
Petitioner Joseph Saludaga was a sophomore law student of
respondent Far Eastern University (FEU) when he was shot by
Alejandro Rosete (Rosete), one of the security guards on duty at the
school premises on August 18, 1996. Petitioner was rushed to FEU-Dr.
Nicanor Reyes Medical Foundation (FEU-NRMF) due to the wound he
sustained.6Meanwhile, Rosete was brought to the police station where
he explained that the shooting was accidental. He was eventually
released considering that no formal complaint was filed against him.
Petitioner thereafter filed a complaint for damages against
respondents on the ground that they breached their obligation to
provide students with a safe and secure environment and an
atmosphere conducive to learning. Respondents, in turn, filed a ThirdParty Complaint7 against Galaxy Development and Management
Corporation (Galaxy), the agency contracted by respondent FEU to
provide security services within its premises and Mariano D. Imperial
(Imperial), Galaxy's President, to indemnify them for whatever would
be adjudged in favor of petitioner, if any; and to pay attorney's fees
and cost of the suit. On the other hand, Galaxy and Imperial filed a
Fourth-Party Complaint against AFP General Insurance. 8
On November 10, 2004, the trial court rendered a decision in favor of
petitioner, the dispositive portion of which reads:
WHEREFORE, from the foregoing, judgment is hereby rendered
ordering:

1. FEU and Edilberto de Jesus, in his capacity as

president of FEU to pay jointly and severally Joseph
Saludaga the amount of P35,298.25 for actual
damages with 12% interest per annum from the filing
of the complaint until fully paid; moral damages of
P300,000.00, exemplary damages of P500,000.00,
attorney's fees of P100,000.00 and cost of the suit;
2. Galaxy Management and Development Corp. and its
president, Col. Mariano Imperial to indemnify jointly
and severally 3rd party plaintiffs (FEU and Edilberto de
Jesus in his capacity as President of FEU) for the
above-mentioned amounts;
3. And the 4th party complaint is dismissed for lack of
cause of action. No pronouncement as to costs.
SO ORDERED.9
Respondents appealed to the Court of Appeals which rendered the
assailed Decision, the decretal portion of which provides, viz:
WHEREFORE, the appeal is hereby GRANTED. The Decision
dated November 10, 2004 is hereby REVERSED and SET
ASIDE. The complaint filed by Joseph Saludaga against
appellant Far Eastern University and its President in Civil Case
No. 98-89483 is DISMISSED.
SO ORDERED.10
Petitioner filed a Motion for Reconsideration which was denied; hence,
the instant petition based on the following grounds:
THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER
CONTRARY TO LAW AND JURISPRUDENCE IN RULING THAT:
5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;
5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE
INJURY RESULTING FROM A GUNSHOT WOUND SUFFERED BY
THE PETITIONER FROM THE HANDS OF NO LESS THAN THEIR
OWN SECURITY GUARD IN VIOLATION OF THEIR BUILT-IN
CONTRACTUAL OBLIGATION TO PETITIONER, BEING THEIR LAW
STUDENT AT THAT TIME, TO PROVIDE HIM WITH A SAFE AND
SECURE EDUCATIONAL ENVIRONMENT;
5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT
PETITIONER WHILE HE WAS WALKING ON HIS WAY TO THE LAW
LIBRARY OF RESPONDENT FEU IS NOT THEIR EMPLOYEE BY
VIRTUE OF THE CONTRACT FOR SECURITY SERVICES BETWEEN
GALAXY AND FEU NOTWITHSTANDING THE FACT THAT
PETITIONER, NOT BEING A PARTY TO IT, IS NOT BOUND BY THE

SAME UNDER THE PRINCIPLE OF RELATIVITY OF CONTRACTS;

and
5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING
GALAXY AS THE AGENCY WHICH WOULD PROVIDE SECURITY
SERVICES WITHIN THE PREMISES OF RESPONDENT FEU. 11
Petitioner is suing respondents for damages based on the alleged
breach of student-school contract for a safe learning environment. The
pertinent portions of petitioner's Complaint read:
6.0. At the time of plaintiff's confinement, the defendants or
any of their representative did not bother to visit and inquire
about his condition. This abject indifference on the part of the
defendants continued even after plaintiff was discharged from
the hospital when not even a word of consolation was heard
from them. Plaintiff waited for more than one (1) year for the
defendants to perform their moral obligation but the wait was
fruitless. This indifference and total lack of concern of
defendants served to exacerbate plaintiff's miserable
condition.
xxxx
11.0. Defendants are responsible for ensuring the safety of its
students while the latter are within the University premises.
And that should anything untoward happens to any of its
students while they are within the University's premises shall
be the responsibility of the defendants. In this case,
defendants, despite being legally and morally bound,
miserably failed to protect plaintiff from injury and thereafter,
to mitigate and compensate plaintiff for said injury;
12.0. When plaintiff enrolled with defendant FEU, a contract
was entered into between them. Under this contract,
defendants are supposed to ensure that adequate steps are
taken to provide an atmosphere conducive to study and
ensure the safety of the plaintiff while inside defendant FEU's
premises. In the instant case, the latter breached this contract
when defendant allowed harm to befall upon the plaintiff when
he was shot at by, of all people, their security guard who was
tasked to maintain peace inside the campus.12
In Philippine School of Business Administration v. Court of
Appeals,13 we held that:
When an academic institution accepts students for enrollment,
there is established a contract between them, resulting in
bilateral obligations which both parties are bound to comply
with. For its part, the school undertakes to provide the student

with an education that would presumably suffice to equip him

with the necessary tools and skills to pursue higher education
or a profession. On the other hand, the student covenants to
abide by the school's academic requirements and observe its
rules and regulations.
Institutions of learning must also meet the implicit or "built-in"
obligation of providing their students with an atmosphere that
promotes or assists in attaining its primary undertaking of
imparting knowledge. Certainly, no student can absorb the
intricacies of physics or higher mathematics or explore the
realm of the arts and other sciences when bullets are flying or
grenades exploding in the air or where there looms around the
school premises a constant threat to life and limb. Necessarily,
the school must ensure that adequate steps are taken to
maintain peace and order within the campus premises and to
prevent the breakdown thereof.14
It is undisputed that petitioner was enrolled as a sophomore law
student in respondent FEU. As such, there was created a contractual
obligation between the two parties. On petitioner's part, he was
obliged to comply with the rules and regulations of the school. On the
other hand, respondent FEU, as a learning institution is mandated to
impart knowledge and equip its students with the necessary skills to
pursue higher education or a profession. At the same time, it is obliged
to ensure and take adequate steps to maintain peace and order within
the campus.
It is settled that in culpa contractual, the mere proof of the existence
of the contract and the failure of its compliance justify, prima facie, a
corresponding right of relief.15 In the instant case, we find that, when
petitioner was shot inside the campus by no less the security guard
who was hired to maintain peace and secure the premises, there is a
prima facie showing that respondents failed to comply with its
obligation to provide a safe and secure environment to its students.
In order to avoid liability, however, respondents aver that the shooting
incident was a fortuitous event because they could not have
reasonably foreseen nor avoided the accident caused by Rosete as he
was not their employee;16and that they complied with their obligation
to ensure a safe learning environment for their students by having
exercised due diligence in selecting the security services of Galaxy.
After a thorough review of the records, we find that respondents failed
to discharge the burden of proving that they exercised due diligence in
providing a safe learning environment for their students. They failed to
prove that they ensured that the guards assigned in the campus met
the requirements stipulated in the Security Service Agreement.

Indeed, certain documents about Galaxy were presented during trial;

however, no evidence as to the qualifications of Rosete as a security
guard for the university was offered.
Respondents also failed to show that they undertook steps to ascertain
and confirm that the security guards assigned to them actually
possess the qualifications required in the Security Service Agreement.
It was not proven that they examined the clearances, psychiatric test
results, 201 files, and other vital documents enumerated in its
contract with Galaxy. Total reliance on the security agency about these
matters or failure to check the papers stating the qualifications of the
guards is negligence on the part of respondents. A learning institution
should not be allowed to completely relinquish or abdicate security
matters in its premises to the security agency it hired. To do so would
result to contracting away its inherent obligation to ensure a safe
learning environment for its students.
Consequently, respondents' defense of force majeure must fail. In
order for force majeure to be considered, respondents must show that
no negligence or misconduct was committed that may have
occasioned the loss. An act of God cannot be invoked to protect a
person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred
with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not exempt one from
liability. When the effect is found to be partly the result of a person's
participation - whether by active intervention, neglect or failure to act
- the whole occurrence is humanized and removed from the rules
applicable to acts of God.17
Article 1170 of the Civil Code provides that those who are negligent in
the performance of their obligations are liable for damages.
Accordingly, for breach of contract due to negligence in providing a
safe learning environment, respondent FEU is liable to petitioner for
damages. It is essential in the award of damages that the claimant
must have satisfactorily proven during the trial the existence of the
factual basis of the damages and its causal connection to defendant's
acts.18
In the instant case, it was established that petitioner spent P35,298.25
for his hospitalization and other medical expenses.19 While the trial
court correctly imposed interest on said amount, however, the case at
bar involves an obligation arising from a contract and not a loan or
forbearance of money. As such, the proper rate of legal interest is six
percent (6%) per annum of the amount demanded. Such interest shall
continue to run from the filing of the complaint until the finality of this
Decision.20 After this Decision becomes final and executory, the

applicable rate shall be twelve percent (12%) per annum until its
satisfaction.
The other expenses being claimed by petitioner, such as
transportation expenses and those incurred in hiring a personal
assistant while recuperating were however not duly supported by
receipts.21 In the absence thereof, no actual damages may be
awarded. Nonetheless, temperate damages under Art. 2224 of the
Civil Code may be recovered where it has been shown that the
claimant suffered some pecuniary loss but the amount thereof cannot
be proved with certainty. Hence, the amount of P20,000.00 as
temperate damages is awarded to petitioner.
As regards the award of moral damages, there is no hard and fast rule
in the determination of what would be a fair amount of moral damages
since each case must be governed by its own peculiar
circumstances.22 The testimony of petitioner about his physical
suffering, mental anguish, fright, serious anxiety, and moral shock
resulting from the shooting incident23 justify the award of moral
damages. However, moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and
not to impose a penalty on the wrongdoer. The award is not meant to
enrich the complainant at the expense of the defendant, but to enable
the injured party to obtain means, diversion, or amusements that will
serve to obviate the moral suffering he has undergone. It is aimed at
the restoration, within the limits of the possible, of the spiritual status
quo ante, and should be proportionate to the suffering inflicted. Trial
courts must then guard against the award of exorbitant damages; they
should exercise balanced restrained and measured objectivity to avoid
suspicion that it was due to passion, prejudice, or corruption on the
part of the trial court.24 We deem it just and reasonable under the
circumstances to award petitioner moral damages in the amount of
P100,000.00.
Likewise, attorney's fees and litigation expenses in the amount of
P50,000.00 as part of damages is reasonable in view of Article 2208 of
the Civil Code.25 However, the award of exemplary damages is deleted
considering the absence of proof that respondents acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.
We note that the trial court held respondent De Jesus solidarily liable
with respondent FEU. In Powton Conglomerate, Inc. v. Agcolicol,26 we
held that:
[A] corporation is invested by law with a personality separate
and distinct from those of the persons composing it, such that,
save for certain exceptions, corporate officers who entered
into contracts in behalf of the corporation cannot be held
personally liable for the liabilities of the latter. Personal liability

of a corporate director, trustee or officer along (although not

necessarily) with the corporation may so validly attach, as a
rule, only when - (1) he assents to a patently unlawful act of
the corporation, or when he is guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its
stockholders or other persons; (2) he consents to the issuance
of watered down stocks or who, having knowledge thereof,
does not forthwith file with the corporate secretary his written
objection thereto; (3) he agrees to hold himself personally and
solidarily liable with the corporation; or (4) he is made by a
specific provision of law personally answerable for his
corporate action.27
None of the foregoing exceptions was established in the instant case;
hence, respondent De Jesus should not be held solidarily liable with
respondent FEU.
Incidentally, although the main cause of action in the instant case is
the breach of the school-student contract, petitioner, in the
alternative, also holds respondents vicariously liable under Article
2180 of the Civil Code, which provides:
Art. 2180. The obligation imposed by Article 2176 is
demandable not only for one's own acts or omissions, but also
for those of persons for whom one is responsible.

