1
FIRST DIVISION On May 11, 1995, the shipment was withdrawn by R.F.
G.R. No. 181163 July 24, 2013
ASIAN TERMINALS, INC., Petitioner,
vs.
PHILAM INSURANCE CO., INC. (now Chartis
Philippines Insurance, Inc.), Respondent.
G.R. No. 181262
PHILAM INSURANCE CO., INC. (now Chartis
Philippines Insurance, Inc.), Petitioner,
vs.
WESTWIND SHIPPING CORPORATION and ASIAN
TERMINALS, INC., Respondents.
G.R. No. 181319
WESTWIND SHIPPING CORPORATION, Petitioner,
vs.
PHILAM INSURANCE CO., INC. (now Chartis
Philippines Insurance, Inc.) and ASIAN
TERMINALS, INC.,Respondents.
DECISION
VILLARAMA, JR., J.:
Before us are three consolidated petitions for review on
certiorari assailing the Decision1 dated October 15, 2007 and
the Resolution2 dated January 11, 2008 of the Court of
Appeals (CA) which affirmed with modification the
Decision3 of the Regional Trial Court (RTC) of Makati City,
Branch 148, in Civil Case No. 96-062. The RTC had ordered
Westwind Shipping Corporation (Westwind) and Asian
Terminals, Inc. (ATI) to pay, jointly and severally, Philam
Insurance Co., Inc. (Philam) the sum of ₱633,957.15, with
interest at 12% per annum from the date of judicial demand
and ₱158,989.28 as attorney’s fees.
The facts of the case follow:
On April 15, 1995, Nichimen Corporation shipped to
Universal Motors Corporation (Universal Motors) 219
packages containing 120 units of brand new Nissan Pickup
Truck Double Cab 4x2 model, without engine, tires and
batteries, on board the vessel S/S "Calayan Iris" from Japan
to Manila. The shipment, which had a declared value of
US$81,368 or ₱29,400,000, was insured with Philam
against all risks under Marine Policy No. 708-8006717-4.4
The carrying vessel arrived at the port of Manila on April
20, 1995, and when the shipment was unloaded by the staff
of ATI, it was found that the package marked as 03-245-
42K/1 was in bad order.5 The Turn Over Survey of Bad
Order Cargoes6 dated April 21, 1995 identified two packages,
labeled 03-245-42K/1 and 03/237/7CK/2, as being dented
and broken. Thereafter, the cargoes were stored for
temporary safekeeping inside CFS Warehouse in Pier No. 5.
Subrogation Receipt dated November 15, 1995. It likewise
Revilla Customs Brokerage, Inc., the authorized broker of
Universal Motors, and delivered to the latter’s warehouse in
Mandaluyong City. Upon the request7 of Universal Motors, a
bad order survey was conducted on the cargoes and it was
found that one Frame Axle Sub without LWR was deeply
dented on the buffle plate while six Frame Assembly with
Bush were deformed and misaligned.8 Owing to the extent
of the damage to said cargoes, Universal Motors declared
them a total loss.
On August 4, 1995, Universal Motors filed a formal claim for
damages in the amount of ₱643,963.84 against
Westwind,9 ATI10 and R.F. Revilla Customs Brokerage,
Inc.11 When Universal Motors’ demands remained
unheeded, it sought reparation from and was compensated
in the sum of ₱633,957.15 by Philam. Accordingly, Universal
Motors issued a Subrogation Receipt12 dated November 15,
1995 in favor of Philam.
On January 18, 1996, Philam, as subrogee of Universal
Motors, filed a Complaint13 for damages against Westwind,
ATI and R.F. Revilla Customs Brokerage, Inc. before the
RTC of Makati City, Branch 148.
On September 24, 1999, the RTC rendered judgment in
favor of Philam and ordered Westwind and ATI to pay
Philam, jointly and severally, the sum of ₱633,957.15 with
interest at the rate of 12% per annum, ₱158,989.28 by way
of attorney’s fees and expenses of litigation.
The court a quo ruled that there was sufficient evidence to
establish the respective participation of Westwind and ATI
in the discharge of and consequent damage to the shipment.
It found that the subject cargoes were compressed while
being hoisted using a cable that was too short and taut.
The trial court observed that while the staff of ATI
undertook the physical unloading of the cargoes from the
carrying vessel, Westwind’s duty officer exercised full
supervision and control throughout the process. It held
Westwind vicariously liable for failing to prove that it
exercised extraordinary diligence in the supervision of the
ATI stevedores who unloaded the cargoes from the vessel.
However, the court absolved R.F. Revilla Customs
Brokerage, Inc. from liability in light of its finding that the
cargoes had been damaged before delivery to the consignee.
The trial court acknowledged the subrogation between
Philam and Universal Motors on the strength of the
upheld Philam’s claim for the value of the alleged damaged
vehicle parts contained in Case Nos. 03-245-42K/1 and 03-
245-51K or specifically for "7 pieces of Frame Axle Sub
Without Lower and Frame Assembly with Bush."14
Westwind filed a Motion for Reconsideration15 which was,
however, denied in an Order16 dated October 26, 2000.
On appeal, the CA affirmed with modification the ruling of
the RTC. In a Decision dated October 15, 2007, the appellate
court directed Westwind and ATI to pay Philam, jointly and
severally, the amount of ₱190,684.48 with interest at the
rate of 12% per annum until fully paid, attorney’s fees of
₱47,671 and litigation expenses.
The CA stressed that Philam may not modify its allegations
by claiming in its Appellee’s Brief17 that the six pieces of
Frame Assembly with Bush, which were purportedly
damaged, were also inside Case No. 03-245-42K/1. The CA
noted that in its Complaint, Philam alleged that "one (1) pc.
FRAME AXLE SUB W/O LWR from Case No. 03-245-42K/1
was completely deformed and misaligned, and six (6) other
pcs. of FRAME ASSEMBLY WITH BUSH from Case No. 03-
245-51K were likewise completely deformed and
misaligned."18
The appellate court accordingly affirmed Westwind and
ATI’s joint and solidary liability for the damage to only one
(1) unit of Frame Axle Sub without Lower inside Case No.
03-245-42K/1. It also noted that when said cargo sustained
damage, it was not yet in the custody of the consignee or the
person who had the right to receive it. The CA pointed out
that Westwind’s duty to observe extraordinary diligence in
the care of the cargoes subsisted during unloading thereof
by ATI’s personnel since the former exercised full control
and supervision over the discharging operation.
Similarly, the appellate court held ATI liable for the
negligence of its employees who carried out the offloading of
cargoes from the ship to the pier. As regards the extent of
ATI’s liability, the CA ruled that ATI cannot limit its liability
to ₱5,000 per damaged package. It explained that Section
7.0119 of the Contract for Cargo Handling Services20does not
apply in this case since ATI was not yet in custody and
control of the cargoes when the Frame Axle Sub without
Lower suffered damage.
Citing Belgian Overseas Chartering and Shipping N.V. v.
Philippine First Insurance Co., Inc.,21 the appellate court

also held that Philam’s action for damages had not
prescribed notwithstanding the absence of a notice of claim.
All the parties moved for reconsideration, but their motions
were denied in a Resolution dated January 11, 2008. Thus,
they each filed a petition for review on certiorari which were
consolidated together by this Court considering that all
three petitions assail the same CA decision and resolution
and involve the same parties.
Essentially, the issues posed by petitioner ATI in G.R. No.
181163, petitioner Philam in G.R. No. 181262 and petitioner
Westwind in G.R. No. 181319 can be summed up into and
resolved by addressing three questions: (1) Has Philam’s
action for damages prescribed? (2) Who between Westwind
and ATI should be held liable for the damaged cargoes? and
(3) What is the extent of their liability?
Petitioners’ Arguments
G.R. No. 181163
Petitioner ATI disowns liability for the damage to the Frame
Axle Sub without Lower inside Case No. 03-245-42K/1. It
shifts the blame to Westwind, whom it charges with
negligence in the supervision of the stevedores who
unloaded the cargoes. ATI admits that the damage could
have been averted had Westwind observed extraordinary
diligence in handling the goods. Even so, ATI suspects that
Case No. 03-245-42K/1 is "weak and
defective"22 considering that it alone sustained damage out
of the 219 packages.
Notwithstanding, petitioner ATI submits that, at most, it
can be held liable to pay only ₱5,000 per package pursuant
to its Contract for Cargo Handling Services. ATI maintains
that it was not properly notified of the actual value of the
cargoes prior to their discharge from the vessel.
G.R. No. 181262
Petitioner Philam supports the CA in holding both
Westwind and ATI liable for the deformed and misaligned
Frame Axle Sub without Lower inside Case No. 03-245-
42K/1. It, however, faults the appellate court for disallowing
its claim for the value of six Chassis Frame Assembly which
were likewise supposedly inside Case Nos. 03-245-51K and
03-245-42K/1. As to the latter container, Philam anchors its
claim on the results of the Inspection/Survey Report23 of
Chartered Adjusters, Inc., which the court received without
objection from Westwind and ATI. Petitioner believes that
with the offer and consequent admission of evidence to the
effect that Case No. 03-245-42K/1 contains six pieces of
dented Chassis Frame Assembly, Philam’s claim thereon
should be treated, in all respects, as if it has been raised in
the pleadings. Thus, Philam insists on the reinstatement of
the trial court’s award in its favor for the payment of
₱633,957.15 plus legal interest, ₱158,989.28 as attorney’s
fees and costs.
G.R. No. 181319
Petitioner Westwind denies joint liability with ATI for the
value of the deformed Frame Axle Sub without Lower in
Case No. 03-245-42K/1. Westwind argues that the evidence
shows that ATI was already in actual custody of said case
when the Frame Axle Sub without Lower inside it was
misaligned from being compressed by the tight cable used to
unload it. Accordingly, Westwind ceased to have
responsibility over the cargoes as provided in paragraph 4 of
the Bill of Lading which provides that the responsibility of
the carrier shall cease when the goods are taken into the
custody of the arrastre.
Westwind contends that sole liability for the damage rests
on ATI since it was the latter’s stevedores who operated the
ship’s gear to unload the cargoes. Westwind reasons that
ATI is an independent company, over whose employees and
operations it does not exercise control. Moreover, it was
ATI’s employees who selected and used the wrong cable to
lift the box containing the cargo which was damaged.
Westwind likewise believes that ATI is bound by its
acceptance of the goods in good order despite a finding that
Case No. 03-245-42K/1 was partly torn and crumpled on
one side. Westwind also notes that the discovery that a piece
of Frame Axle Sub without Lower was completely deformed
and misaligned came only on May 12, 1995 or 22 days after
the cargoes were turned over to ATI and after the same had
been hauled by R.F. Revilla Customs Brokerage, Inc.