As held in Mercury Drug Corporation v. Libunao:29

In Soliman, Jr. v. Tuazon,30 we held that where the security
agency recruits, hires and assigns the works of its watchmen
or security guards to a client, the employer of such guards or
watchmen is such agency, and not the client, since the latter
has no hand in selecting the security guards. Thus, the duty to
observe the diligence of a good father of a family cannot be
demanded from the said client:
[I]t is settled in our jurisdiction that where the
security agency, as here, recruits, hires and assigns
the work of its watchmen or security guards, the
agency is the employer of such guards or watchmen.
Liability for illegal or harmful acts committed by the
security guards attaches to the employer agency, and
not to the clients or customers of such agency. As a
general rule, a client or customer of a security agency
has no hand in selecting who among the pool of
security guards or watchmen employed by the agency
shall be assigned to it; the duty to observe the
diligence of a good father of a family in the selection
of the guards cannot, in the ordinary course of events,
be demanded from the client whose premises or
property are protected by the security guards.

xxxx
xxxx
Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged
in any business or industry.
xxxx
The responsibility treated of in this article shall cease when
the persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage.
We agree with the findings of the Court of Appeals that respondents
cannot be held liable for damages under Art. 2180 of the Civil Code
because respondents are not the employers of Rosete. The latter was
employed by Galaxy. The instructions issued by respondents' Security
Consultant to Galaxy and its security guards are ordinarily no more
than requests commonly envisaged in the contract for services
entered into by a principal and a security agency. They cannot be
construed as the element of control as to treat respondents as the
employers of Rosete.28

The fact that a client company may give instructions or

directions to the security guards assigned to it, does not, by
itself, render the client responsible as an employer of the
security guards concerned and liable for their wrongful acts or
omissions.31
We now come to respondents' Third Party Claim against Galaxy.
In Firestone Tire and Rubber Company of the Philippines v.
Tempengko,32 we held that:
The third-party complaint is, therefore, a procedural device
whereby a 'third party' who is neither a party nor privy to the
act or deed complained of by the plaintiff, may be brought into
the case with leave of court, by the defendant, who acts as
third-party plaintiff to enforce against such third-party
defendant a right for contribution, indemnity, subrogation or
any other relief, in respect of the plaintiff's claim. The thirdparty complaint is actually independent of and separate and

distinct from the plaintiff's complaint. Were it not for this

provision of the Rules of Court, it would have to be filed
independently and separately from the original complaint by
the defendant against the third-party. But the Rules permit
defendant to bring in a third-party defendant or so to speak, to
litigate his separate cause of action in respect of plaintiff's
claim against a third-party in the original and principal case
with the object of avoiding circuitry of action and unnecessary
proliferation of law suits and of disposing expeditiously in one
litigation the entire subject matter arising from one particular
set of facts.33
Respondents and Galaxy were able to litigate their respective claims
and defenses in the course of the trial of petitioner's complaint.
Evidence duly supports the findings of the trial court that Galaxy is
negligent not only in the selection of its employees but also in their
supervision. Indeed, no administrative sanction was imposed against
Rosete despite the shooting incident; moreover, he was even allowed
to go on leave of absence which led eventually to his
disappearance.34 Galaxy also failed to monitor petitioner's condition or
extend the necessary assistance, other than the P5,000.00 initially
given to petitioner. Galaxy and Imperial failed to make good their
pledge to reimburse petitioner's medical expenses.
For these acts of negligence and for having supplied respondent FEU
with an unqualified security guard, which resulted to the latter's
breach of obligation to petitioner, it is proper to hold Galaxy liable to
respondent FEU for such damages equivalent to the above-mentioned
amounts awarded to petitioner.
Unlike respondent De Jesus, we deem Imperial to be solidarily liable
with Galaxy for being grossly negligent in directing the affairs of the
security agency. It was Imperial who assured petitioner that his
medical expenses will be shouldered by Galaxy but said
representations were not fulfilled because they presumed that
petitioner and his family were no longer interested in filing a formal
complaint against them.35
WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of
the Court of Appeals in CA-G.R. CV No. 87050 nullifying the Decision of
the trial court and dismissing the complaint as well as the August 23,
2007 Resolution denying the Motion for Reconsideration
are REVERSED and SET ASIDE. The Decision of the Regional Trial Court
of Manila, Branch 2, in Civil Case No. 98-89483 finding respondent FEU
liable for damages for breach of its obligation to provide students with
a safe and secure learning atmosphere, is AFFIRMED with the
followingMODIFICATIONS:

a. respondent Far Eastern University (FEU) is ORDERED to pay

petitioner actual damages in the amount of P35,298.25, plus 6%
interest per annum from the filing of the complaint until the finality of
this Decision. After this decision becomes final and executory, the
applicable rate shall be twelve percent (12%) per annum until its
satisfaction;
b. respondent FEU is also ORDERED to pay petitioner temperate
damages in the amount of P20,000.00; moral damages in the amount
of P100,000.00; and attorney's fees and litigation expenses in the
amount of P50,000.00;
c. the award of exemplary damages is DELETED.
The Complaint against respondent Edilberto C. De Jesus is DISMISSED.
The counterclaims of respondents are likewise DISMISSED.
Galaxy Development and Management Corporation (Galaxy) and its
president, Mariano D. Imperial are ORDEREDto jointly and severally
pay respondent FEU damages equivalent to the above-mentioned
amounts awarded to petitioner.
SO ORDERED.
CONSUELO YNARES-SANTIAGO
Associate Justice

Republic of the Philippines

Supreme Court
Manila
THIRD DIVISION
ROBERTO C. SICAM and AGENCIA G.R. NO. 159617
de R.C. SICAM, INC.,
Petitioners,
Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.
LULU V. JORGE and CESAR
JORGE, Promulgated:
Respondents. August 8, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Roberto
C. Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc.
(petitioner corporation) seeking to annul the Decision [1] of the Court of
Appeals dated March 31, 2003, and its Resolution [2] dated August 8,
2003, in CA G.R. CV No. 56633.
It appears that on different dates from September to October
1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry
with Agencia de R. C. Sicamlocated at No. 17 Aguirre Ave., BF
Homes Paraaque, Metro Manila, to secure a loan in the total amount
of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop and took
away whatever cash and jewelry were found inside the pawnshop
vault. The incident was entered in the police blotter of the Southern
Police District, Paraaque Police Station as follows:
Investigation shows that at above TDPO, while victims
were inside the office, two (2) male unidentified persons

entered
into
the
said
office
with
guns
drawn. Suspects(sic) (1) went straight inside and poked
his gun toward Romeo Sicam and thereby tied him with
an electric wire while suspects (sic) (2) poked his gun
toward Divina Mata and Isabelita Rodriguez and ordered
them to lay (sic) face flat on the floor. Suspects asked
forcibly the case and assorted pawned jewelries items
mentioned above.
Suspects after taking the money and jewelries fled on
board a Marson Toyota unidentified plate number.[3]
Petitioner Sicam sent respondent Lulu a letter dated October 19,
1987 informing her of the loss of her jewelry due to the robbery
incident in the pawnshop. On November 2, 1987, respondent Lulu then
wrote a letter[4] to petitioner Sicam expressing disbelief stating that
when the robbery happened, all jewelry pawned were deposited with
Far East Bank near the pawnshop since it had been the practice that
before they could withdraw, advance notice must be given to the
pawnshop so it could withdraw the jewelry from the bank. Respondent
Lulu then requested petitioner Sicam to prepare the pawned jewelry
for withdrawal on November 6, 1987 butpetitioner Sicam failed to
return the jewelry.
On September 28, 1988, respondent Lulu joined by her husband,
Cesar Jorge, filed a complaint against petitioner Sicam with the
Regional Trial Court of Makatiseeking indemnification for the loss of
pawned jewelry and payment of actual, moral and exemplary
damages as well as attorney's fees. The case was docketed as Civil
Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is not the real
party-in-interest as the pawnshop was incorporated on April 20, 1987
and known as Agencia de R.C.Sicam, Inc; that petitioner corporation
had exercised due care and diligence in the safekeeping of the articles
pledged with it and could not be made liable for an event that is
fortuitous.
Respondents subsequently filed
include petitioner corporation.

an

Amended

Complaint

to

Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is

concerned considering that he is not the real party-in-interest.
Respondents opposed the same. The RTC denied the motion in an
Order dated November 8, 1989.[5]

After
trial
on
the
merits,
the
RTC
rendered
its
Decision[6] dated January 12, 1993, dismissing respondents complaint
as well as petitioners counterclaim. The RTC held that
petitioner Sicam could not be made personally liable for a claim
arising out of a corporate transaction; that in the Amended Complaint
of respondents, they asserted that plaintiff pawned assorted jewelries
in defendants' pawnshop; and that as a consequence of the separate
juridical personality of a corporation, the corporate debt or credit is
not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not be held
liable for the loss of the pawned jewelry since it had not been rebutted
by respondents that the loss of the pledged pieces of jewelry in the
possession of the corporation was occasioned by armed robbery; that
robbery is a fortuitous event which exempts the victim from liability for
the loss, citing the case of Austria v. Court of Appeals;[7] and that the
parties transaction was that of a pledgor and pledgee and under
Art. 1174 of the Civil Code, the pawnshop as a pledgee is not
responsible for those events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a Decision
dated March 31, 2003, the CA reversed the RTC, the dispositive portion
of which reads as follows:
WHEREFORE, premises considered, the instant Appeal is
GRANTED, and the Decision dated January 12, 1993,of
the Regional Trial Court of Makati, Branch 62, is hereby
REVERSED and SET ASIDE, ordering the appellees to
pay appellants the actual value of the lost jewelry
amounting
to P272,000.00,
and
attorney'
fees
of P27,200.00.[8]
In finding petitioner Sicam liable together with petitioner corporation,
the CA applied the doctrine of piercing the veil of corporate entity
reasoning that respondents were misled into thinking that they were
dealing with the pawnshop owned by petitioner Sicam as all the
pawnshop
tickets
issued
to
them
bear
the
words Agencia deR.C. Sicam; and that there was no indication on the
pawnshop tickets that it was the petitioner corporation that owned the
pawnshop which explained why respondents had to amend their
complaint impleading petitioner corporation.
The CA further held that the corresponding diligence required of a
pawnshop is that it should take steps to secure and protect the
pledged items and should take steps to insure itself against the loss
of articles which are entrusted to its custody as it derives earnings

from the pawnshop trade which petitioners failed to do; that Austria is
not applicable to this case since the robbery incident happened in
1961 when the criminality had not as yet reached the levels attained
in the present day; that they are at least guilty of contributory
negligence and should be held liable for the loss of jewelries; and that
robberies and hold-ups are foreseeable risks in that those engaged in
the pawnshop business are expected to foresee.
The CA concluded that both petitioners should be jointly and severally
held liable to respondents for the loss of the pawned jewelry.
Petitioners motion for reconsideration was denied in a
Resolution dated August 8, 2003.
Hence, the instant petition for review with the following assignment of
errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID, IT
OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN
WITHOUT IN THE MEANTIME ACKNOWLEDGING IT)
WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF,
WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT
OPENED ITSELF TO REVERSAL BY THIS HONORABLE
COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT
WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF
THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING
ANYTHING MORE THERETO DESPITE THE FACT THAT
THE SAID ARGUMENT OF THE RESPONDENTS COULD
NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED
EVIDENCE ON RECORD.[9]
Anent the first assigned error, petitioners point out that the CAs
finding that petitioner Sicam is personally liable for the loss of the
pawned jewelries is a virtual and uncritical reproduction of the
arguments set out on pp. 5-6 of the Appellants brief. [10]
Petitioners argue that the reproduced arguments of respondents in
their Appellants Brief suffer from infirmities, as follows:
(1) Respondents conclusively asserted in paragraph 2
of their Amended Complaint
that Agencia de
R.C. Sicam, Inc. is the present owner of Agencia de
R.C. Sicam Pawnshop, and therefore, the CA cannot
rule against said conclusive assertion of respondents;

(2) The issue resolved against petitioner Sicam was

not among those raised and litigated in the trial court;
and
(3) By reason of the above infirmities, it was error for
the CA to have pierced the corporate veil since a
corporation has a personality distinct and separate
from its individual stockholders or members.
Anent the second error, petitioners point out that the CA finding on
their negligence is likewise an unedited reproduction of respondents
brief which had the following defects:
(1) There were unrebutted evidence on record that
petitioners
had
observed
the
diligence
required of them, i.e, they wanted to open a vault with
a nearby bank for purposes of safekeeping the pawned
articles but was discouraged by the Central Bank (CB)
since CB rules provide that they can only store the
pawned articles in a vault inside the pawnshop
premises and no other place;
(2) Petitioners were adjudged negligent as they did not
take
insurance
against
the
loss
of
the
pledged jelweries, but it is judicial notice that due to
high incidence of crimes, insurance companies refused
to cover pawnshops and banks because of high
probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission on
Audit (179 SCRA 39, 45-46), the victim of robbery was
exonerated from liability for the sum of money
belonging to others and lost by him to robbers.
Respondents filed their Comment and petitioners filed their Reply
thereto. The parties subsequently submitted their respective
Memoranda.

clearly and distinctly the facts and the law on which it is based as
required by Section 8, Article VIII of the Constitution. The discretion to
decide a case one way or another is broad enough to justify the
adoption of the arguments put forth by one of the parties, as long as
these are legally tenable and supported by law and the facts on
records.[11]
Our jurisdiction under Rule 45 of the Rules of Court is limited to the
review of errors of law committed by the appellate court. Generally,
the findings of fact of the appellate court are deemed conclusive and
we are not duty-bound to analyze and calibrate all over again the
evidence adduced by the parties in the court a quo.[12] This rule,
however, is not without exceptions, such as where the factual findings
of the Court of Appeals and the trial court are conflicting or
contradictory[13] as is obtaining in the instant case.
However, after a careful examination of the records, we find no
justification to absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and adjudged
petitioner Sicam liable together with petitioner corporation. The rule is
that the veil of corporate fiction may be pierced when made as a
shield to perpetrate fraud and/or confuse legitimate issues. [14] The
theory of corporate entity was not meant to promote unfair objectives
or otherwise to shield them.[15]
Notably, the evidence on record shows that at the time respondent
Lulu pawned her jewelry, the pawnshop was owned by
petitioner Sicam himself. As correctly observed by the CA, in all the
pawnshop receipts issued to respondent Lulu in September 1987, all
bear the words Agencia de R. C. Sicam, notwithstanding that the
pawnshop was allegedly incorporated in April 1987. The receipts
issued after such alleged incorporation were still in the name
of Agencia de R. C. Sicam, thus inevitably misleading, or at the very
least, creating the wrong impression to respondents and the public as
well, that the pawnshop was owned solely by petitioner Sicamand not
by a corporation.

We find no merit in the petition.

Even
petitioners
counsel,
Atty. Marcial T. Balgos,
in
his
letter[16] dated October 15, 1987 addressed to the Central Bank,
expressly referred to petitioner Sicam as the proprietor of the
pawnshop notwithstanding the alleged incorporation in April 1987.

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

exact reproductions of the arguments raised in respondents
(appellants) brief filed with the CA, we find the same to be not fatally
infirmed. Upon examination of the Decision, we find that it expressed

We also find no merit in petitioners' argument that since respondents

had alleged in their Amended Complaint that petitioner corporation is
the present owner of the pawnshop, the CA is bound to decide the
case on that basis.

Section 4 Rule 129 of the Rules of Court provides that an admission,

verbal or written, made by a party in the course of the proceedings in
the same case, does not require proof. The admission may be
contradicted only by showing that it was made through palpable
mistake or that no such admission was made.
Thus, the general rule that a judicial admission is conclusive upon the
party making it and does not require proof, admits of two exceptions,
to wit: (1) when it is shown that such admission was made through
palpable mistake, and (2) when it is shown that no such admission was
in fact made. The latter exception allows one to contradict an
admission by denying that he made such an admission.[17]
The Committee on the Revision of the Rules of Court explained the
second exception in this wise:
x x x if a party invokes an admission by an adverse
party, but cites the admission out of context, then the
one making the admission may show that he made no
such admission, orthat his admission was taken
out of context.
x x x that the party can also show that he made
no such admission, i.e., not in the sense in
which the admission is made to appear.
That is the reason for the modifier such because if the
rule simply states that the admission may be
contradicted by showing that no admission was made,
the rule would not really be providing for a
contradiction of the admission but just a denial.
[18]
(Emphasis supplied).
While it is true that respondents alleged in their Amended Complaint
that petitioner corporation is the present owner of the pawnshop, they
did so only because petitioner Sicam alleged in his Answer to the
original complaint filed against him that he was not the real party-ininterest as the pawnshop was incorporated in April 1987. Moreover, a
reading of the Amended Complaint in its entirety shows that
respondents referred to both petitioner Sicam and petitioner
corporation where they (respondents) pawned their assorted pieces of
jewelry and ascribed to both the failure to observe due diligence
commensurate with the business which resulted in the loss of their
pawned jewelry.

Markedly, respondents, in their Opposition to petitioners Motion to

Dismiss Amended Complaint, insofar as petitioner Sicam is concerned,
averred as follows:
Roberto C. Sicam was named the defendant in the
original complaint because the pawnshop tickets
involved in this case did not show that the
R.C. Sicam Pawnshop was a corporation. In paragraph
1 of his Answer, he admitted the allegations in
paragraph 1 and 2 of the Complaint. He merely added
that defendant is not now the real party in interest in
this case.
It was defendant Sicam's omission to correct the
pawnshop tickets used in the subject transactions in
this case which was the cause of the instant action. He
cannot now ask for the dismissal of the
complaint against him simply on the mere allegation
that his pawnshop business is now incorporated. It is a
matter of defense, the merit of which can only be
reached after consideration of the evidence to be
presented in due course.[19]
Unmistakably, the alleged admission made in respondents'
Amended Complaint was taken out of context by petitioner Sicam to
suit
his
own
purpose.
Ineluctably,
the
fact
that
petitioner Sicam continued to issue pawnshop receipts under his name
and not under the corporation's name militates for the piercing of the
corporate veil.
We likewise find no merit in petitioners' contention that the CA erred in
piercing the veil of corporate fiction of petitioner corporation, as it was
not an issue raised and litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial
court that he was not the real party-in-interest because since April 20,
1987, the pawnshop business initiated by him was incorporated and
known as Agencia de R.C. Sicam. In the pre-trial brief filed by
petitioner Sicam, he submitted that as far as he was concerned, the
basic issue was whether he is the real party in interest against whom
the complaint should be directed. [20] In fact, he subsequently moved
for the dismissal of the complaint as to him but was not favorably
acted upon by the trial court. Moreover, the issue was squarely passed
upon, although erroneously, by the trial court in its Decision in this
manner:
x x x The defendant Roberto Sicam, Jr likewise denies
liability as far as he is concerned for the reason that
he cannot be made personally liable for a claim arising
from a corporate transaction.

impossible for the debtor to fulfill obligations in a normal manner; and,

(d) the obligor must be free from any participation in the aggravation
of the injury or loss. [23]
The burden of proving that the loss was due to a fortuitous event rests
on him who invokes it.[24] And, in order for a fortuitous event to exempt
one from liability, it is necessary that one has committed no
negligence or misconduct that may have occasioned the loss. [25]

This Court sustains the contention of the defendant

Roberto C. Sicam, Jr. The amended complaint itself
asserts that plaintiff pawned assorted jewelries in
defendant's pawnshop. It has been held that as a
consequence of the separate juridical personality of a
corporation, the corporate debt or credit is not the
debt or credit of the stockholder, nor is the
stockholder's debt or credit that of a corporation.[21]
Clearly, in view of the alleged incorporation of the pawnshop, the issue
of whether petitioner Sicam is personally liable is inextricably
connected with the determination of the question whether the
doctrine of piercing the corporate veil should or should not apply to
the case.
The next question is whether petitioners
loss of the pawned articles in their possession.

are

liable

for

the

Petitioners insist that they are not liable since robbery is a fortuitous
event and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the
law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the
assumption of risk, no person shall be responsible for
those events which could not be foreseen or which,
though foreseen, were inevitable.
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to foresee
the same. [22]
To constitute a fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected occurrence or of the
failure of the debtor to comply with obligations must be independent
of human will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to render it