Westwind further argues that the CA erred in holding it
liable considering that Philam’s cause of action has
prescribed since the latter filed a formal claim with it only
on August 17, 1995 or four months after the cargoes arrived
on April 20, 1995. Westwind stresses that according to the
provisions of clause 20, paragraph 224 of the Bill of Lading
as well as Article 36625 of the Code of Commerce, the
consignee had until April 20, 1995 within which to make a
2
claim considering the readily apparent nature of the
damage, or until April 27, 1995 at the latest, if it is assumed
that the damage is not readily apparent.
Lastly, petitioner Westwind contests the imposition of 12%
interest on the award of damages to Philam reckoned from
the time of extrajudicial demand. Westwind asserts that, at
most, it can only be charged with 6% interest since the
damages claimed by Philam does not constitute a loan or
forbearance of money.
The Court’s Ruling
The three consolidated petitions before us call for a
determination of who between ATI and Westwind is liable
for the damage suffered by the subject cargo and to what
extent. However, the resolution of the issues raised by the
present petitions is predicated on the appreciation of factual
issues which is beyond the scope of a petition for review on
certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended. It is settled that in petitions for
review on certiorari, only questions of law may be put in
issue. Questions of fact cannot be entertained.26
There is a question of law if the issue raised is capable of
being resolved without need of reviewing the probative
value of the evidence. The resolution of the issue must rest
solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review
of the evidence presented, the question posed is one of fact.
If the query requires a re-evaluation of the credibility of
witnesses, or the existence or relevance of surrounding
circumstances and their relation to each other, the issue in
that query is factual.27
In the present petitions, the resolution of the question as to
who between Westwind and ATI should be liable for the
damages to the cargo and to what extent would have this
Court pass upon the evidence on record. But while it is not
our duty to review, examine and evaluate or weigh all over
again the probative value of the evidence presented,28the
Court may nonetheless resolve questions of fact when the
case falls under any of the following exceptions:
(1) when the findings are grounded entirely on speculation,
surmises, or conjectures; (2) when the inference made is
manifestly mistaken, absurd, or impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when in making its findings the Court of

Appeals went beyond the issues of the case, or its findings
are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to those of the
trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the
respondent; and (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by
the evidence on record.29
In the cases at bar, the fifth and seventh exceptions apply.
While the CA affirmed the joint liability of ATI and
Westwind, it held them liable only for the value of one unit
of Frame Axle Sub without Lower inside Case No. 03-245-
42K/1. The appellate court disallowed the award of damages
for the six pieces of Frame Assembly with Bush, which
petitioner Philam alleged, for the first time in its Appellee’s
Brief, to be likewise inside Case No. 03-245-42K/1. Lastly,
the CA reduced the award of attorney’s fees to ₱47,671.
Foremost, the Court holds that petitioner Philam has
adequately established the basis of its claim against
petitioners ATI and Westwind. Philam, as insurer, was
subrogated to the rights of the consignee, Universal Motors
Corporation, pursuant to the Subrogation Receipt executed
by the latter in favor of the former. The right of subrogation
accrues simply upon payment by the insurance company of
the insurance claim.30 Petitioner Philam’s action finds
support in Article 2207 of the Civil Code, which provides as
follows:
Art. 2207. If the plaintiff’s property has been insured, and
he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. x x
x.
In their respective comments31 to Philam’s Formal Offer of
Evidence,32 petitioners ATI and Westwind objected to the
admission of Marine Certificate No. 708-8006717-4 and the
Subrogation Receipt as documentary exhibits "B" and "P,"
respectively. Petitioner Westwind objects to the admission
of both documents for being hearsay as they were not
authenticated by the persons who executed them. For the
same reason, petitioner ATI assails the admissibility of the
Subrogation Receipt. As regards Marine Certificate No. 708-
8006717-4, ATI makes issue of the fact that the same was
issued only on April 27, 1995 or 12 days after the shipment
was loaded on and transported via S/S "Calayan Iris."
The nature of documents as either public or private
determines how the documents may be presented as
evidence in court. Public documents, as enumerated under
Section 19,33 Rule 132 of the Rules of Court, are self-
authenticating and require no further authentication in
order to be presented as evidence in court.34
In contrast, a private document is any other writing, deed or
instrument executed by a private person without the
intervention of a notary or other person legally authorized
by which some disposition or agreement is proved or set
forth. Lacking the official or sovereign character of a public
document, or the solemnities prescribed by law, a private
document requires authentication35 in the manner
prescribed under Section 20, Rule 132 of the Rules:
SEC. 20. Proof of private document. – Before any private
document offered as authentic is received in evidence, its
due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written;
or
(b) By evidence of the genuineness of the signature or
handwriting of the maker.
Any other private document need only be identified as that
which it is claimed to be.
The requirement of authentication of a private document is
excused only in four instances, specifically: (a) when the
document is an ancient one within the context of Section
21,36 Rule 132 of the Rules; (b) when the genuineness and
authenticity of the actionable document have not been
specifically denied under oath by the adverse party; (c)
when the genuineness and authenticity of the document
have been admitted; or (d) when the document is not being
offered as genuine.37
Indubitably, Marine Certificate No. 708-8006717-4 and the
Subrogation Receipt are private documents which Philam
and the consignee, respectively, issue in the pursuit of their
business. Since none of the exceptions to the requirement of
authentication of a private document obtains in these cases,
said documents may not be admitted in evidence for Philam
without being properly authenticated.
3
Contrary to the contention of petitioners ATI and Westwind,
however, Philam presented its claims officer, Ricardo
Ongchangco, Jr. to testify on the execution of the
Subrogation Receipt, as follows:
ATTY. PALACIOS
Q How were you able to get hold of this subrogation receipt?
A Because I personally delivered the claim check to
consignee and have them receive the said check.
Q I see. Therefore, what you are saying is that you
personally delivered the claim check of Universal Motors
Corporation to that company and you have the subrogation
receipt signed by them personally?
A Yes, sir.
Q And it was signed in your presence?
A Yes, sir.38
Indeed, all that the Rules require to establish the
authenticity of a document is the testimony of a person who
saw the document executed or written. Thus, the trial court
did not err in admitting the Subrogation Receipt in evidence
despite petitioners ATI and Westwind’s objections that it
was not authenticated by the person who signed it.
However, the same cannot be said about Marine Certificate
No. 708-8006717-4 which Ongchangcho, Jr. merely
identified in court. There is nothing in Ongchangco, Jr.’s
testimony which indicates that he saw Philam’s authorized
representative sign said document, thus:
ATTY. PALACIOS
Q Now, I am presenting to you a copy of this marine
certificate 708-8006717-4 issued by Philam Insurance
Company, Inc. to Universal Motors Corporation on April 15,
1995. Will you tell us what relation does it have to that
policy risk claim mentioned in that letter?
A This is a photocopy of the said policy issued by the
consignee Universal Motors Corporation.
ATTY. PALACIOS
I see. May I request, if Your Honor please, that this marine
risk policy of the plaintiff as submitted by claimant
Universal Motors Corporation be marked as Exhibit B.
COURT
Mark it.39
As regards the issuance of Marine Certificate No. 708-
8006717-4 after the fact of loss occurred, suffice it to say
that said document simply certifies the existence of an open
insurance policy in favor of the consignee. Hence, the
reference to an "Open Policy Number 9595093" in said
certificate. The Court finds it completely absurd to suppose
that any insurance company, of sound business practice,

would assume a loss that has already been realized, when
the profitability of its business rests precisely on the non-
happening of the risk insured against.
Yet, even with the exclusion of Marine Certificate No. 708-
8006717-4, the Subrogation Receipt, on its own, is adequate
proof that petitioner Philam paid the consignee’s claim on
the damaged goods. Petitioners ATI and Westwind failed to
offer any evidence to controvert the same. In Malayan
Insurance Co., Inc. v. Alberto,40 the Court explained the
effect of payment by the insurer of the insurance claim in
this wise:
We have held that payment by the insurer to the insured
operates as an equitable assignment to the insurer of all the
remedies that the insured may have against the third party
whose negligence or wrongful act caused the loss. The right
of subrogation is not dependent upon, nor does it grow out
of, any privity of contract. It accrues simply upon payment
by the insurance company of the insurance claim. The
doctrine of subrogation has its roots in equity. It is designed
to promote and accomplish justice; and is the mode that
equity adopts to compel the ultimate payment of a debt by
one who, in justice, equity, and good conscience, ought to
pay.41
Neither do we find support in petitioner Westwind’s
contention that Philam’s right of action has prescribed.
The Carriage of Goods by Sea Act (COGSA) or Public Act
No. 521 of the 74th US Congress, was accepted to be made
applicable to all contracts for the carriage of goods by sea to
and from Philippine ports in foreign trade by virtue of
Commonwealth Act (C.A.) No. 65.42 Section 1 of C.A. No. 65
states:
Section 1. That the provisions of Public Act Numbered Five
hundred and twenty-one of the Seventy-fourth Congress of
the United States, approved on April sixteenth, nineteen
hundred and thirty-six, be accepted, as it is hereby accepted
to be made applicable to all contracts for the carriage of
goods by sea to and from Philippine ports in foreign trade:
Provided, That nothing in the Act shall be construed as
repealing any existing provision of the Code of Commerce
which is now in force, or as limiting its application.
The prescriptive period for filing an action for the loss or
damage of the goods under the COGSA is found in
paragraph (6), Section 3, thus:
(6) Unless notice of loss or damage and the general nature
of such loss or damage be given in writing to the carrier or
his agent at the port of discharge before or at the time of the
removal of the goods into the custody of the person entitled
to delivery thereof under the contract of carriage, such
removal shall be prima facie evidence of the delivery by the
carrier of the goods as described in the bill of lading. If the
loss or damage is not apparent, the notice must be given
within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the
receipt for the goods given by the person taking delivery
thereof.
The notice in writing need not be given if the state of the
goods has at the time of their receipt been the subject of
joint survey or inspection.
In any event the carrier and the ship shall be discharged
from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the
date when the goods should have been delivered: Provided,
That if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that
fact shall not affect or prejudice the right of the shipper to
bring suit within one year after the delivery of the goods or
the date when the goods should have been delivered.
In the Bill of Lading43 dated April 15, 1995, Rizal
Commercial Banking Corporation (RCBC) is indicated as
the consignee while Universal Motors is listed as the notify
party. These designations are in line with the subject
shipment being covered by Letter of Credit No. I501054,
which RCBC issued upon the request of Universal Motors.
A letter of credit is a financial device developed by
merchants as a convenient and relatively safe mode of
dealing with sales of goods to satisfy the seemingly
irreconcilable interests of a seller, who refuses to part with
his goods before he is paid, and a buyer, who wants to have
control of his goods before paying.44 However, letters of
credit are employed by the parties desiring to enter into
commercial transactions, not for the benefit of the issuing
bank but mainly for the benefit of the parties to the original
transaction,45 in these cases, Nichimen Corporation as the
seller and Universal Motors as the buyer. Hence, the latter,
as the buyer of the Nissan CKD parts, should be regarded as
the person entitled to delivery of the goods. Accordingly, for
purposes of reckoning when notice of loss or damage should
4
be given to the carrier or its agent, the date of delivery to
Universal Motors is controlling.