It has been held that an act of God cannot be invoked to protect a

person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred
with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not exempt one from
liability. When the effect is found to be partly the result of a person's
participation -- whether by active intervention, neglect or failure to act
-- the whole occurrence is humanized and removed from the rules
applicable to acts of God. [26]
Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when
he started the pawnshop business in 1983, he thought of opening a
vault with the nearby bank for the purpose of safekeeping the
valuables but was discouraged by the Central Bank since pawned
articles should only be stored in a vault inside the pawnshop. The very
measures which petitioners had allegedly adopted show that to them
the possibility of robbery was not only foreseeable, but actually
foreseen and anticipated. Petitioner Sicams testimony, in effect,
contradicts petitioners defense of fortuitous event.
Moreover, petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have been
occasioned.
Robbery per se, just like carnapping, is not a fortuitous event. It does
not foreclose the possibility of negligence on the part of herein
petitioners. In Co v. Court of Appeals,[27] the Court held:
It is not a defense for a repair shop of motor
vehicles to escape liability simply because the
damage or loss of a thing lawfully placed in its
possession was due to carnapping.Carnapping per se
cannot be considered as a fortuitous event. The fact
that a thing was unlawfully and forcefully taken
from another's rightful possession, as in cases
ofcarnapping, does not automatically give rise
to a fortuitous event. To be considered as

such, carnapping entails more than the mere

forceful taking of another's property. It must be
proved and established that the event was an
act of God or was done solely by third parties
and that neither the claimant nor the person
alleged to be negligent has any participation.
In accordance with the Rules of Evidence, the
burden of proving that the loss was due to a
fortuitous event rests on him who invokes it
which
in
this
case
is
the
private
respondent. However, other than the police report
of the alleged carnapping incident, no other evidence
was presented by private respondent to the effect
that the incident was not due to its fault. A police
report of an alleged crime, to which only private
respondent is privy, does not suffice to establish
the carnapping. Neither does it prove that there was
no fault on the part of private respondent
notwithstanding the parties' agreement at the pretrial that the car was carnapped. Carnapping does not
foreclose the possibility of fault or negligence on the
part of private respondent.[28]
Just like in Co, petitioners merely presented the police report
of the Paraaque Police Station on the robbery committed based on the
report of petitioners'employees which is not sufficient to establish
robbery. Such report also does not prove that petitioners were not at
fault.
On the contrary, by the very evidence of petitioners, the CA did not err
in finding that petitioners are guilty of concurrent or contributory
negligence as provided in Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor
thereof, are liable for damages.[29]
Article 2123 of the Civil Code provides that with regard to pawnshops
and other establishments which are engaged in making loans secured
by pledges, the special laws and regulations concerning them shall be
observed, and subsidiarily, the provisions on pledge, mortgage
and antichresis.
The provision on pledge, particularly Article 2099 of the Civil
Code, provides that the creditor shall take care of the thing pledged
with the diligence of a good father of a family. This means that

petitioners must take care of the pawns the way a prudent person
would as to his own property.
In this connection, Article 1173 of the Civil Code further provides:
Art. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the persons, of
time and of the place. When negligence shows bad
faith, the provisions of Articles 1171 and 2201,
paragraph 2 shall apply.
If the law or contract does not state the
diligence which is to be observed in the performance,
that which is expected of a good father of a family
shall be required.
We expounded in Cruz v. Gangan[30] that negligence is the
omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs,
would do; or the doing of something which a prudent and reasonable
man would not do.[31] It is want of care required by the circumstances.
A review of the records clearly shows that petitioners failed to exercise
reasonable care and caution that an ordinarily prudent person would
have used in the same situation. Petitioners were guilty of negligence
in the operation of their pawnshop business. Petitioner Sicam testified,
thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to enter
the premises when according to you there was a
security guard?
A. Sir, if these robbers can rob a bank, how much more
a pawnshop.
Q. I am asking you how were the robbers able to enter
despite the fact that there was a security guard?
A. At the time of the incident which happened about
1:00 and 2:00 o'clock in the afternoon and it
happened on a Saturday and everything was quiet
in the area BF Homes Paraaquethey pretended to
pawn an article in the pawnshop, so one of my

employees allowed him to come in and it was only

when it was announced that it was a hold up.
Q. Did you come to know how the vault was opened?
A. When the pawnshop is official (sic) open your honor
the pawnshop is partly open. The combination is off.

We,
however,
do
not
agree
with
the
CA
when
it
found petitioners negligent for not taking steps to insure themselves
against loss of the pawned jewelries.

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

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

Under Section 17 of Central Bank Circular No. 374, Rules and

Regulations for Pawnshops, which took effect on July 13, 1973, and
which was issued pursuant to Presidential Decree No. 114, Pawnshop
Regulation Act, it is provided that pawns pledged must be insured, to
wit:

Q. It is clear now that at the time of the robbery the

vault was open the reason why the robbers were
able to get all the items pawned to you inside the
vault.
A. Yes sir.[32]

Sec. 17. Insurance of Office Building and Pawns- The

place of business of a pawnshop and the pawns
pledged to it must be insured against fire and
against burglary as well as for the latter(sic), by an
insurance company accredited by the Insurance
Commissioner.

revealing that there were no security measures adopted by petitioners

in the operation of the pawnshop. Evidently, no sufficient precaution
and vigilance were adopted by petitioners to protect the pawnshop
from unlawful intrusion. There was no clear showing that there was
any security guard at all. Or if there was one, that he had sufficient
training in securing a pawnshop. Further, there is no showing that the
alleged security guard exercised all that was necessary to prevent any
untoward incident or to ensure that no suspicious individuals were
allowed to enter the premises. In fact, it is even doubtful that there
was a security guard, since it is quite impossible that he would not
have noticed that the robbers were armed with caliber .45 pistols
each, which were allegedly poked at the employees. [33] Significantly,
the alleged security guard was not presented at all to corroborate
petitioner Sicam's claim; not one of petitioners' employees who were
present during the robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was open at
the time of robbery is clearly a proof of petitioners' failure to observe
the care, precaution and vigilance that the circumstances justly
demanded. Petitioner Sicam testified that once the pawnshop was
open,
the
combination
was
already
off. Considering
petitionerSicam's testimony that the robbery took place on a Saturday
afternoon and the area in BF Homes Paraaque at that time was quiet,
there was more reason for petitioners to have exercised reasonable
foresight and diligence in protecting the pawned jewelries. Instead of
taking the precaution to protect them, they let open the vault,
providing no difficulty for the robbers to cart away the pawned
articles.

However, this Section was subsequently amended by CB Circular No.

764 which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns The
office building/premises and pawns of a pawnshop
must be insured against fire. (emphasis supplied).
where the requirement that insurance against burglary was
deleted. Obviously, the Central Bank considered it not feasible
to require insurance of pawned articles against burglary.
The robbery in the pawnshop happened in 1987, and considering the
above-quoted amendment, there is no statutory duty imposed on
petitioners to insure the pawned jewelry in which case it was error for
the CA to consider it as a factor in concluding that petitioners were
negligent.
Nevertheless, the preponderance of evidence shows that petitioners
failed to exercise the diligence required of them under the Civil Code.
The diligence with which the law requires the individual at all times to
govern his conduct varies with the nature of the situation in which he
is placed and the importance of the act which he is to perform. [34] Thus,
the cases of Austria v. Court of Appeals,[35] Hernandez v. Chairman,
Commission on Audit[36] and Cruz v.Gangan[37] cited by petitioners in
their pleadings, where the victims of robbery were exonerated from
liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a pendant with
diamonds to be sold on commission basis, but which Abad failed to
subsequently return because of a robbery committed upon her in

1961. The incident became the subject of a criminal case filed against
several persons. Austria filed an action against Abadand her husband
(Abads) for recovery of the pendant or its value, but the Abads set up
the defense that the robbery extinguished their obligation. The RTC
ruled in favor of Austria, as the Abads failed to prove robbery; or, if
committed, that Maria Abad was guilty of negligence. The CA,
however, reversed the RTC decision holding that the fact of robbery
was duly established and declared the Abads not responsible for the
loss of the jewelry on account of a fortuitous event. We
held that forthe Abads to be relieved from the civil liability of returning
the pendant under Art. 1174 of the Civil Code, it would only be
sufficient that the unforeseen event, the robbery, took place without
any concurrent fault on the debtors part, and this can be done by
preponderance of evidence; that to be free from liability for reason of
fortuitous event, the debtor must, in addition to the casus itself, be
free of any concurrent or contributory fault or negligence. [38]
We found in Austria that under the circumstances prevailing at the
time the Decision was promulgated in 1971, the City of Manila and its
suburbs had a high incidence of crimes against persons and property
that rendered travel after nightfall a matter to be sedulously avoided
without suitable precaution and protection; that the conduct
of Maria Abad in returning alone to her house in the evening carrying
jewelry of considerable value would have been negligence per se and
would not exempt her from responsibility in the case of robbery.
However we did not hold Abad liable for negligence since, the robbery
happened ten years previously; i.e., 1961, when criminality had not
reached the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when robbery
was already prevalent and petitioners in fact had already foreseen it
as they wanted to deposit the pawn with a nearby bank for
safekeeping. Moreover, unlike in Austria, where no negligence was
committed, we found petitioners negligent in securing their pawnshop
as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special disbursing
officer of the Ternate Beach Project of the Philippine Tourism
in Cavite. In the morning of July 1, 1983, a Friday, he went
to Manila to encash two checks covering the wages of the employees
and the operating expenses of the project. However for some reason,
the processing of the check was delayed and was completed at
about 3 p.m. Nevertheless, he decided to encash the check because
the project employees would be waiting for their pay the following
day; otherwise, the workers would have to wait until July 5, the earliest
time, when the main office would open. At that time, he had two
choices: (1) return to Ternate, Cavite that same afternoon and arrive
early evening; or (2) take the money with him to his house

in Marilao, Bulacan, spend the night there, and leave for Ternate the
following day. He chose the second option, thinking it was the safer
one. Thus, a little past 3 p.m., he took a passenger jeep bound
forBulacan. While the jeep was on Epifanio de los Santos Avenue, the
jeep was held up and the money kept by Hernandez was taken, and
the robbers jumped out of the jeep and ran. Hernandez chased the
robbers and caught up with one robber who was subsequently charged
with robbery and pleaded guilty. The other robber who held the stolen
money escaped. The Commission on Audit found Hernandez negligent
because he had not brought the cash proceeds of the checks to his
office in Ternate,Cavite for safekeeping, which is the normal procedure
in the handling of funds. We held that Hernandez was not negligent in
deciding
to encash the
check
and
bringing
it
home
to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of
the hour for the following reasons: (1) he was moved by unselfish
motive for his co-employees to collect their wages and salaries the
following day, a Saturday, a non-working, because to encash the check
on July 5, the next working day after July 1, would have caused
discomfort to laborers who were dependent on their wages for
sustenance; and (2) that choosing Marilao as a safer destination, being
nearer, and in view of the comparative hazards in the trips to the two
places, said decision seemed logical at that time. We further held that
the fact that two robbers attacked him in broad daylight in the jeep
while it was on a busy highway and in the presence of other
passengers could not be said to be a result of his imprudence and
negligence.
Unlike in Hernandez where the robbery happened in a public
utility, the robbery in this case took place in the pawnshop which is
under the control of petitioners. Petitioners had the means to screen
the persons who were allowed entrance to the premises and to protect
itself from unlawful intrusion. Petitioners had failed to exercise
precautionary measures in ensuring that the robbers were prevented
from entering the pawnshop and for keeping the vault open for the
day, which paved the way for the robbers to easily cart away the
pawned articles.
In Cruz,
Dr. Filonila O.
Cruz, Camanava District
Director
of
Technological Education and Skills Development Authority (TESDA),
boarded
the
Light
Rail
Transit
(LRT)
from Sen. Puyat Avenue to Monumento when
her
handbag
was
slashed and the contents were stolen by an unidentified person.
Among those stolen were her wallet and the government-issued
cellular phone. She then reported the incident to the police
authorities; however, the thief was not located, and the cellphone was
not recovered. She also reported the loss to the Regional Director of
TESDA, and she requested that she be freed from accountability for

the cellphone. The Resident Auditor denied her request on the ground
that she lacked the diligence required in the custody of government
property and was ordered to pay the purchase value in the total
amount of P4,238.00. The COA found no sufficient justification to grant
the request for relief from accountability. We reversed the ruling and
found that riding the LRT cannot per se be denounced as a negligent
act more so because Cruzs mode of transit was influenced by time and
money considerations; that she boarded the LRT to be able to arrive
in Caloocan in time for her 3 pm meeting; that any prudent and
rational person under similar circumstance can reasonably be
expected to do the same; that possession of a cellphone should not
hinder one from boarding the LRT coach as Cruz did considering that
whether she rode a jeep or bus, the risk of theft would have also been
present; that because of her relatively low position and pay, she was
not expected to have her own vehicle or to ride a taxicab; she did not
have a government assigned vehicle; that placing the cellphone in a
bag away from covetous eyes and holding on to that bag as she did is
ordinarily sufficient care of acellphone while traveling on board the
LRT; that the records did not show any specific act of negligence on
her part and negligence can never be presumed.
Unlike in the Cruz case, the robbery in this case happened in
petitioners' pawnshop and they were negligent in not exercising the
precautions justly demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of
the Court of Appeals dated March 31, 2003 and its Resolution
dated August 8, 2003, areAFFIRMED.

MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached
in consultation before the case was assigned to the writer of the
opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons attestation, it is hereby certified that the conclusions in
the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

Costs against petitioners.

REYNATO S. PUNO
Chief Justice

SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

VOL. 291, JUNE 22, 1998

111
Co vs. Court of Appeals
G.R. No. 124922. June 22, 1998.*
JIMMY CO, doing business under the name & style DRAGON METAL
MANUFACTURING, petitioner, vs.COURT OF APPEALS and BROADWAY
MOTOR SALES CORPORATION, respondents.
Remedial Law; Appeals; Pre-trial; The rule that the determination
of issues at a pre-trial conference bars the consideration of other
issues on appeal, except those that may involve privilege or
impeaching matter, is inapplicable to this case.Contrary to the CAs
pronouncement, the rule that the determination of issues at a pre-trial
conference bars the consideration of other issues on appeal, except
those that may involve privilege or impeaching matter, is inapplicable
to this case. The question of delay, though not specifically mentioned
as an issue at the pre-trial may be tackled by the court considering
that it is necessarily intertwined and intimately connected with the
principal issue agreed upon by the parties, i.e., who will bear the loss
and whether there was negligence. Petitioners imputation of
negligence to private respondent is premised on delay which is the
very basis of the formers complaint. Thus, it was unavoidable for the
court to resolve the case, particularly the question of negligence
without considering whether private respondent was guilty of delay in
the performance of its obligation.
Civil Law; Damages; Negligence;Carnapping per se cannot be
considered as a fortuitous event.It is not a defense for a repair shop
of motor vehicles to escape liability simply because the damage or
loss of a thing lawfully placed in its possession was due to carnapping.
Carnapping per se cannot be considered as a fortuitous event. The
fact that a thing was unlawfully and forcefully taken from anothers
rightful possession, as in cases of carnapping, does not automatically
give rise to a fortuitous event. To be considered as such, carnapping
entails more than the mere forceful taking of anothers property. It
must be proved and established that the event was an act of God or
was done solely by third parties and that neither the claimant nor the
person alleged to be negligent has any participation.
________________
*
SECOND DIVISION.
112
112
SUPREME COURT REPORTS ANNOTATED
Co vs. Court of Appeals
Same; Same; Same; The burden of proving that the loss was due
to a fortuitous event rests on him who invokes it.In accordance with
the Rules of evidence, the burden of proving that the loss was due to a
fortuitous event rests on him who invokes itwhich in this case is the
private respondent. However, other than the police report of the
alleged carnapping incident, no other evidence was presented by

private respondent to the effect that the incident was not due to its
fault. A police report of an alleged crime, to which only private
respondent is privy, does not suffice to establish the carnapping.
Same; Same; Same; Pursuant to Articles 1174 and 1262 of the
New Civil Code, liability attaches even if the loss was due to a
fortuitous event if the nature of the obligation requires the
assumption of risk.It must likewise be emphasized that pursuant to
Articles 1174 and 1262 of the New Civil Code, liability attaches even if
the loss was due to a fortuitous event if the nature of the obligation
requires the assumption of risk. Carnapping is a normal business risk
for those engaged in the repair of motor vehicles. For just as the
owner is exposed to that risk so is the repair shop since the car was
entrusted to it. That is why, repair shops are required to first register
with the Department of Trade and Industry (DTI) and to secure an
insurance policy for the shop covering the property entrusted by its
customer for repair, service or maintenance as a pre-requisite for
such registration/accreditation. Violation of this statutory duty
constitutes negligence per se.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Lorenzo G. Parungao for petitioner.
Samson S. Alcantara for private respondent.
MARTINEZ, J.:
On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988
model1 to private respondentwhich is engaged in
________________
1
Registered in the name of petitioner with Plate No. PJK-666.
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VOL. 291, JUNE 22, 1998
113
Co vs. Court of Appeals
the sale, distribution and repair of motor vehiclesfor the following
job repair services and supply of parts:
Bleed injection pump and all nozzles;
Adjust valve tappet;
Change oil and filter;
Open up and service four wheel brakes, clean and
adjust;
Lubricate accelerator linkages;
Replace aircon belt; and
Replace battery2
Private respondent undertook to return the vehicle on July 21, 1990
fully serviced and supplied in accordance with the job contract. After
petitioner paid in full the repair bill in the amount of P1,397.00, 3private
respondent issued to him a gate pass for the release of the vehicle on
said date. But came July 21, 1990, the latter could not release the
vehicle as its battery was weak and was not yet replaced. Left with no
option, petitioner himself bought a new battery nearby and delivered

it to private respondent for installation on the same day. However, the

battery was not installed and the delivery of the car was rescheduled
to July 24, 1990 or three (3) days later. When petitioner sought to
reclaim his car in the afternoon of July 24, 1990, he was told that it
was carnapped earlier that morning while being road-tested by private
respondents employee along Pedro Gil and Perez Streets in Paco,
Manila. Private respondent said that the incident was reported to the
police.
Having failed to recover his car and its accessories or the value
thereof, petitioner filed a suit for damages against private respondent
anchoring his claim on the latters alleged negligence. For its part,
private respondent contended that it has no liability because the car
was lost as a result of a fortuitous eventthe carnapping. During pretrial, the parties agreed that:
________________
2
Rollo, p. 81.
3
Covered by CBC Receipt No. 691148; Rollo, p. 10.
114
114
SUPREME COURT REPORTS ANNOTATED
Co vs. Court of Appeals
(T)he cost of the Nissan Pick-up four (4) door when the plaintiff
purchased it from the defendant is P332,500.00 excluding accessories
which were installed in the vehicle by the plaintiff consisting of four (4)
brand new tires, magwheels, stereo speaker, amplifier which amount
all in all to P20,000.00. It is agreed that the vehicle was lost on July 24,
1990 approximately two (2) years and five (5) months from the date
of the purchase. It was agreed that the plaintiff paid the defendant
the cost of service and repairs as early as July 21, 1990 in the amount
of P1,397.00 which amount was received and duly receipted by the
defendant company. It was also agreed that the present value of a
brand new vehicle of the same type at this time is P425,000.00
without accessories.4
They likewise agreed that the sole issue for trial was who between the
parties shall bear the loss of the vehicle which necessitates the
resolution of whether private respondent was indeed negligent. 5After
trial, the court a quo found private respondent guilty of delay in the
performance of its obligation and held it liable to petitioner for the
value of the lost vehicle and its accessories plus interest and
attorneys fees.6 On ap________________
4
Rollo, pp. 28-29.
5
Rollo, p. 29.
6
The dispositive portion of the trial courts decision reads:
Accordingly, this Court finds the defendant liable to the plaintiff for
the value of the vehicle in question. Defendant is ordered to pay
plaintiff the value of the vehicle in the amount of Three Hundred Thirty
Two Thousand Five Hundred Pesos representing the acquisition cost of

the vehicle plus the amount of Twenty Thousand Pesos representing

the cost of the four brand new tires, magwheels, pioneer stereo
speakers, air-conditioner, which were installed by the plaintiff in his
vehicle after the plaintiff bought the vehicle from the defendant. While
it is true that plaintiff purchased from the defendant the vehicle about
two years and five months before the same was lost, and therefore the
vehicle had already depreciated from its original value at the time it
was lost, it is also true as agreed upon by the parties in the pre-trial,
that the present value of a brand new vehicle of the same type has at
this time increased to Four Hundred Thousand Pesos without
accessories, so whatever is awarded by this Court to the plaintiff in
this decision would not even be sufficient to purchase a brand new
vehicle at the present prices. This Court
115
VOL. 291, JUNE 22, 1998
115
Co vs. Court of Appeals
peal, the Court of Appeals (CA) reversed the ruling of the lower court
and ordered the dismissal of petitioners damage suit. 7The CA ruled
that: (1) the trial court was limited to resolving the issue of negligence
as agreed during pre-trial; hence it cannot pass on the issue of delay;
and (2) the vehicle was lost due to a fortuitous event.
In a petition for review to this Court, the principal query raised is
whether a repair shop can be held liable for the loss of a customers
vehicle while the same is in its custody for repair or other job services?
The Court resolves the query in favor of the customer. First, on the
technical aspect involved. Contrary to the CAs pronouncement, the
rule that the determination of issues at a pre-trial conference bars the
consideration of other issues on appeal, except those that may involve
privilege or impeaching matter, 8 is inapplicable to this case. The
question of delay,
________________
believes that the amount awarded to the plaintiff above-stated
represents a fair compromise, considering the depreciation of the
vehicle from the time it was purchased and to the time it was lost and
which is off-seted by the increase cost of a brand new vehicle at the
present time. Defendant is likewise ordered to pay plaintiff legal
interest in the amount above-stated from the date of the finality of this
decision until full payment of the obligation. Further, defendant is
ordered to pay plaintiff Ten Thousand Pesos by attorneys fees. (sic
was not included so as not to clutter the narration); Rollo, pp. 78, 94.
7
CA Decision promulgated August 31, 1995 penned by Justice
Austria-Martinez with Justices Lantin and Salas, concurring; Rollo, pp.
26-32.
8
Caltex v. CA, 212 SCRA 448; Bergado v. CA, 173 SCRA
497 citing Permanent Concrete Products, Inc. v. Teodoro, 26 SCRA 332.
In the Bergado case (p. 501), the court reiterated the rule that the
specific exceptions to the general rule to be observed in pre-trials