S/S "Calayan Iris" arrived at the port of Manila on April 20,
1995, and the subject cargoes were discharged to the
custody of ATI the next day. The goods were then
withdrawn from the CFS Warehouse on May 11, 1995 and
the last of the packages delivered to Universal Motors on
May 17, 1995. Prior to this, the latter filed a Request for Bad
Order Survey46 on May 12,1995 following a joint inspection
where it was discovered that six pieces of Chassis Frame
Assembly from two bundles were deformed and one Front
Axle Sub without Lower from a steel case was dented. Yet, it
was not until August 4, 1995 that Universal Motors filed a
formal claim for damages against petitioner Westwind.
Even so, we have held in Insurance Company of North
America v. Asian Terminals, Inc. that a request for, and the
result of a bad order examination, done within the
reglementary period for furnishing notice of loss or damage
to the carrier or its agent, serves the purpose of a claim. A
claim is required to be filed within the reglementary period
to afford the carrier or depositary reasonable opportunity
and facilities to check the validity of the claims while facts
are still fresh in the minds of the persons who took part in
the transaction and documents are still available.47 Here,
Universal Motors filed a request for bad order survey on
May 12, 1995, even before all the packages could be
unloaded to its warehouse.
Moreover, paragraph (6), Section 3 of the COGSA clearly
states that failure to comply with the notice requirement
shall not affect or prejudice the right of the shipper to bring
suit within one year after delivery of the goods. Petitioner
Philam, as subrogee of Universal Motors, filed the
Complaint for damages on January 18, 1996, just eight
months after all the packages were delivered to its
possession on May 17, 1995. Evidently, petitioner Philam’s
action against petitioners Westwind and ATI was seasonably
filed.
This brings us to the question that must be resolved in these
consolidated petitions. Who between Westwind and ATI
should be liable for the damage to the cargo?
It is undisputed that Steel Case No. 03-245-42K/1 was
partly torn and crumpled on one side while it was being
unloaded from the carrying vessel. The damage to said
container was noted in the Bad Order Cargo Receipt48dated
April 20, 1995 and Turn Over Survey of Bad Order Cargoes

dated April 21, 1995. The Turn Over Survey of Bad Order
Cargoes indicates that said steel case was not opened at the
time of survey and was accepted by the arrastre in good
order. Meanwhile, the Bad Order Cargo Receipt bore a
notation "B.O. not yet t/over to ATI." On the basis of these
documents, petitioner ATI claims that the contents of Steel
Case No. 03-245-42K/1 were damaged while in the custody
of petitioner Westwind.
We agree.
Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary
diligence in the vigilance over the goods transported by
them. Subject to certain exceptions enumerated under
Article 173449 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the
goods. The extraordinary responsibility of the common
carrier lasts from the time the goods are unconditionally
placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or
constructively, by the carrier to the consignee, or to the
person who has a right to receive them.50
The court a quo, however, found both petitioners Westwind
and ATI, jointly and severally, liable for the damage to the
cargo. It observed that while the staff of ATI undertook the
physical unloading of the cargoes from the carrying vessel,
Westwind’s duty officer exercised full supervision and
control over the entire process. The appellate court affirmed
the solidary liability of Westwind and ATI, but only for the
damage to one Frame Axle Sub without Lower.
Upon a careful review of the records, the Court finds no
reason to deviate from the finding that petitioners
Westwind and ATI are concurrently accountable for the
damage to the content of Steel Case No. 03-245-42K/1.
Section 251 of the COGSA provides that under every contract
of carriage of goods by the sea, the carrier in relation to the
loading, handling, stowage, carriage, custody, care and
discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and
immunities set forth in the Act. Section 3 (2)52 thereof then
states that among the carrier’s responsibilities are to
properly load, handle, stow, carry, keep, care for and
discharge the goods carried.53
At the trial, Westwind’s Operation Assistant, Menandro G.
Ramirez, testified on the presence of a ship officer to
supervise the unloading of the subject cargoes.
ATTY. LLAMAS
Q Having been present during the entire discharging
operation, do you remember who else were present at that
time?
A Our surveyor and our checker the foreman of ATI.
Q Were there officials of the ship present also?
A Yes, sir there was an officer of the vessel on duty at that
time.54
xxxx
Q Who selected the cable slink to be used?
A ATI Operation.
Q Are you aware of how they made that selection?
A Before the vessel arrived we issued a manifesto of the
storage plan informing the ATI of what type of cargo and
equipment will be utilitized in discharging the cargo.55
x x x x Q You testified that it was the ATI foremen who
select the cable slink to be used in discharging, is that
correct?
A Yes sir, because they are the one who select the slink and
they know the kind of cargoes because they inspected it
before the discharge of said cargo.
Q Are you aware that the ship captain is consulted in the
selection of the cable sling?
A Because the ship captain knows for a fact the equipment
being utilized in the discharge of the cargoes because before
the ship leave the port of Japan the crew already utilized the
proper equipment fitted to the cargo.56(Emphasis supplied.)
It is settled in maritime law jurisprudence that cargoes
while being unloaded generally remain under the custody of
the carrier.57 The Damage Survey Report58 of the survey
conducted by Phil. Navtech Services, Inc. from April 20-21,
1995 reveals that Case No. 03-245-42K/1 was damaged by
ATI stevedores due to overtightening of a cable sling hold
during discharge from the vessel’s hatch to the pier. Since
the damage to the cargo was incurred during the discharge
of the shipment and while under the supervision of the
carrier, the latter is liable for the damage caused to the
cargo.
This is not to say, however, that petitioner ATI is without
liability for the damaged cargo.
The functions of an arrastre operator involve the handling of
cargo deposited on the wharf or between the establishment
of the consignee or shipper and the ship’s tackle. Being the
custodian of the goods discharged from a vessel, an arrastre
5
operator’s duty is to take good care of the goods and to turn
them over to the party entitled to their possession.59
Handling cargo is mainly the arrastre operator’s principal
work so its drivers/operators or employees should observe
the standards and measures necessary to prevent losses and
damage to shipments under its custody.60
While it is true that an arrastre operator and a carrier may
not be held solidarily liable at all times,61 the facts of these
cases show that apart from ATI’s stevedores being directly
in charge of the physical unloading of the cargo, its foreman
picked the cable sling that was used to hoist the packages for
transfer to the dock. Moreover, the fact that 218 of the 219
packages were unloaded with the same sling unharmed is
telling of the inadequate care with which ATI’s stevedore
handled and discharged Case No. 03-245-42K/1.
With respect to petitioners ATI and Westwind’s liability, we
agree with the CA that the same should be confined to the
value of the one piece Frame Axle Sub without Lower.
In the Bad Order Inspection Report62 prepared by Universal
Motors, the latter referred to Case No. 03-245-42K/1 as the
source of said Frame Axle Sub without Lower which
suffered a deep dent on its buffle plate. Yet, it identified
Case No. 03-245-51K as the container which bore the six
pieces Frame Assembly with Bush. Thus, in Philam’s
Complaint, it alleged that "the entire shipment showed one
(1) pc. FRAME AXLE SUB W/O LWR from Case No. 03-
245-42K/1 was completely deformed and misaligned, and
six (6) other pcs. of FRAME ASSEMBLY WITH BUSH from
Case No. 03-245-51K were likewise completely deformed
and misaligned."63 Philam later claimed in its Appellee’s
Brief that the six pieces of Frame Assembly with Bush were
also inside the damaged Case No. 03-245-42K/1.
However, there is nothing in the records to show
conclusively that the six Frame Assembly with Bush were
likewise contained in and damaged inside Case No. 03-245-
42K/1. In the Inspection Survey Report of Chartered
Adjusters, Inc., it mentioned six pieces of chassis frame
assembly with deformed body mounting bracket. However,
it merely noted the same as coming from two bundles with
no identifying marks.
Lastly, we agree with petitioner Westwind that the CA erred
in imposing an interest rate of 12% on the award of
damages. Under Article 2209 of the Civil Code, when an
obligation not constituting a loan or forbearance of money is

breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of
6% per annum.64 In the similar case of Belgian Overseas
Chartering and Shipping NV v. Philippine First Insurance
Co., lnc.,65 the Court reduced the rate of interest on the
damages awarded to the carrier therein to 6% from the time
of the filing of the complaint until the finality of the
decision.
WHEREFORE, the Court AFFIRMS with MODIFICATION
the Decision dated October 15,2007 and the Resolution
dated January 11, 2008 of the Court of Appeals in CA-G.R.
CV No. 69284 in that the interest rate on the award of
₱190,684.48 is reduced to 6% per annum from the date of
extrajudicial demand, until fully paid.
With costs against the petitioners in G.R. No. 181163 and
G.R. No. 181319, respectively.
SO ORDERED.
SECOND DIVISION
G.R. No. 146173 December 11, 2003
CECILIA YAMBAO, petitioner,
vs.
MELCHORITA C. ZUÑIGA, LEOVIGILDO C.
ZUÑIGA, REGINALDO C. ZUÑIGA, AND THE
MINORS, HERMINIGILDO C. ZUÑIGA, JR., AND
LOVELY EMILY C. ZUÑIGA - both represented by
their legal guardian, the aforenamed
MELCHORITA C. ZUÑIGA, respondents.
DECISION
QUISUMBING, J.:
This petition for review on certiorari seeks to reverse and set
aside the decision1 of the Court of Appeals, dated September
8, 2000, in CA-G.R. CV No. 52275. The appellate court
affirmed the judgment2 of the Regional Trial Court (RTC) of
Malolos City, Bulacan, Branch 8, in Civil Case No. 581-M-
92, finding herein petitioner, among others, liable for the
untimely death of Herminigildo Zuñiga in a vehicular
accident and ordering her to indemnify his legal heirs, the
respondents herein. Also challenged in this petition is the
resolution3 of the Court of Appeals, dated November 27,
2000, denying the petitioner’s Motion for Reconsideration.
Petitioner Cecilia Yambao is the registered owner of "Lady
Cecil and Rome Trans" passenger bus with Plate No. CVK
606, with a public transport franchise to ply the Novaliches-
via Quirino-Alabang route.
The respondents are the legal heirs of the late Herminigildo
Zuñiga. Melchorita Zuñiga is the surviving spouse, while
Leovigildo, Reginaldo, Herminigildo, Jr., and Lovely Emily
are their children.
The facts, as established by the trial court and affirmed by
the appellate court, are as follows:
At around 3:30 p.m. of May 6, 1992, the bus owned by the
petitioner was being driven by her driver, one Ceferino G.