emphasized in Gicano v. Gegato, 157 SCRA 140is that trial courts

have authority and discretion to dismiss an action on the ground of
prescription when the parties pleadings or other facts on record show
it to be indeed time-barred; and it may do so on the basis of a motion
to dismiss, or an answer which sets up such ground as an affirmative
defense; or even if the ground is alleged after judgment
116
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SUPREME COURT REPORTS ANNOTATED
Co vs. Court of Appeals
though not specifically mentioned as an issue at the pre-trial may be
tackled by the court considering that it is necessarily intertwined and
intimately connected with the principal issue agreed upon by the
parties, i.e., who will bear the loss and whether there was negligence.
Petitioners imputation of negligence to private respondent is
premised on delay which is the very basis of the formers complaint.
Thus, it was unavoidable for the court to resolve the case, particularly
the question of negligence without considering whether private
respondent was guilty of delay in the performance of its obligation.
On the merits. It is not a defense for a repair shop of motor
vehicles to escape liability simply because the damage or loss of a
thing lawfully placed in its possession was due to carnapping.
Carnapping per secannot be considered as a fortuitous event. The fact
that a thing was unlawfully and forcefully taken from anothers rightful
possession, as in cases of carnapping, does not automatically give rise
to a fortuitous event. To be considered as such, carnapping entails
more than the mere forceful taking of anothers property. It must be
proved and established that the event was an act of God or was done
solely by third parties and that neither the claimant nor the person
alleged to be negligent has any participation.9 In accordance with the
Rules of evidence, the burden of proving that the loss was due to a
fortuitous event rests on him who invokes it10which in this case is the
private respondent.
________________
on the merits, as in a motion for reconsideration; or even if the
defense has not been asserted at all, as where no statement thereof is
found in the pleadings, or where a defendant had been declared in
default. What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period, be otherwise
sufficiently and satisfactorily apparent on the record; either in the
averments of the plaintiffs, or otherwise established by the evidence.
9
Lasam v. Smith, 45 Phil. 657; General Enterprises, Inc. v. Llianga
Bay Logging Co., Inc., 120 Phil. 702; Tugade v. CA, 85 SCRA 226.
10
Section 1, Rule 131, 1989 Revised Rules on Evidence
provides: Burden of proof.Burden of proof is the duty of a party to
117
VOL. 291, JUNE 22, 1998
117
Co vs. Court of Appeals

However, other than the police report of the alleged carnapping

incident, no other evidence was presented by private respondent to
the effect that the incident was not due to its fault. A police report of
an alleged crime, to which only private respondent is privy, does not
suffice to establish the carnapping. Neither does it prove that there
was no fault on the part of private respondent notwithstanding the
parties agreement at the pre-trial that the car was carnapped.
Carnapping does not foreclose the possibility of fault or negligence on
the part of private respondent.
Even assuming arguendo that carnapping was duly established as
a fortuitous event, still private respondent cannot escape liability.
Article 116511 of the New Civil Code makes an obligor who is guilty of
delay responsible even for a fortuitous event until he has effected the
delivery. In this case, private respondent was already in delay as it was
supposed to deliver petitioners car three (3) days before it was lost.
Petitioners agreement to the rescheduled delivery does not defeat his
claim as private respondent had already breached its obligation.
Moreover, such accession cannot be construed as waiver of
petitioners right to hold private respondent liable because the car was
unusable and thus, petitioner had no option but to leave it.
Assuming further that there was no delay, still working against
private respondent is the legal presumption under Article 1265 that its
possession of the thing at the time it was lost was due to its
fault.12This presumption is reasonable
________________
present evidence on the facts in issue necessary to establish his
claim or defense by the amount of evidence required by law. (Italics
supplied).
11
Article 1165. x x x x x x x x x If the obligor delays, or has
promised to deliver the same thing to two or more persons who do not
have the same interest, he shall be responsible for fortuitous
event until he has effected the delivery. (Italics supplied).
12
Article 1265. Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to his fault, unless
there is proof to the contrary, and without prejudice to the
118
118
SUPREME COURT REPORTS ANNOTATED
Co vs. Court of Appeals
since he who has the custody and care of the thing can easily explain
the circumstances of the loss. The vehicle owner has no duty to show
that the repair shop was at fault. All that petitioner needs to prove, as
claimant, is the simple fact that private respondent was in possession
of the vehicle at the time it was lost. In this case, private respondents
possession at the time of the loss is undisputed. Consequently, the
burden shifts to the possessor who needs to present controverting
evidence sufficient enough to overcome that presumption. Moreover,
the exempting circumstancesearthquake, flood, storm or other

natural calamitywhen the presumption of fault is not applicable 13 do

not concur in this case. Accordingly, having failed to rebut the
presumption and since the case does not fall under the exceptions,
private respondent is answerable for the loss.
It must likewise be emphasized that pursuant to Articles 1174 and
1262 of the New Civil Code, liability attaches even if the loss was due
to a fortuitous event if the nature of the obligation requires the
assumption of risk.14 Carnapping is a normal business risk for those
engaged in the repair of motor vehicles. For just as the owner is
exposed to that risk so is the repair shop since the car was entrusted
to it. That is why, repair shops are required to first register with the
Depart________________
provisions of Article 1165. This presumption does not apply in case
of earthquake, flood, storm, or other natural calamity. (Italics
supplied).
13
New Civil Code, Article 1265.
14
Article 1174. Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which,
though foreseen, were inevitable.
Article 1262. x x x
xxx
xxx
When by law or stipulation, the obligor is liable even for fortuitous
event, the loss of the thing does not extinguish the obligation, and he
shall be responsible for damages. The same rule applies when the
nature of the obligation requires the assumption of risk. (Italics
supplied).
119
VOL. 291, JUNE 22, 1998
119
Co vs. Court of Appeals
ment of Trade and Industry (DTI)15 and to secure an insurance policy
for the shop covering the property entrusted by its customer for
repair, service or maintenance as a prerequisite for such
registration/accreditation.16 Violation of this
________________
15
P.D. 1572 (EMPOWERING THE SECRETARY OF TRADE TO
REGULATE AND CONTROL THE OPERATION OF SERVICE AND REPAIR
ENTERPRISES FOR MOTOR VEHICLES, HEAVY EQUIPMENT AND
ENGINES AND ENGINEERING WORKS; ELECTRONICS, ELECTRICAL, AIRCONDITIONING AND REFRIGERATION; OFFICE EQUIPMENT; MEDICAL
AND DENTAL EQUIPMENT; AND OTHER CONSUMER MECHANICAL AND
INDUSTRIAL EQUIPMENT; APPLIANCES OR DEVICES, INCLUDING THE
TECHNICAL PERSONNEL EMPLOYED THEREIN).
Section 1. Accreditation.All enterprises and technical personnel
employed therein engaged in the service and repair of motor vehicles,
heavy equipment, engines and engineering works; electronics,

electrical, air-conditioning and refrigeration; office equipment; medical

and dental equipment; and other consumer industrial electromechanical, chemical and gaseous equipment, machinery, appliances
or devices should Apply for accreditation with the Department of Trade
within ninety (90) days from the promulgation of this decree and
should apply for renewal on or before the 31st day of January of every
year thereafter. No such service or repair enterprises and technical
personnel shall be licensed or permitted to operate in the Philippines
for the first time without first being accredited by the Department of
Trade.
16
DTI Ministry Order No. 32, Rule III
Section 1. REQUIREMENTS FOR ACCREDITATION: (1) Enterprise
applying for original accreditation shall submit the following:
1. 1.1List of machineries/equipment/tools in useful condition;
2. 1.2List
of
certified
engineers/accredited
technicians,
mechanics with their personal data;
3. 1.3Copy of Insurance Policy of the shop covering the property
entrusted by its customer for repair, service or maintenance
together with a copy of the official receipt covering the full
payment of premium;
120
120
SUPREME COURT REPORTS ANNOTATED
Co vs. Court of Appeals
statutory duty constitutes negligence per se.17 Having taken custody
of the vehicle, private respondent is obliged not only to repair the
vehicle but must also provide the customer with some form of security
for his property over which he loses immediate control. An owner who
cannot exercise the seven (7) juses or attributes of ownershipthe
right to possess, to use and enjoy, to abuse or consume, to
accessories, to dispose or alienate, to recover or vindicate and to the
fruits18is a crippled owner. Failure of the repair shop to provide
security to a motor vehicle owner would leave the latter at the mercy
of the former. Moreover, on the assumption that private respondents
repair business is duly registered, it presupposes that its shop is
covered by insurance from which it may recover the loss. If private
respondent can recover from its in________________
1. 1.4Copy of Bond referred to under Section 7, Rule III of this
Rules and Regulations;
2. 1.5Written service warranty in the form prescribed by the
Bureau;
3. 1.6Certificate issued by the Securities and Exchange
Commission and Articles of Incorporation or Partnership in
case of corporation or partnership;
4. 1.7Such other additional documents which the director may
require from time to time.

Section 8. INSURANCE POLICY The insurance policy for the

following risks like theft, pilferage, fire, flood and loss should cover
exclusively the machines, motor vehicles, heavy equipment, engines,
electronics, electrical, airconditioners, refrigerators, office machines,
and data processing equipment, medical and dental equipment, other
consumer mechanical and industrial equipment stored for repair
and/or in the premises of the applicant. (Italics supplied).
17
Cipriano v. CA, 263 SCRA 711 citing F.F. Cruz and Co., Inc. v.
CA, 164 SCRA 731 and Teague v. Fernandez, 51 SCRA 181.
18
Paras, Civil Code of the Philippines, Annotated, 1989 ed., vol. II,
p. 70; De Leon, Comments and Cases on Property, 1993 ed., p. 77; See
also Article 428 of the New Civil Code which states that The owner
has the right to enjoy and dispose of a thing, without other limitations
than those established by law.
The owner has also a right of action against the holder and
possessor of the thing in order to recover it.
121
VOL. 291, JUNE 22, 1998
121
Co vs. Court of Appeals
surer, then it would be unjustly enriched if it will not compensate
petitioner to whom no fault can be attributed. Otherwise, if the shop is
not registered, then the presumption of negligence applies.
One last thing. With respect to the value of the lost vehicle and its
accessories for which the repair shop is liable, it should be based on
the fair market value that the property would command at the time it
was entrusted to it or such other value as agreed upon by the parties
subsequent to the loss. Such recoverable value is fair and reasonable
considering that the value of the vehicle depreciates. This value may
be recovered without prejudice to such other damages that a claimant
is entitled under applicable laws.
WHEREFORE, premises considered, the decision of the Court of
Appeals is REVERSED and SET ASIDE and the decision of the
court aquo is REINSTATED.
SO ORDERED.
Regalado (Chairman), Puno andMendoza, JJ., concur.
Melo, J., On leave.
Judgment reversed and set aside, that of the court a quo
reinstated.
Note.Section 1 of Presidential Decree No. 1572 requires service
and repair enterprises for motor vehicles to register with the
Department of Trade and Industry. (Cipriano vs. Court of Appeals,263
SCRA 711 [1996])
o0o