Venturina along the northbound lane of Epifanio delos
Santos Avenue (EDSA), within the vicinity of Bagong Barrio,
Kalookan City. With Venturina was the bus conductor,
Fernando Dumaliang. Suddenly, the bus bumped
Herminigildo Zuñiga, a pedestrian. Such was the force of
the impact that the left side of the front windshield of the
bus was cracked. Zuñiga was rushed to the Quezon City
General Hospital where he was given medical attention, but
due to the massive injuries sustained, he succumbed shortly
thereafter.
Private respondents, as heirs of the victim, filed a
Complaint4 against petitioner and her driver, Venturina, for
damages, docketed as Civil Case No. 581-M-92 at the RTC of
Malolos City. The complaint essentially alleged that
Venturina drove the bus in a reckless, careless and
imprudent manner, in violation of traffic rules and
regulations, without due regard to public safety, thus
resulting in the victim’s premature death.
In her Answer, the petitioner vehemently denied the
material allegations of the complaint. She tried to shift the
blame for the accident upon the victim, theorizing that
Herminigildo bumped into her bus, while avoiding an
unidentified woman who was chasing him. She further
alleged that she was not liable for any damages because as
an employer, she exercised the proper diligence of a good
father of a family, both in the selection and supervision of
her bus driver.
On September 8, 1995, the trial court rendered judgment,
the dispositive portion of which reads:
In view of the foregoing consideration, judgment is hereby
rendered in favor of the plaintiffs and against the
defendants ordering the herein defendants jointly and
severally, with Plaridel Surety & Insurance Co., and Times
Surety & Insurance Co. Inc. to the extent of their respective
liabilities under their respective insurance policies to pay
the herein plaintiffs the following sums of money:
1. ₱50,000.00 as indemnity for the death of
Herminigildo Zuñiga;
6
2. ₱92,000.00 as funeral expenses;
3. ₱200,000.00 as moral damages;
4. ₱30,000.00 as exemplary damages;
5. ₱30,000.00 as attorney’s fees;
6. ₱5,000.00 as litigation expenses; and
7. To pay the cost of the suit
to be paid by all the herein defendants and third party
defendants within thirty (30) days from receipt of this
Decision.
The counterclaim of the defendant Cecilia Yambao is hereby
dismissed for lack of merit.
SO ORDERED.5
In finding for the respondents herein, the trial court
observed:
[T]he allegations and evidence presented by the defendants
that it was the victim Herminigildo Zuñiga who bumped the
bus owned by defendant Cecilia Yambao and her husband…
is incredible if not preposterous. No sane person would
bump his head or body against a running bus along a big
highway like EDSA at Bagong Barrio, Caloocan City and
neither did any of the defendants presented (sic) any
evidence or proof to show that the victim was mentally
deranged at the time of the accident and the presumption
therefore is that he was in his normal senses.6
In holding the petitioner liable for Herminigildo’s death, the
trial court applied Article 17567 of the Civil Code, observing
that petitioner had failed to prove that she observed the
diligence required by Articles 17338 and 17559 of the said
Code.
Dissatisfied, Yambao filed an appeal with the Court of
Appeals, docketed as CA-G.R. CV No. 52275, faulting the
trial court for failing to appreciate that: (a) it was the victim
who ran into her bus, and (b) she had exercised the proper
diligence of a bonus pater familias in the selection and
supervision of her employee, the driver of said bus.
On September 8, 2000, the Court of Appeals decided CA-
G.R. CV No. 52275 as follows:
WHEREFORE, on the foregoing modificatory premises, and
considering that the same result has been reached by the

trial court, its Decision dated September 8, 1995 is hereby
AFFIRMED.
Costs against defendant-appellant.
SO ORDERED.10
While sustaining the trial court’s findings that Venturina
had been reckless and negligent in driving the petitioner’s
bus, thus hitting the victim with fatal results, the appellate
court, however, found the trial court’s reliance on Articles
1755 and 1756 of the Civil Code misplaced. It held that this
was a case of quasi-delict, there being no pre-existing
contractual relationship between the parties. Hence, the law
on common carriers was inapplicable. The court a quo then
found the petitioner directly and primarily liable as
Venturina’s employer pursuant to Article 2180 of the Civil
Code as she failed to present evidence to prove that she has
observed the diligence of a good father of a family in the
selection and supervision of her employees.
Yambao then duly moved for reconsideration, but her
motion was denied for want of merit.11
Hence, this petition for review, anchored on the following
formulation of issues:
I
WHETHER OR NOT THE ALLEGATIONS AND
EVIDENCE PRESENTED BY THE PETITIONER, THE
VICTIM HERMINIGILDO ZUÑIGA WAS THE ONE WHO
BUMPED THE BUS OWNED BY HEREIN PETITIONER
CECILIA YAMBAO AND HER HUSBAND AND WHO
DISREGARDED THE TRAFFIC RULES AND
REGULATIONS AT THE PLACE AND TIME OF THE
INCIDENT WHICH UNDOUBTEDLY AND
CONCLUSIVELY PROVED THAT IT WAS THE
PLAINTIFF’S OWN NEGLIGENCE THAT WAS THE
IMMEDIATE AND PROXIMATE CAUSE OF HIS DEATH.
II
WHETHER OR NOT, PETITIONER CECILIA YAMBAO IS
NOT LIABLE FOR ANY DAMAGES AND THAT SHE
EXERCISED THE PROPER DILIGENCE OF A GOOD
FATHER OF THE FAMILY, BOTH IN THE SELECTION
AND SUPERVISION OF HER DRIVER AND/OR
EMPLOYEE.12
At the outset, we must state that the first issue raised by the
petitioner is a factual one. Whether a person is negligent or
not is a question of fact,13 which this Court cannot pass upon
in a petition for review on certiorari, as our jurisdiction is
limited to reviewing errors of law.14 The resolution of factual
issues is the function of the trial court and its findings on
these matters are, as a general rule, binding on this
Court,15 more so where these have been affirmed by the
Court of Appeals.16 We have carefully examined and weighed
the petitioner’s arguments on the first issue submitted, as
well as the evidence on record, and find no cogent reason to
disregard the cited general rule, much less to reverse the
factual findings of the trial court as upheld by the court a
quo. Hence, we sustain the trial court’s finding, as affirmed
by the Court of Appeals, that it was Venturina’s reckless and
imprudent driving of petitioner’s bus, which is the
proximate cause of the victim’s death.
To our mind, therefore, the only issue before the Court
properly is whether petitioner exercised the diligence of a
good father of a family in the selection and supervision of
her employees, thus absolving her from any liability.
Petitioner contends that as an employer, she observed the
proper diligence of a good father of a family, both in the
selection and supervision of her driver and therefore, is
relieved from any liability for the latter’s misdeed. To
support her claim, she points out that when Venturina
applied with her as a driver in January 1992, she required
him to produce not just his driver’s license, but also
clearances from the National Bureau of Investigation (NBI),
the Philippine National Police, and the barangay where he
resides. She also required him to present his Social Security
System (SSS) Number prior to accepting him for
employment. She likewise stresses that she inquired from
Venturina’s previous employer about his employment
record, and only hired him after it was shown to her
satisfaction that he had no blot upon his record.
The petitioner’s arguments ring hollow and fail to sway this
Court.
The law governing petitioner’s liability, as the employer of
bus driver Venturina, is Article 2180 of the Civil Code, the
full text of which reads:
Art. 2180. The obligation imposed by Article 217617 is
demandable not only for one’s own acts or omissions, but
also for those of persons for whom one is responsible.
7
The father and, in case of his death or incapacity, the
mother, are responsible for the damages caused by the
minor children who live in their company.
Guardians are liable for damages caused by the minors or
incapacitated persons who are under their authority and live
in their company.
The owners and managers of an establishment or
enterprise are likewise responsible for damages caused by
their employees in the service of the branches in which the
latter are employed or on the occasion of their functions.
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.
The State is responsible in like manner when it acts through
a special agent; but not when the damage has been caused
by the official to whom the task done properly pertains, in
which case what is provided in Article 2176 shall be
applicable.
Lastly, teachers or heads of establishments of arts and
trades shall be liable for damages caused by their pupils and
students or apprentices, so long as they remain in their
custody.
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. (Italics ours)
The "diligence of a good father" referred to in the last
paragraph of the aforecited statute means diligence in the
selection and supervision of employees.18 Thus, when an
employee, while performing his duties, causes damage to
persons or property due to his own negligence, there arises
the juris tantum presumption that the employer is
negligent, either in the selection of the employee or in the
supervision over him after the selection.19 For the employer
to avoid the solidary liability for a tort committed by his
employee, an employer must rebut the presumption by
presenting adequate and convincing proof that in the
selection and supervision of his employee, he or she
exercises the care and diligence of a good father of a
family.20 In the instant case, we find that petitioner has
failed to rebut the presumption of negligence on her part.

Petitioner’s claim that she exercised due diligence in the
selection and supervision of her driver, Venturina, deserves
but scant consideration. Her allegation that before she hired
Venturina she required him to submit his driver’s license
and clearances is worthless, in view of her failure to offer in
evidence certified true copies of said license and clearances.
Bare allegations, unsubstantiated by evidence, are not
equivalent to proof under the rules of evidence.21Moreover,
as the court a quo aptly observed, petitioner contradicts
herself. She declared that Venturina applied with her
sometime in January 1992 and she then required him to
submit his license and clearances. However, the record
likewise shows that she did admit that Venturina submitted
the said requirements only on May 6, 1992, or on the very
day of the fatal accident itself (italics for emphasis). In other
words, petitioner’s own admissions clearly and categorically
show that she did not exercise due diligence in the selection
of her bus driver.
In any case, assuming arguendo that Venturina did submit
his license and clearances when he applied with petitioner
in January 1992, the latter still fails the test of due diligence
in the selection of her bus driver. Case law teaches that for
an employer to have exercised the diligence of a good father
of a family, he should not be satisfied with the applicant’s
mere possession of a professional driver’s license; he must
also carefully examine the applicant for employment as to
his qualifications, his experience and record of
service.22 Petitioner failed to present convincing proof that
she went to this extent of verifying Venturina’s
qualifications, safety record, and driving history. The
presumption juris tantum that there was negligence in the
selection of her bus driver, thus, remains unrebutted.
Nor did petitioner show that she exercised due supervision
over Venturina after his selection. For as pointed out by the
Court of Appeals, petitioner did not present any proof that
she drafted and implemented training programs and
guidelines on road safety for her employees. In fact, the
record is bare of any showing that petitioner required
Venturina to attend periodic seminars on road safety and
traffic efficiency. Hence, petitioner cannot claim exemption
from any liability arising from the recklessness or
negligence of Venturina.
In sum, petitioner’s liability to private respondents for the
negligent and imprudent acts of her driver, Venturina,
under Article 2180 of the Civil Code is both manifest and
clear. Petitioner, having failed to rebut the legal
presumption of negligence in the selection and supervision
of her driver, is responsible for damages, the basis of the
liability being the relationship of pater familias or on the
employer’s own negligence.23 Thus, this Court has no option
but to uphold the ruling of the appellate court.
WHEREFORE, the instant petition is DENIED. The assailed
decision of the Court of Appeals, dated September 8, 2000,
in CA-G.R. CV No. 52275, as well as its resolution dated
November 27, 2000, denying petitioner Cecilia Yambao’s
motion for reconsideration are hereby AFFIRMED. Costs
against the petitioner.
SO ORDERED.
THIRD DIVISION
G.R. No. 143008 June 10, 2002
SMITH BELL DODWELL SHIPPING AGENCY
CORPORATION, petitioner,
vs.
CATALINO BORJA and INTERNATIONAL TO
WAGE AND TRANSPORT
CORPORATION, respondents.
PANGANIBAN, J.:
The owner or the person in possession and control of a
vessel is liable for all natural and proximate damages caused
to persons and property by reason of negligence in its
management or navigation. The liability for the loss of the
earning capacity of the deceased is fixed by taking into
account the net income of the victim at the time of death --
of the incident in this case -- and that person's probable life
expectancy.
The Case
Before us is a Petition for Review on Certiorari under Rule
45 of the Rules of Court, challenging the March 6, 2000
Decision1 and the April 25, 2000 Resolution2 of the Court of
Appeals3 (CA) in CA-GR CV No. 57470. The assailed
Decision disposed as follows:
"WHEREFORE, premises considered, the instant appeal is
hereby DENIED. The questioned decision of the lower court
is hereby AFFIRMED in toto. No pronouncement as to
costs."4
Reconsideration was denied in the assailed Resolution.
The Facts
The facts of the case are set forth by the CA as follows:
"It appears that on September 23, 1987, Smith Bell [herein
petitioner] filed a written request with the Bureau of
Customs for the attendance of the latter's inspection team
8
on vessel M/T King Family which was due to arrive at the
port of Manila on September 24, 1987.
"Said vessel contained 750 metric tons of alkyl benzene and
methyl methacrylate monomer.
"On the same day, Supervising Customs Inspector Manuel
Ma. D. Nalgan instructed [Respondent Catalino Borja] to
board said vessel and perform his duties as inspector upon
the vessel's arrival until its departure. At that time, [Borja]
was a customs inspector of the Bureau of Customs receiving
a salary of P31,188.25 per annum.
"At about 11 o'clock in the morning on September 24, 1987,
while M/T King Family was unloading chemicals unto two
(2) barges [--] ITTC 101 and CLC-1002 [--] owned by
[Respondent] ITTC, a sudden explosion occurred setting the
vessels afire. Upon hearing the explosion, [Borja], who was
at that time inside the cabin preparing reports, ran outside
to check what happened. Again, another explosion was
heard.
"Seeing the fire and fearing for his life, [Borja] hurriedly
jumped over board to save himself. However, the [water]
[was] likewise on fire due mainly to the spilled chemicals.
Despite the tremendous heat, [Borja] swam his way for one
(1) hour until he was rescued by the people living in the
squatters' area and sent to San Juan De Dios Hospital.
"After weeks of intensive care at the hospital, his attending
physician diagnosed [Borja] to be permanently disabled due
to the incident. [Borja] made demands against Smith Bell
and ITTC for the damages caused by the explosion.
However, both denied liabilities and attributed to each other
negligence."5
The trial court6 (RTC) ruled in favor of Respondent Borja
and held petitioner liable for damages and loss of income.
The RTC disposed as follows:
"WHEREFORE, premises considered, judgment is hereby
rendered ordering [Petitioner] Smith Bell Dodwell
[S]hipping Agency Corporation to pay [Borja]:
1. The amount of P495,360.00 as actual damages for loss of
earning capacity:
2. The amount of P100,000.00 for moral damages; and
3. The amount of P50,000.00 for and as reasonable
attorney's fees.

"The cross-claim of [Petitioner] Smith Bell Dodwell
Shipping Agency Corporation against co-defendant
International Towage and Transport Corporation and the
latter's counterclaim against [Borja] and cross-claim with
compulsory counterclaim against Smith Bell are hereby
ordered dismissed."7
Ruling of the Court of Appeals
Affirming the trial court, the CA rejected the plea of
petitioner that it be exonerated from liability for
Respondent Borja's injuries. Contrary to the claim of
petitioner that no physical evidence was shown to prove that
the explosion had originated from its vessel, the CA held
that the fire had originated from M/T King Family. This
conclusion was amply supported by the testimonies of Borja
and Eulogio Laurente (the eyewitness of International
Towage and Transport Corporation or ITTC) as well as by
the investigation conducted by the Special Board of Marine
Inquiry and affirmed by the secretary of the Department of
National Defense. On the other hand, the RTC, which the
CA sustained, had not given probative value to the evidence
of petitioner, whose sole eyewitness had not shown up for
cross-examination.
Hence, this Petition.8
The Issues
In its Memorandum,9 petitioner raises the following issues:
"1. Whether petitioner should be held liable for the injuries
of Respondent Catalino Borja.
"2. Whether Respondent ITTC should be held liable for the
injuries of Respondent Catalino Borja.
"3. Assuming without admitting that Respondent Catalino
Borja is entitled to damages, whether Respondent Borja is
entitled to the amount of damages awarded to him by the
trial court."10
Simply put, these issues can be summed up in these two
questions: (1) Who, if any, is liable for Borja's injuries? (2)
What is the proper amount of liability?
This Court's Ruling
The Petition is partly meritorious.
First Issue:
Responsibility for Injuries
Petitioner avers that both lower courts labored under a
misapprehension of the facts. It claims that the documents
adduced in the RTC conclusively revealed that the explosion
that caused the fire on M/T King Family had originated
from the barge ITTC-101, a conclusion based on three
grounds. First, the Survey Report (Exh. "10") dated October
21, 1987 submitted by the Admiral Surveyors and Adjusters,
Inc., showed that no part of M/T King Family sustained any
sharp or violent damage that would otherwise be observed if
indeed an explosion had occurred on it. On the other hand,
the fact that the vessel sustained cracks on its shell plating
was noted in two Survey Reports from Greutzman Divers
Underwater Specialist, dated October 6, 1987 (Exh. "11"),
and during the underwater inspection on the sunken
barge ITTC-101.
Second, external fire damage on the hull of M/T King
Family indicated that the fire had started from outside the
vessel and from ITTC-101. The port side of the vessel to
which the ITTC barge was tied was completely gutted by
fire, while the starboard side to which the barge CLC-
1002 was tied sustained only slight fire damage.
Third, testimonial evidence proved that the explosion came
from the barge of the ITTC and not from its vessel. Security
Guard Vivencio Estrella testified that he had seen the
sudden explosion of monomer on the barge with fire that
went up to about 60 meters. Third Mate Choi Seong Hwan
and Second Mate Nam Bang Choun of M/T King
Family narrated that while they were discharging the
chemicals, they saw and heard an explosion from the
barge ITTC-101. Chief Security Guard Reynaldo Patron, in
turn, testified that he was 7 to 10 meters away from the
barge when he heard the explosion from the port side
of M/T King Family and saw the barge already on fire.
We are not persuaded. Both the RTC and the CA ruled that
the fire and the explosion had originated from petitioner's
vessel. Said the trial court:
"The attempts of [Petitioner] Smith Bell to shift the blame
on x x x ITTC were all for naught. First, the testimony of its
alleged eyewitness was stricken off the record for his failure
to appear for cross-examination (p. 361, Record). Second,
the documents offered to prove that the fire originated from
barge ITTC-101 were all denied admission by the [c]ourt for
being, in effect, hearsay (pp. 335 and 362). x x x Thus, there
9
is nothing in the record to support [petitioner's] contention
that the fire and explosion originated from barge ITTC-
101."11
We find no cogent reason to overturn these factual findings.
Nothing is more settled in jurisprudence than that this
Court is bound by the factual findings of the Court of
Appeals when these are supported by substantial evidence
and are not under any of the exceptions in Fuentes v. Court
of Appeals;12 more so, when such findings affirm those of
the trial court.13 Verily, this Court reviews only issues of law.
Negligence is conduct that creates undue risk of harm to
another. It is the failure to observe that degree of care,
precaution and vigilance that the circumstances justly
demand, whereby that other person suffers
injury.14Petitioner's vessel was carrying chemical cargo --
alkyl benzene and methyl methacrylate monomer.15 While
knowing that their vessel was carrying dangerous
inflammable chemicals, its officers and crew failed to take
all the necessary precautions to prevent an accident.
Petitioner was, therefore, negligent.
The three elements of quasi delict are: (a) damages suffered
by the plaintiff, (b) fault or negligence of the defendant, and
(c) the connection of cause and effect between the fault or
negligence of the defendant and the damages inflicted on
the plaintiff.16 All these elements were established in this
case. Knowing fully well that it was carrying dangerous
chemicals, petitioner was negligent in not taking all the
necessary precautions in transporting the cargo.
As a result of the fire and the explosion during the
unloading of the chemicals from petitioner's vessel,
Respondent Borja suffered the following damage: and
injuries: "(1) chemical burns of the face and arms; (2)
inhalation of fumes from burning chemicals; (3) exposure to
the elements [while] floating in sea water for about three (3)
hours; (4) homonymous hemianopsia or blurring of the
right eye [which was of] possible toxic origin; and (5)
[c]erebral infract with neo-vascularization, left occipital
region with right sided headache and the blurring of vision
of right eye."17
Hence, the owner or the person in possession and control of
a vessel and the vessel are liable for all natural and
proximate damage caused to persons and property by
reason of negligent management or navigation.18

Second Issue:
Amount of Liability
Petitioner insists that Borja is not entitled to the full amount
of damages awarded by the lower courts. It disputes the use
of his gross earning as basis for the computation of the
award for loss of earning capacity. Both courts, in
computing the value of such loss, used the remaining years
of the victim as a government employee and the amount he
had been receiving per annum at the time of the incident.
Counsel for Respondent Borja, on the other hand, claims
that petitioner had no cause to complain, because the
miscomputation had ironically been in its favor. The
multiplier used in the computation was erroneously based
on the remaining years in government service, instead of the
life expectancy, of the victim. Borja's counsel also points out
that the award was based on the former's meager salary in
1987, or about 23 years ago when the foreign exchange was
still P14 to $1. Hence, the questioned award is consistent
with the primary purpose of giving what is just, moral and
legally due the victim as the aggrieved party.
Both parties have a point. In determining the
reasonableness of the damages awarded under Article 1764
in conjunction with Article 2206 of the Civil Code, the
factors to be considered are: (1) life expectancy (considering
the health of the victim and the mortality table which is
deemed conclusive) and loss of earning capacity; (b)
pecuniary loss, loss of support and service; and (c) moral
and mental sufferings.19 The loss of earning capacity is
based mainly on the number of years remaining in the
person's expected life span. In turn, this number is the basis
of the damages that shall be computed and the rate at which
the loss sustained by the heirs shall be fixed.20
The formula for the computation of loss of earning capacity
is as follows:21
Net earning capacity = Life expectancy x [Gross
Annual Income - Living Expenses (50% of gross annual
income)], where life expectancy = 2/3 (80 - the age of
the deceased).22
Petitioner is correct in arguing that it is net income (or gross
income less living expenses) which is to be used in the
computation of the award for loss of income. Villa Rey
Transit v. Court of Appeals23 explained that "the amount
recoverable is not the loss of the entire earning, but rather
the loss of that portion of the earnings which the beneficiary
would have received." Hence, in fixing the amount of the
said damages, the necessary expenses of the deceased
should be deducted from his earnings.