THIRD DIVISION
[G.R. No. 126389. July 10, 1998]
SOUTHEASTERN COLLEGE, INC., petitioner, vs. COURT OF
APPEALS, JUANITA DE JESUS VDA. DE DIMAANO,
EMERITA
DIMAANO,
REMEDIOS
DIMAANO,
CONSOLACION
DIMAANO
and
MILAGROS
DIMAANO, respondents.
DECISION
PURISIMA, J.:
Petition for review under Rule 45 of the Rules of Court seeking to
set aside the Decision[1] promulgated on July 31, 1996, and
Resolution[2] dated September 12, 1996 of the Court of Appeals [3] in
CA-G.R. No. 41422, entitled Juanita de Jesus vda. de Dimaano, et
al. vs. Southeastern College, Inc., which reduced the moral damages
awarded below from P1,000,000.00 to P200,000.00.[4] The Resolution
under attack denied petitioners motion for reconsideration.
Private respondents are owners of a house at 326 College Road,
Pasay City, while petitioner owns a four-storey school building along
the same College Road. On October 11, 1989, at about 6:30 in the
morning, a powerful typhoon Saling hit Metro Manila. Buffeted by very
strong winds, the roof of petitioners building was partly ripped off and
blown away, landing on and destroying portions of the roofing of
private respondents house. After the typhoon had passed, an ocular
inspection of the destroyed buildings was conducted by a team of
engineers headed by the city building official, Engr. Jesus L.
Reyna. Pertinent aspects of the latters Report [5] dated October 18,
1989 stated, as follows:
5. One of the factors that may have led to this calamitous event is the
formation of the buildings in the area and the general direction of the
wind. Situated in the peripheral lot is an almost U-shaped formation of
4-storey building. Thus, with the strong winds having a westerly
direction, the general formation of the buildings becomes a big funnellike structure, the one situated along College Road, receiving the
heaviest impact of the strong winds. Hence, there are portions of the
roofing, those located on both ends of the building, which remained
intact after the storm.
6. Another factor and perhaps the most likely reason for the dislodging
of the roofings structural trusses is the improper anchorage of the said
trusses to the roof beams. The 1/2 diameter steel bars embedded on
the concrete roof beams which serve as truss anchorage are not
bolted nor nailed to the trusses. Still, there are other steel bars which
were not even bent to the trusses, thus, those trusses are not
anchored at all to the roof beams.

It then recommended that to avoid any further loss and damage to

lives, limbs and property of persons living in the vicinity, the fourth
floor of subject school building be declared as a structural hazard.
In their Complaint[6] before the Regional Trial Court of Pasay City,
Branch 117, for damages based on culpa aquiliana, private
respondents alleged that the damage to their house rendered the
same uninhabitable, forcing them to stay temporarily in others
houses. And so they sought to recover from petitioner P117,116.00, as
actual damages,P1,000,000.00, as moral damages, P300,000.00, as
exemplary damages and P100,000.00, for and as attorneys fees; plus
costs.
In its Answer, petitioner averred that subject school building had
withstood several devastating typhoons and other calamities in the
past, without its roofing or any portion thereof giving way; that it has
not been remiss in its responsibility to see to it that said school
building, which houses school children, faculty members, and
employees, is in tip-top condition; and furthermore, typhoon
Saling was an act of God and therefore beyond human control such
that petitioner cannot be answerable for the damages wrought
thereby, absent any negligence on its part.
The trial court, giving credence to the ocular inspection report to
the effect that subject school building had a defective roofing
structure, found that, while typhoon Saling was accompanied by
strong winds, the damage to private respondents house could have
been avoided if the construction of the roof of [petitioners] building
was not faulty. The dispositive portion of the lower courts
decision[7] reads thus:
WHEREFORE, in view of the foregoing, the Court renders judgment
(sic) in favor of the plaintiff (sic) and against the defendants, (sic)
ordering the latter to pay jointly and severally the former as follows:
a) P117,116.00, as actual damages, plus litigation expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorneys fees;
d) Costs of the instant suit.
The claim for exemplary damages is denied for the reason that the
defendants (sic) did not act in a wanton fraudulent, reckless,
oppressive or malevolent manner.
In its appeal to the Court of Appeals, petitioner assigned as
errors,[8] that:
I
THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON
SALING, AS AN ACT OF GOD, IS NOT THE SOLE AND

ABSOLUTE REASON FOR THE RIPPING-OFF OF THE SMALL

PORTION OF THE ROOF OF SOUTHEASTERNS FOUR (4)
STOREY SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING THAT THE
CONSTRUCTION OF THE ROOF OF DEFENDANTS SCHOOL
BUILDING WAS FAULTY NOTWITHSTANDING THE ADMISSION
THAT THERE WERE TYPHOONS BEFORE BUT NOT AS GRAVE
AS TYPHOON SALING WHICH IS THE DIRECT AND PROXIMATE
CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND
MORAL DAMAGES AS WELL AS ATTORNEYS FEES AND
LITIGATION EXPENSES AND COSTS OF SUIT TO DIMAANOS
WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES AT ALL
AS DIMAANOS HAVE ALREADY SOLD THEIR PROPERTY, AN
INTERVENING EVENT THAT RENDERS THIS CASE MOOT AND
ACADEMIC.
IV
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF
THE WRIT OF EXECUTION INSPITE OF THE PERFECTION OF
SOUTHEASTERNS APPEAL WHEN THERE IS NO COMPELLING
REASON FOR THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of Appeals affirmed with
modification the trial courts disposition by reducing the award of moral
damages from P1,000,000.00 toP200,000.00. Hence, petitioners resort
to this Court, raising for resolution the issues of:
1. Whether or not the award of actual damage [sic] to respondent
Dimaanos on the basis of speculation or conjecture, without proof or
receipts of actual damage, [sic] legally feasible or justified.
2. Whether or not the award of moral damages to respondent
Dimaanos, without the latter having suffered, actual damage has legal
basis.
3. Whether or not respondent Dimaanos who are no longer the owner
of the property, subject matter of the case, during its pendency, has
the right to pursue their complaint against petitioner when the case
was already rendered moot and academic by the sale of the property
to third party.
4. Whether or not the award of attorneys fees when the case was
already moot and academic [sic] legally justified.
5. Whether or not petitioner is liable for damage caused to others by
typhoon Saling being an act of God.
6. Whether or not the issuance of a writ of execution pending appeal,
ex-parte or without hearing, has support in law.

The pivot of inquiry here, determinative of the other issues, is

whether the damage on the roof of the building of private respondents
resulting from the impact of the falling portions of the school buildings
roof ripped off by the strong winds of typhoon Saling, was, within legal
contemplation, due to fortuitous event? If so, petitioner cannot be held
liable for the damages suffered by the private respondents. This
conclusion finds support in Article 1174 of the Civil Code,
which provides:
Art 1174. Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though foreseen,
were inevitable.
The antecedent of fortuitous event or caso fortuito is found in
the Partidas which defines it as an event which takes place by
accident and could not have been foreseen. [9]Escriche elaborates it as
an unexpected event or act of God which could neither be foreseen
nor resisted.[10] Civilist Arturo M. Tolentino adds that [f]ortuitous events
may be produced by two general causes: (1) by nature, such as
earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of
man, such as an armed invasion, attack by bandits, governmental
prohibitions, robbery, etc.[11]
In order that a fortuitous event may exempt a person from
liability, it is necessary that he be free from any previous negligence
or misconduct by reason of which the loss may have been occasioned.
[12]
An act of God cannot be invoked for the protection of a person who
has been guilty of gross negligence in not trying to forestall its
possible adverse consequences. When a persons negligence concurs
with an act of God in producing damage or injury to another, such
person is not exempt from liability by showing that the immediate or
proximate cause of the damage or injury was a fortuitous event. When
the effect is found to be partly the result of the participation of man
whether it be from active intervention, or neglect, or failure to act the
whole occurrence is hereby humanized, and removed from the rules
applicable to acts of God.[13]
In the case under consideration, the lower court accorded full
credence to the finding of the investigating team that subject school
buildings roofing had no sufficient anchorage to hold it in position
especially when battered by strong winds. Based on such finding, the
trial court imputed negligence to petitioner and adjudged it liable for
damages to private respondents.

After a thorough study and evaluation of the evidence on record,

this Court believes otherwise, notwithstanding the general rule that
factual findings by the trial court, especially when affirmed by the
appellate court, are binding and conclusive upon this Court. [14] After a
careful scrutiny of the records and the pleadings submitted by the
parties, we find exception to this rule and hold that the lower courts
misappreciated the evidence proffered.
There is no question that a typhoon or storm is a fortuitous event,
a natural occurrence which may be foreseen but is unavoidable
despite any amount of foresight, diligence or care. [15] In order to be
exempt from liability arising from any adverse consequence
engendered thereby, there should have been no human participation
amounting to a negligent act. [16] In other words, the person seeking
exoneration from liability must not be guilty of negligence. Negligence,
as commonly understood, is conduct which naturally or reasonably
creates undue risk or harm to others. It may be the failure to observe
that degree of care, precaution, and vigilance which the circumstances
justly demand,[17] or the omission to do something which a prudent
and reasonable man, guided by considerations which ordinarily
regulate the conduct of human affairs, would do. [18] From these
premises, we proceed to determine whether petitioner was negligent,
such that if it were not, the damage caused to private respondents
house could have been avoided?
At the outset, it bears emphasizing that a person claiming
damages for the negligence of another has the burden of proving the
existence of fault or negligence causative of his injury or loss. The
facts constitutive of negligence must be affirmatively established
by competent evidence,[19] not merely by presumptions and
conclusions without basis in fact. Private respondents, in establishing
the culpability of petitioner, merely relied on the aforementioned
report submitted by a team which made an ocular inspection of
petitioners school building after the typhoon. As the term imparts, an
ocular inspection is one by means of actual sight or viewing. [20] What is
visual to the eye though, is not always reflective of the real cause
behind. For instance, one who hears a gunshot and then sees a
wounded person, cannot always definitely conclude that a third person
shot the victim. It could have been self-inflicted or caused accidentally
by a stray bullet. The relationship of cause and effect must be clearly
shown.
In the present case, other than the said ocular inspection, no
investigation was conducted to determine the real cause of the partial
unroofing of petitioners school building.Private respondents did
not even show that the plans, specifications and design of said school
building were deficient and defective. Neither did they prove any
substantial
deviation
from
the
approved
plans
and

specifications. Nor did

they
conclusively
establish
construction of such building was basically flawed. [21]

that

the

On the other hand, petitioner elicited from one of the witnesses of

private respondents, city building official Jesus Reyna, that the original
plans and design of petitioners school building were approved prior to
its construction. Engr. Reyna admitted that it was a legal requirement
before the construction of any building to obtain a permit from the city
building official (city engineer, prior to the passage of the Building Act
of 1977). In like manner, after construction of the building, a
certification must be secured from the same official attesting to the
readiness for occupancy of the edifice. Having obtained both building
permit and certificate of occupancy, these are, at the very least, prima
facie evidence of the regular and proper construction of subject school
building.[22]
Furthermore, when part of its roof needed repairs of the damage
inflicted by typhoon Saling, the same city official gave the go-signal
for such repairs without any deviation from the original design and
subsequently, authorized the use of the entire fourth floor of the same
building. These only prove that subject building suffers from no
structural defect, contrary to the report that its U-shaped form was
structurally defective. Having given his unqualified imprimatur, the
city building official is presumed to have properly performed his
duties[23] in connection therewith.
In addition, petitioner presented its vice president for finance and
administration who testified that an annual maintenance inspection
and
repair
of
subject
school
building
were
regularly
undertaken. Petitioner was even willing to present its maintenance
supervisor to attest to the extent of such regular inspection but
private respondents agreed to dispense with his testimony and simply
stipulated that it would be corroborative of the vice presidents
narration.
Moreover, the city building official, who has been in the city
government service since 1974, admitted in open court that no
complaint regarding any defect on the same structure has ever been
lodged before his office prior to the institution of the case at bench. It
is a matter of judicial notice that typhoons are common occurrences in
this country.If subject school buildings roofing was not firmly anchored
to its trusses, obviously, it could not have withstood long years and
several typhoons even stronger than Saling.
In light of the foregoing, we find no clear and convincing evidence
to sustain the judgment of the appellate court. We thus hold that
petitioner has not been shown negligent or at fault regarding the