In other words, only net earnings, not gross earnings, are to
be considered; that is, the total of the earnings less expenses
necessary in the creation of such earnings or income, less
living and other incidental expenses. When there is no
showing that the living expenses constituted a smaller
percentage of the gross income, we fix the living expenses at
half of the gross income. To hold that one would have used
only a small part of the income, with the larger part going to
the support of one's children, would be conjectural and
unreasonable.24
Counsel for Respondent Borja is also correct in saying that
life expectancy should not be based on the retirement age of
government employees, which is pegged at 65. In Negros
Navigation Co, Inc. v. CA,25 the Court resolved that in
calculating the life expectancy of an individual for the
purpose of determining loss of earning capacity under
Article 2206(1) of the Civil Code, it is assumed that the
deceased would have earned income even after retirement
from a particular job.
Respondent Borja should not be situated differently just
because he was a government employee. Private employees,
given the retirement packages provided by their companies,
usually retire earlier than government employees; yet, the
life expectancy of the former is not pegged at 65 years.
Petitioner avers that Respondent Borja died nine years after
the incident and, hence, his life expectancy of 80 years
should yield to the reality that he was only 59 when he
actually died.
We disagree. The Court uses the American
Experience/Expectancy Table of Mortality or the Actuarial
or Combined Experience Table of Mortality, which
consistently pegs the life span of the average Filipino at 80
years, from which it extrapolates the estimated income to be
earned by the deceased had he or she not been killed.26
Respondent Borja's demise earlier than the estimated life
span is of no moment. For purposes of determining loss of
earning capacity, life expectancy remains at 80. Otherwise,
the computation of loss of earning capacity will never
become final, being always subject to the eventuality of the
victim's death. The computation should not change even if
Borja lived beyond 80 years. Fair is fair.
10
Based on the foregoing discussion, the award for loss of
earning capacity should be computed as follows:
Loss of earning = [2 (80-50)] x [(P2,752x12)-16,512]
capacity 3
= P330,240
Having been duly proven, the moral damages and attorney's
fees awarded are justified under the Civil Code's Article
2219, paragraph 2; and Article 2208, paragraph 11,
respectively.
WHEREFORE, the Petition is PARTLY GRANTED. The
assailed Decision is AFFIRMED with the
following MODIFICATIONS: petitioner is ordered to pay
the heirs of the victim damages in the amount of P320,240
as loss of earning capacity, moral damages in the amount
of P100,000, plus another P50,000 as attorney's fees. Costs
against petitioner.
SO ORDERED.
SECOND DIVISION
G.R. No. 139130 November 27, 2002
RAMON K. ILUSORIO, petitioner,
vs.
HON. COURT OF APPEALS, and THE MANILA
BANKING CORPORATION, respondents.
DECISION
QUISUMBING, J.:
This petition for review seeks to reverse the
decision1 promulgated on January 28, 1999 by the Court of
Appeals in CA-G.R. CV No. 47942, affirming the decision of
the then Court of First Instance of Rizal, Branch XV (now
the Regional Trial Court of Makati, Branch 138) dismissing
Civil Case No. 43907, for damages.
The facts as summarized by the Court of Appeals are as
follows:
Petitioner is a prominent businessman who, at the time
material to this case, was the Managing Director of
Multinational Investment Bancorporation and the
Chairman and/or President of several other corporations.
He was a depositor in good standing of respondent bank,
the Manila Banking Corporation, under current Checking
Account No. 06-09037-0. As he was then running about 20
corporations, and was going out of the country a number of
times, petitioner entrusted to his secretary, Katherine2 E.
Eugenio, his credit cards and his checkbook with blank
checks. It was also Eugenio who verified and reconciled the
statements of said checking account.3

Between the dates September 5, 1980 and January 23, 1981,
Eugenio was able to encash and deposit to her personal
account about seventeen (17) checks drawn against the
account of the petitioner at the respondent bank, with an
aggregate amount of P119,634.34. Petitioner did not bother
to check his statement of account until a business partner
apprised him that he saw Eugenio use his credit cards.
Petitioner fired Eugenio immediately, and instituted a
criminal action against her for estafa thru falsification
before the Office of the Provincial Fiscal of Rizal. Private
respondent, through an affidavit executed by its employee,
Mr. Dante Razon, also lodged a complaint for estafa thru
falsification of commercial documents against Eugenio on
the basis of petitioner’s statement that his signatures in the
checks were forged.4 Mr. Razon’s affidavit states:
That I have examined and scrutinized the following checks
in accordance with prescribed verification procedures with
utmost care and diligence by comparing the signatures
affixed thereat against the specimen signatures of Mr.
Ramon K. Ilusorio which we have on file at our said office
on such dates, x x x
That the aforementioned checks were among those issued
by Manilabank in favor of its client MR. RAMON K.
ILUSORIO,…
That the same were personally encashed by KATHERINE E.
ESTEBAN, an executive secretary of MR. RAMON K.
ILUSORIO in said Investment Corporation;
That I have met and known her as KATHERINE E.
ESTEBAN the attending verifier when she personally
encashed the above-mentioned checks at our said office;
That MR. RAMON K. ILUSORIO executed an affidavit
expressly disowning his signature appearing on the checks
further alleged to have not authorized the issuance and
encashment of the same.…5
Petitioner then requested the respondent bank to credit
back and restore to its account the value of the checks which
were wrongfully encashed but respondent bank refused.
Hence, petitioner filed the instant case.6
At the trial, petitioner testified on his own behalf, attesting
to the truth of the circumstances as narrated above, and
how he discovered the alleged forgeries. Several employees
of Manila Bank were also called to the witness stand as
hostile witnesses. They testified that it is the bank’s
standard operating procedure that whenever a check is
presented for encashment or clearing, the signature on the
check is first verified against the specimen signature cards
on file with the bank.
Manila Bank also sought the expertise of the National
Bureau of Investigation (NBI) in determining the
genuineness of the signatures appearing on the checks.
However, in a letter dated March 25, 1987, the NBI
informed the trial court that they could not conduct the
desired examination for the reason that the standard
specimens submitted were not sufficient for purposes of
rendering a definitive opinion. The NBI then suggested that
petitioner be asked to submit seven (7) or more additional
standard signatures executed before or about, and
immediately after the dates of the questioned checks.
Petitioner, however, failed to comply with this request.
After evaluating the evidence on both sides, the court a quo
rendered judgment on May 12, 1994 with the following
dispositive portion:
WHEREFORE, finding no sufficient basis for plaintiff's
cause herein against defendant bank, in the light of the
foregoing considerations and established facts, this case
would have to be, as it is hereby DISMISSED.
Defendant’s counterclaim is likewise DISMISSED for lack of
sufficient basis. SO ORDERED.7
Aggrieved, petitioner elevated the case to the Court of
Appeals by way of a petition for review but without success.
The appellate court held that petitioner’s own negligence
was the proximate cause of his loss. The appellate court
disposed as follows:
WHEREFORE, the judgment appealed from is AFFIRMED.
Costs against the appellant. SO ORDERED.8
Before us, petitioner ascribes the following errors to the
Court of Appeals:
A. THE COURT OF APPEALS ERRED IN NOT HOLDING
THAT THE RESPONDENT BANK IS ESTOPPED FROM
RAISING THE DEFENSE THAT THERE WAS NO
FORGERY OF THE SIGNATURES OF THE PETITIONER
IN THE CHECK BECAUSE THE RESPONDENT FILED A
CRIMINAL COMPLAINT FOR ESTAFA THRU
FALSIFICATION OF COMMERCIAL DOCUMENTS
11
AGAINST KATHERINE EUGENIO USING THE
AFFIDAVIT OF PETITIONER STATING THAT HIS
SIGNATURES WERE FORGED AS PART OF THE
AFFIDAVIT-COMPLAINT.9
B. THE COURT OF APPEALS ERRED IN NOT APPLYING
SEC. 23, NEGOTIABLE INSTRUMENTS LAW.10
C. THE COURT OF APPEALS ERRED IN NOT HOLDING
THE BURDEN OF PROOF IS WITH THE RESPONDENT
BANK TO PROVE THE DUE DILIGENCE TO PREVENT
DAMAGE, TO THE PETITIONER, AND THAT IT WAS
NOT NEGLIGENT IN THE SELECTION AND
SUPERVISION OF ITS EMPLOYEES.11
D. THE COURT OF APPEALS ERRED IN NOT HOLDING
THAT RESPONDENT BANK SHOULD BEAR THE LOSS,
AND SHOULD BE MADE TO PAY PETITIONER, WITH
RECOURSE AGAINST KATHERINE EUGENIO
ESTEBAN.12
Essentially the issues in this case are: (1) whether or not
petitioner has a cause of action against private respondent;
and (2) whether or not private respondent, in filing an
estafa case against petitioner’s secretary, is barred from
raising the defense that the fact of forgery was not
established.
Petitioner contends that Manila Bank is liable for damages
for its negligence in failing to detect the discrepant checks.
He adds that as a general rule a bank which has obtained
possession of a check upon an unauthorized or forged
endorsement of the payee’s signature and which collects the
amount of the check from the drawee is liable for the
proceeds thereof to the payee. Petitioner invokes the
doctrine of estoppel, saying that having itself instituted a
forgery case against Eugenio, Manila Bank is now estopped
from asserting that the fact of forgery was never proven.
For its part, Manila Bank contends that respondent
appellate court did not depart from the accepted and usual
course of judicial proceedings, hence there is no reason for
the reversal of its ruling. Manila Bank additionally points
out that Section 2313 of the Negotiable Instruments Law is
inapplicable, considering that the fact of forgery was never
proven. Lastly, the bank negates petitioner’s claim of
estoppel.14
On the first issue, we find that petitioner has no cause of
action against Manila Bank. To be entitled to damages,

petitioner has the burden of proving negligence on the part
of the bank for failure to detect the discrepancy in the
signatures on the checks. It is incumbent upon petitioner to
establish the fact of forgery, i.e., by submitting his specimen
signatures and comparing them with those on the
questioned checks. Curiously though, petitioner failed to
submit additional specimen signatures as requested by the
National Bureau of Investigation from which to draw a
conclusive finding regarding forgery. The Court of Appeals
found that petitioner, by his own inaction, was precluded
from setting up forgery. Said the appellate court:
We cannot fault the court a quo for such declaration,
considering that the plaintiff’s evidence on the alleged
forgery is not convincing enough. The burden to prove
forgery was upon the plaintiff, which burden he failed to
discharge. Aside from his own testimony, the appellant
presented no other evidence to prove the fact of forgery. He
did not even submit his own specimen signatures, taken on
or about the date of the questioned checks, for examination
and comparison with those of the subject checks. On the
other hand, the appellee presented specimen signature
cards of the appellant, taken at various years, namely, in
1976, 1979 and 1981 (Exhibits "1", "2", "3" and "7"), showing
variances in the appellant’s unquestioned signatures. The
evidence further shows that the appellee, as soon as it was
informed by the appellant about his questioned signatures,
sought to borrow the questioned checks from the appellant
for purposes of analysis and examination (Exhibit "9"), but
the same was denied by the appellant. It was also the former
which sought the assistance of the NBI for an expert
analysis of the signatures on the questioned checks, but the
same was unsuccessful for lack of sufficient specimen
signatures.15
Moreover, petitioner’s contention that Manila Bank was
remiss in the exercise of its duty as drawee lacks factual
basis. Consistently, the CA and the RTC found that Manila
Bank employees exercised due diligence in cashing the
checks. The bank’s employees in the present case did not
have a hint as to Eugenio’s modus operandi because she was
a regular customer of the bank, having been designated by
petitioner himself to transact in his behalf. According to the
appellate court, the employees of the bank exercised due
diligence in the performance of their duties. Thus, it found
that:
The evidence on both sides indicates that TMBC’s
employees exercised due diligence before encashing the
checks. Its verifiers first verified the drawer’s signatures
thereon as against his specimen signature cards, and when
in doubt, the verifier went further, such as by referring to a
more experienced verifier for further verification. In some
instances the verifier made a confirmation by calling the
depositor by phone. It is only after taking such
precautionary measures that the subject checks were given
to the teller for payment.
Of course it is possible that the verifiers of TMBC might
have made a mistake in failing to detect any forgery -- if
indeed there was. However, a mistake is not equivalent to
negligence if they were honest mistakes. In the instant case,
we believe and so hold that if there were mistakes, the same
were not deliberate, since the bank took all the
precautions.16
As borne by the records, it was petitioner, not the bank, who
was negligent. 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 do.17 In the present case, it appears
that petitioner accorded his secretary unusual degree of
trust and unrestricted access to his credit cards, passbooks,
check books, bank statements, including custody and
possession of cancelled checks and reconciliation of
accounts. Said the Court of Appeals on this matter:
Moreover, the appellant had introduced his secretary to the
bank for purposes of reconciliation of his account, through a
letter dated July 14, 1980 (Exhibit "8"). Thus, the said
secretary became a familiar figure in the bank. What is
worse, whenever the bank verifiers call the office of the
appellant, it is the same secretary who answers and
confirms the checks.
The trouble is, the appellant had put so much trust and
confidence in the said secretary, by entrusting not only his
credit cards with her but also his checkbook with blank
checks. He also entrusted to her the verification and
reconciliation of his account. Further adding to his injury
was the fact that while the bank was sending him the
monthly Statements of Accounts, he was not personally
checking the same. His testimony did not indicate that he
was out of the country during the period covered by the
checks. Thus, he had all the opportunities to verify his
account as well as the cancelled checks issued thereunder --
month after month. But he did not, until his partner asked
him whether he had entrusted his credit card to his
secretary because the said partner had seen her use the
same. It was only then that he was minded to verify the
records of his account. 18
12
The abovecited findings are binding upon the reviewing
court. We stress the rule that the factual findings of a trial
court, especially when affirmed by the appellate court, are
binding upon us19 and entitled to utmost respect20 and even
finality. We find no palpable error that would warrant a
reversal of the appellate court’s assessment of facts
anchored upon the evidence on record.
Petitioner’s failure to examine his bank statements appears
as the proximate cause of his own damage. Proximate cause
is that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the
injury, and without which the result would not have
occurred.21 In the instant case, the bank was not shown to
be remiss in its duty of sending monthly bank statements to
petitioner so that any error or discrepancy in the entries
therein could be brought to the bank’s attention at the
earliest opportunity. But, petitioner failed to examine these
bank statements not because he was prevented by some
cause in not doing so, but because he did not pay sufficient
attention to the matter. Had he done so, he could have been
alerted to any anomaly committed against him. In other
words, petitioner had sufficient opportunity to prevent or
detect any misappropriation by his secretary had he only
reviewed the status of his accounts based on the bank
statements sent to him regularly. In view of Article 2179 of
the New Civil Code,22 when the plaintiff’s own negligence
was the immediate and proximate cause of his injury, no
recovery could be had for damages.
Petitioner further contends that under Section 23 of the
Negotiable Instruments Law a forged check is inoperative,
and that Manila Bank had no authority to pay the forged
checks. True, it is a rule that when a signature is forged or
made without the authority of the person whose signature it
purports to be, the check is wholly inoperative. No right to
retain the instrument, or to give a discharge therefor, or to
enforce payment thereof against any party, can be acquired
through or under such signature. However, the rule does
provide for an exception, namely: "unless the party against
whom it is sought to enforce such right is precluded from
setting up the forgery or want of authority." In the instant
case, it is the exception that applies. In our view, petitioner
is precluded from setting up the forgery, assuming there is
forgery, due to his own negligence in entrusting to his
secretary his credit cards and checkbook including the
verification of his statements of account.
Petitioner’s reliance on Associated Bank vs. Court of
Appeals23 and Philippine Bank of Commerce vs. CA24 to
buttress his contention that respondent Manila Bank as the

collecting or last endorser generally suffers the loss because
it has the duty to ascertain the genuineness of all prior
endorsements is misplaced. In the cited cases, the fact of
forgery was not in issue. In the present case, the fact of
forgery was not established with certainty. In those cited
cases, the collecting banks were held to be negligent for
failing to observe precautionary measures to detect the
forgery. In the case before us, both courts below uniformly
found that Manila Bank’s personnel diligently performed
their duties, having compared the signature in the checks
from the specimen signatures on record and satisfied
themselves that it was petitioner’s.
On the second issue, the fact that Manila Bank had filed a
case for estafa against Eugenio would not estop it from
asserting the fact that forgery has not been clearly
established. Petitioner cannot hold private respondent in
estoppel for the latter is not the actual party to the criminal
action. In a criminal action, the State is the plaintiff, for the
commission of a felony is an offense against the
State.25 Thus, under Section 2, Rule 110 of the Rules of
Court the complaint or information filed in court is required
to be brought in the name of the "People of the
Philippines." 26
Further, as petitioner himself stated in his petition,
respondent bank filed the estafa case against Eugenio on the
basis of petitioner’s own affidavit,27 but without admitting
that he had any personal knowledge of the alleged forgery. It
is, therefore, easy to understand that the filing of the estafa
case by respondent bank was a last ditch effort to salvage its
ties with the petitioner as a valuable client, by bolstering the
estafa case which he filed against his secretary.
All told, we find no reversible error that can be ascribed to
the Court of Appeals.
WHEREFORE, the instant petition is DENIED for lack of
merit. The assailed decision of the Court of Appeals dated
January 28, 1999 in CA-G.R. CV No. 47942, is AFFIRMED.
Costs against petitioner.
SO ORDERED.
THIRD DIVISION
G.R. No. L-47379 May 16, 1988
NATIONAL POWER CORPORATION, petitioner,
vs.
HONORABLE COURT OF APPEALS and
ENGINEERING CONSTRUCTION, INC., respondents.
G.R. No. L-47481 May 16, 1988
ENGINEERING CONSTRUCTION, INC., petitioner,
vs.
COUTRT OF APPEALS and NATIONAL POWER
CORPORATION, respondents.
Raymundo A. Armovit for private respondent in L-47379.
The Solicitor General for petitioner.
GUTIERREZ, JR., J.:
These consolidated petitions seek to set aside the decision of
the respondent Court of Appeals which adjudged the
National Power Corporation liable for damages against
Engineering Construction, Inc. The appellate court,
however, reduced the amount of damages awarded by the
trial court. Hence, both parties filed their respective
petitions: the National Power Corporation (NPC) in G.R.
No. 47379, questioning the decision of the Court of Appeals
for holding it liable for damages and the Engineering
Construction, Inc. (ECI) in G.R. No. 47481, questioning the
same decision for reducing the consequential damages and
attorney's fees and for eliminating the exemplary damages.
The facts are succinctly summarized by the respondent
Court of Appeals, as follows:
On August 4, 1964, plaintiff Engineering Construction, Inc.,
being a successful bidder, executed a contract in Manila
with the National Waterworks and Sewerage Authority
(NAWASA), whereby the former undertook to furnish all
tools, labor, equipment, and materials (not furnished by
Owner), and to construct the proposed 2nd lpo-Bicti
Tunnel, Intake and Outlet Structures, and Appurtenant
Structures, and Appurtenant Features, at Norzagaray,
Bulacan, and to complete said works within eight hundred
(800) calendar days from the date the Contractor receives
the formal notice to proceed (Exh. A).
The project involved two (2) major phases: the first phase
comprising, the tunnel work covering a distance of seven (7)
kilometers, passing through the mountain, from the Ipo
river, a part of Norzagaray, Bulacan, where the Ipo Dam of
the defendant National Power Corporation is located, to
Bicti; the other phase consisting of the outworks at both
ends of the tunnel.
By September 1967, the plaintiff corporation already had
completed the first major phase of the work, namely, the
tunnel excavation work. Some portions of the outworks at
the Bicti site were still under construction. As soon as the
plaintiff corporation had finished the tunnel excavation
work at the Bicti site, all the equipment no longer needed
there were transferred to the Ipo site where some projects
were yet to be completed.
13
The record shows that on November 4,1967, typhoon
'Welming' hit Central Luzon, passing through defendant's
Angat Hydro-electric Project and Dam at lpo, Norzagaray,
Bulacan. Strong winds struck the project area, and heavy
rains intermittently fell. Due to the heavy downpour, the
water in the reservoir of the Angat Dam was rising
perilously at the rate of sixty (60) centimeters per hour. To
prevent an overflow of water from the dam, since the water
level had reached the danger height of 212 meters above sea
level, the defendant corporation caused the opening of the
spillway gates." (pp. 45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial court
that the evidence preponlderantly established the fact that
due to the negligent manner with which the spillway gates of
the Angat Dam were opened, an extraordinary large volume
of water rushed out of the gates, and hit the installations
and construction works of ECI at the lpo site with terrific
impact, as a result of which the latter's stockpile of materials
and supplies, camp facilities and permanent structures and
accessories either washed away, lost or destroyed.