construction and maintenance of its school building in question and

that typhoon Saling was the proximate cause of the damage suffered
by private respondents house.
With this disposition on the pivotal issue, private respondents
claim for actual and moral damages as well as attorneys fees must
fail.[24] Petitioner cannot be made to answer for a purely fortuitous
event.[25] More so because no bad faith or willful act to cause damage
was alleged and proven to warrant moral damages.
Private respondents failed to adduce adequate and competent
proof of the pecuniary loss they actually incurred. [26] It is not enough
that the damage be capable of proof but must be actually proved with
a reasonable degree of certainty, pointing out specific facts that afford
a basis for measuring whatever compensatory damages are borne.
[27]
Private respondents merely submitted an estimated amount
needed for the repair of the roof of their subject building. What is
more, whether the necessary repairs were caused ONLY by petitioners
alleged negligence in the maintenance of its school building, or
included the ordinary wear and tear of the house itself, is an essential
question that remains indeterminable.
The Court deems unnecessary to resolve the other issues
posed by petitioner.
As regards the sixth issue, however, the writ of execution issued
on April 1, 1993 by the trial court is hereby nullified and set
aside. Private respondents are ordered to reimburse any amount or
return to petitioner any property which they may have received by
virtue of the enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged
Decision is REVERSED. The complaint of private respondents in Civil
Case No. 7314 before the trial court a quois ordered DISMISSED and
the writ of execution issued on April 1, 1993 in said case is SET
ASIDE. Accordingly, private respondents are ORDERED to return to
petitioner any amount or property received by them by virtue of said
writ. Costs against the private respondents.
SO ORDERED.
Narvasa, C.J., (Chairman), Romero, and Kapunan, JJ., concur.

L-16477. May 31, 1961.

MANILA TRADING &SUPPLY Co., plaintiff-appellee, vs. MARIANO
MEDINA, defendant-appellant.
Obligations and Contracts; Sales on Installments; Payment of
subsequent installments; When presumption of payment of prior
installments arise; Presumption only prima facie.The presumption
that prior installments were paid upon the presentation of a receipt of
payment subsequent thereto, is onlyprima facie.
APPEAL from a judgment of the Court of First Instance of Manila.
Enriquez, J.
The facts are stated in the opinion of the Court.
Ross, Selph & Carrascoso for plaintiff-appellee.
Campos, Mirasol & Mediodic for defendant-appellant.
REYES, J.B.L., J.:
This case was certified to us by the Court of Appeals because the
claims involved totalled more than P200,-000.00 (Resolution, CA., 14
Nov. 1959).
The facts appear to be that prior to May 7, 1956, the defendantappellant Mariano Medina had certain accounts with appellee, Manila
Trading & Supply Co. These accounts were on said date consolidated
into a total balance due of P60,000.00, for which Medina executed a
promissory note (Exh. A) for Sixty Thousand Pesos (P60,000.00), with
interest at 12% per annum, payable in monthly installments of
P4,000.00 plus interest. The note provided that upon failure to pay any
of the installments, the whole sum remaining then unpaid will
immediately become due and payable, at the option of the holder of
this note, together with 33-1/3% of the amount due for attorneys
fees and expenses of collection, in addition to the costs of the suit.
On January 8, 1957, the payee Manila Trading & Supply Co. filed a
complaint against appellant Medina in the Court of First Instance of
Manila, claiming that the said debtor had failed to meet the
installments due on the note for the months of September, 1956 up to
and including January 7, 1957, and that due to such default, the
balance of the note amounting to P43,596.22, plus
550
550
SUPREME COURT REPORTS ANNOTATED
Manila Trading & Supply Co. vs. Medina
12% interest thereon and 33-1/3% thereof by way of attorneys fees
and collection expenses, had become due and demandable; and
prayed for judgment in the amounts stated. On January 4, 1957, upon
petition of plaintiff, a writ of attachment was issued and levied upon
eleven of defendants buses.
On March 10, 1957, Medina filed an answer (Record on Appeal, p.
11), admitting the allegations of paragraphs 2, 3 and 4 of the
complaint (i.e., the execution of the note; the failure to pay the
monthly installments for September, 1956 up to January, 1957; the
maturity of the balance due of P43,596.22; and the lack of sufficient

security). He also admitted the allegations of the complaint concerning

the 12% interest on the principal, but contended that the 33-1/3%
attorneys fees were exorbitant and unconscionable. Medina further
pleaded, by way of defense, that he was induced to pay P4,000.00
additional on January 24, 1957 upon promise that he would not be
sued, and that he would be allowed to pay the balance
paulatinamente, and that instead, his trucks were attached. By way
of counterclaim, Medina asked for damages due to lost earnings of the
trucks attached, at the rate of P900.00 per day. These defenses and
counterclaim were traversed by the plaintiff.
Trial was set for September 10, 1957, and because of nonappearance of defendant and his counsel, the court commissioned the
Clerk to receive plaintiffs evidence, which showed that from June 6,
1956 to January 21, 1957, defendants had made twenty-one payments
totalling P24,311.34 of which P4,413.76 corresponded to interest and
the balance (P19,982.15) to the principal.
Upon seasonable motion of defendant Medina, the Court reopened
the case to give him opportunity to present his evidence. Thereupon,
he testified and asserted that in addition to the twenty-one payments
acknowledged by plaintiff company, he had made ten other payments
that, added to the former, showed that he (Medina) had paid more
than P4,000.00 a month since the execution of the note up to the filing
of the complaint, and was, therefore, not in default. To bolster his
claim, Medina
551
VOL. 2, MAY 31, 1961
551
Manila Trading & Supply Co. vs. Medina
exhibited ten additional receipts signed by the plaintiffs cashier, but
without numbers or year dates, because they were allegedly eaten
by anay; however, defendant wrote thereon the supposed numbers
that the receipts originally bore, based on a memorandum book where
he purported to have noted his payments to plaintiff. Medina also
testified that by reason of the attachment of his buses, he had lost net
earnings of P550.00 per day, and his business in building truck bodies
had been affected to the extent of P50,000.00; and that he had been
forced to engage counsel at stipulated fees of P7,000.00. Considering
that the attachment was maintained for over two years, the damages
claimed by defendant would amount to over P300,000.00.
In rebuttal, the assistant accountant of the Manila Trading denied
that the ten additional receipts exhibited by the defendant
corresponded to the period covered by the promissory note Exh. A;
that the numbers attributed to them by plaintiff were not in the proper
sequence, because as of July 28, 1956, the company has adopted a
new numbering of its receipts; and that in the absence of the correct
numbers and the years of issue, it was impossible to locate the record
of the payments claimed.

After considering the evidence, the trial court entertained doubts

as to the veracity of the receipts produced by the defendant, and
refused to credit him with the amounts shown therein. It, therefore,
gave judgment for the plaintiff for the balance due of P40,102.42 on
the note, plus 12% interest from January 21, 1957 until payment; but
reduced the attorneys fees from 33-1/3% of the sum due to only
P1,000.00. Defendant appealed from the decision.
Our examination of the evidence satisfied us that the ten
additional receipts produced by the defendant (Exhs. 3-D, 3-F, 3-H, 3L, 3-S, 3-U, 3-W, 3-Z, 3-BB, and 3-CC), while issued by plaintiff, were
not for payments made on the dates claimed by defendant, nor are
they chargeable to the balance of the promissory note Exh. A. As
pointed out by the trial court, it is highly suspicious
552
552
SUPREME COURT REPORTS ANNOTATED
Manila Trading & Supply Co. vs. Medina
that these receipts should be mutilated precisely at the places where
the serial numbers and the year of issue must appear, while the
receipts for intervening payments recognized by the plaintiff remained
intact. Moreover, these contested receipts appear identical in shape,
size, and color to those issued by plaintiff company prior to July 28,
1956, before the form of its receipts were changed, such as Exhs. 3 to
3-C, and Exhs. 7 to 7-D; but differ radically in color, size and
particulars from those issued after July 28, 1956. In addition, the
numbers that Medina attributed to them are not in sequence, as can
be seen from the list Exh. 4. Thus, defendant claims that Exh. 3-D was
issued in June (or July) 29, 1956 and bore No. 2898; yet the
acknowledged receipt for July 28, 1956 is numbered 0096; receipt Exh.
3-F, allegedly for August 1, 1956, is numbered, according to
defendant, 3438, while the admittedly authentic receipt Exh. 3-G for
August 3 has a lower number, 0813.
Moreover, receipt Exh. 3-H that defendant claims to be dated
August 18, 1956, is numbered 1584, a number lower than that of Exh.
3-F dated August 1st (No. 3438), when the latter was issued earlier.
The same inconsistency between dates and serial numbers is true with
the other contested receipts. It is difficult to believe that a trading
company should issue receipts numbered at random, since it would
make auditing control impossible.
The lower court also correctly noted that the genuine receipts from
and after July 28 invariably specify the amount charged to interest as

well as that credited to the principal for each payment, while the
disputed receipts contain no such specification.
These differences between the defendants disputed receipts and
those admitted by plaintiff, when coupled with the fact that appellant
Medinas answer expressly admitted the balance due as well as his
failure to meet the monthly installments from September, 1956 to
January, 1957; his lack of corroboration; and the further circumstance
that the admissions in his answer were never withdrawn, nor was the
answer containing them ever amended, irresistibly show that the trial
courts re553
VOL. 2, MAY 31, 1961
553
Gesolgon vs. Lacson
jection of the genuineness and validity of the disputed receipts
constituted no error. The authenticity of the signatures appended to
them does not prove that they were issued in 1956 or 1957, as
claimed by the appellant, nor that they should be credited to the note
Exh. A. It is not at all improbable that these mutilated receipts were
among those issued to the appellant prior to the consolidation of his
accounts and the execution of the promissory note.
Appellant avers that the genuine receipts dated January, 1957
raise the presumption that prior installments were paid. This might be
true if such receipts recited that they were issued for the installments
corresponding to the month of January, 1957; but nowhere does that
fact appear. And even if such recital had been made, the resulting
presumption would only be prima facie, and the evidence before us is
clear that the payments made do not correspond to the installments
falling due on the dates of the genuine receipts.
We find no error in the judgment appealed from, and therefore the
same is hereby affirmed. Costs in both instances against appellant
Mariano Medina.
Padilla, Bautista
Angelo, Labrador,Concepcion, Barrera, Paredes, Dizon, De
Leon and Natividad, JJ., concur.
Bengzon, C.J., took no part.
Judgment affirmed.
_______________