The appellate court further found that:
It cannot be pretended that there was no negligence or that
the appellant exercised extraordinary care in the opening of
the spillway gates of the Angat Dam. Maintainers of the dam
knew very well that it was far more safe to open them
gradually. But the spillway gates were opened only when
typhoon Welming was already at its height, in a vain effort
to race against time and prevent the overflow of water from
the dam as it 'was rising dangerously at the rate of sixty
centimeters per hour. 'Action could have been taken as early
as November 3, 1967, when the water in the reservoir was
still low. At that time, the gates of the dam could have been
opened in a regulated manner. Let it be stressed that the
appellant knew of the coming of the typhoon four days
before it actually hit the project area. (p. 53, L-47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The appellee
submitted a list of estimated losses and damages to the
tunnel project (Ipo side) caused by the instant flooding of
the Angat River (Exh. J-1). The damages were itemized in
four categories, to wit: Camp Facilities P55,700.00;
Equipment, Parts and Plant — P375,659.51; Materials
P107,175.80; and Permanent Structures and accessories —
P137,250.00, with an aggregate total amount of
P675,785.31. The list is supported by several vouchers which

were all submitted as Exhibits K to M-38 a, N to O, P to U-2
and V to X- 60-a (Vide: Folders Nos. 1 to 4). The appellant
did not submit proofs to traverse the aforementioned
documentary evidence. We hold that the lower court did not
commit any error in awarding P 675,785.31 as actual or
compensatory damages.
However, We cannot sustain the award of P333,200.00 as
consequential damages. This amount is broken down as
follows: P213,200.00 as and for the rentals of a crane to
temporarily replace the one "destroyed beyond repair," and
P120,000.00 as one month bonus which the appellee failed
to realize in accordance with the contract which the appellee
had with NAWASA. Said rental of the crane allegedly
covered the period of one year at the rate of P40.00 an hour
for 16 hours a day. The evidence, however, shows that the
appellee bought a crane also a crawler type, on November
10, 1967, six (6) days after the incident in question (Exh N)
And according to the lower court, which finding was never
assailed, the appellee resumed its normal construction work
on the Ipo- Bicti Project after a stoppage of only one month.
There is no evidence when the appellee received the crane
from the seller, Asian Enterprise Limited. But there was an
agreement that the shipment of the goods would be effected
within 60 days from the opening of the letter of credit (Exh.
N).<äre||anº•1àw> It appearing that the contract of sale
was consummated, We must conclude or at least assume
that the crane was delivered to the appellee within 60 days
as stipulated. The appellee then could have availed of the
services of another crane for a period of only one month
(after a work stoppage of one month) at the rate of P 40.00
an hour for 16 hours a day or a total of P 19,200.00 as
rental.
But the value of the new crane cannot be included as part of
actual damages because the old was reactivated after it was
repaired. The cost of the repair was P 77,000.00 as shown in
item No. 1 under the Equipment, Parts and Plants category
(Exh. J-1), which amount of repair was already included in
the actual or compensatory damages. (pp. 54-56, L-47379,
Rollo)”
The appellate court likewise rejected the award of
unrealized bonus from NAWASA in the amount of
P120,000.00 (computed at P4,000.00 a day in case
construction is finished before the specified time, i.e., within
800 calendar days), considering that the incident occurred
after more than three (3) years or one thousand one
hundred seventy (1,170) days. The court also eliminated the
award of exemplary damages as there was no gross
negligence on the part of NPC and reduced the amount of
attorney's fees from P50,000.00 to P30,000.00.
In these consolidated petitions, NPC assails the appellate
court's decision as being erroneous on the ground that the
destruction and loss of the ECI's equipment and facilities
were due to force majeure. It argues that the rapid rise of
the water level in the reservoir of its Angat Dam due to
heavy rains brought about by the typhoon was an
extraordinary occurrence that could not have been foreseen,
and thus, the subsequent release of water through the
spillway gates and its resultant effect, if any, on ECI's
equipment and facilities may rightly be attributed to force
majeure.
On the other hand, ECI assails the reduction of the
consequential damages from P333,200.00 to P19,000.00
on the grounds that the appellate court had no basis in
concluding that ECI acquired a new Crawler-type crane and
therefore, it only can claim rentals for the temporary use of
the leased crane for a period of one month; and that the
award of P4,000.00 a day or P120,000.00 a month bonus is
justified since the period limitation on ECI's contract with
NAWASA had dual effects, i.e., bonus for earlier completion
and liquidated damages for delayed performance; and in
either case at the rate of P4,000.00 daily. Thus, since NPC's
negligence compelled work stoppage for a period of one
month, the said award of P120,000.00 is justified. ECI
further assailes the reduction of attorney's fees and the total
elimination of exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on
its findings of fact and that of the trial court's, petitioner
NPC was undoubtedly negligent because it opened the
spillway gates of the Angat Dam only at the height of
typhoon "Welming" when it knew very well that it was safer
to have opened the same gradually and earlier, as it was also
undeniable that NPC knew of the coming typhoon at least
four days before it actually struck. And even though the
typhoon was an act of God or what we may call force
majeure, NPC cannot escape liability because its negligence
was the proximate cause of the loss and damage. As we have
ruled in Juan F. Nakpil & Sons v. Court of Appeals, (144
SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act
of God, there concurs a corresponding fraud, negligence,
delay or violation or contravention in any manner of the
14
tenor of the obligation as provided for in Article 1170 of the
Civil Code, which results in loss or damage, the obligor
cannot escape liability.
The principle embodied in the act of God doctrine strictly
requires that the act must be one occasioned exclusively by
the violence of nature and human agencies are to be
excluded from creating or entering into the cause of the
mischief. When the effect, the cause of which is to be
considered, is found to be in part the result of the
participation of man, whether it be from active intervention
or neglect, or failure to act, the whole occurrence is thereby
humanized, as it was, and removed from the rules
applicable to the acts of God. (1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a person
concurs with an act of God in producing a loss, such person
is not exempt from liability by showing that the immediate
cause of the damage was the act of God. To be exempt from
liability for loss because of an act of God, he must be free
from any previous negligence or misconduct by which the
loss or damage may have been occasioned. (Fish & Elective
Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan 49 O.G.
4379; Limpangco & Sons v. Yangco Steamship Co., 34 Phil.
594, 604; Lasam v. Smith, 45 Phil. 657).”
Furthermore, the question of whether or not there was
negligence on the part of NPC is a question of fact which
properly falls within the jurisdiction of the Court of Appeals
and will not be disturbed by this Court unless the same is
clearly unfounded. Thus, in Tolentino v. Court of appeals,
(150 SCRA 26, 36) we ruled:
Moreover, the findings of fact of the Court of Appeals are
generally final and conclusive upon the Supreme Court
(Leonardo v. Court of Appeals, 120 SCRA 890 [1983]. In
fact it is settled that the Supreme Court is not supposed to
weigh evidence but only to determine its substantially
(Nuñez v. Sandiganbayan, 100 SCRA 433 [1982] and will
generally not disturb said findings of fact when supported
by substantial evidence (Aytona v. Court of Appeals, 113
SCRA 575 [1985]; Collector of Customs of Manila v.
Intermediate Appellate Court, 137 SCRA 3 [1985]. On the
other hand substantial evidence is defined as such relevant
evidence as a reasonable mind might accept as adequate to
support a conclusion (Philippine Metal Products, Inc. v.
Court of Industrial Relations, 90 SCRA 135 [1979]; Police
Commission v. Lood, 127 SCRA 757 [1984]; Canete v. WCC,
136 SCRA 302 [1985])”

Therefore, the respondent Court of Appeals did not err in
holding the NPC liable for damages.
Likewise, it did not err in reducing the consequential
damages from P333,200.00 to P19,000.00. As shown by the
records, while there was no categorical statement or
admission on the part of ECI that it bought a new crane to
replace the damaged one, a sales contract was presented to
the effect that the new crane would be delivered to it by
Asian Enterprises within 60 days from the opening of the
letter of credit at the cost of P106,336.75. The offer was
made by Asian Enterprises a few days after the flood. As
compared to the amount of P106,336.75 for a brand new
crane and paying the alleged amount of P4,000.00 a day as
rental for the use of a temporary crane, which use petitioner
ECI alleged to have lasted for a period of one year, thus,
totalling P120,000.00, plus the fact that there was already a
sales contract between it and Asian Enterprises, there is no
reason why ECI should opt to rent a temporary crane for a
period of one year. The appellate court also found that the
damaged crane was subsequently repaired and reactivated
and the cost of repair was P77,000.00. Therefore, it
included the said amount in the award of of compensatory
damages, but not the value of the new crane. We do not find
anything erroneous in the decision of the appellate court
that the consequential damages should represent only the
service of the temporary crane for one month. A contrary
ruling would result in the unjust enrichment of ECI.
The P120,000.00 bonus was also properly eliminated as the
same was granted by the trial court on the premise that it
represented ECI's lost opportunity "to earn the one month
bonus from NAWASA ... ." As stated earlier, the loss or
damage to ECI's equipment and facilities occurred long after
the stipulated deadline to finish the construction. No bonus,
therefore, could have been possibly earned by ECI at that
point in time. The supposed liquidated damages for failure
to finish the project within the stipulated period or the
opposite of the claim for bonus is not clearly presented in
the records of these petitions. It is not shown that NAWASA
imposed them.
As to the question of exemplary damages, we sustain the
appellate court in eliminating the same since it found that
there was no bad faith on the part of NPC and that neither
can the latter's negligence be considered gross. In Dee Hua
Liong Electrical Equipment Corp. v. Reyes, (145 SCRA 713,
719) we ruled:
Neither may private respondent recover exemplary damages
since he is not entitled to moral or compensatory damages,
and again because the petitioner is not shown to have acted
in a wanton, fraudulent, reckless or oppressive manner (Art.
2234, Civil Code; Yutuk v. Manila Electric Co., 2 SCRA 377;
Francisco v. Government Service Insurance System, 7 SCRA
577; Gutierrez v. Villegas, 8 SCRA 527; Air France v.
Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil.
Advertising Corp., 23 SCRA 977; Marchan v. Mendoza, 24
SCRA 888).
We also affirm the reduction of attorney's fees from
P50,000.00 to P30,000.00. There are no compelling
reasons why we should set aside the appellate court's
finding that the latter amount suffices for the services
rendered by ECI's counsel.
WHEREFORE, the petitions in G.R. No. 47379 and G.R. No.
47481 are both DISMISSED for LACK OF MERIT. The
decision appealed from is AFFIRMED.
SO ORDERED.
THIRD DIVISION
G.R. No. 222740, September 28, 2016
ST. LUKE'S COLLEGE OF MEDICINE-WILLIAM H.
QUASHA MEMORIAL FOUNDATION, DR.
BRIGIDO L. CARANDANG, AND DR. ALEJANDRO
P. ORTIGAS Petitioners, v. SPOUSES MANUEL AND
ESMERALDA PEREZ AND SPOUSES ERIC AND
JURISITA QUINTOS, Respondents.
DECISION
PEREZ, J.:
Assailed in the present petition for review on certiorari is
the Decision1 dated September 30, 2015 and the
Resolution2 dated February 2, 2016 of the Court of Appeals
(CA) in CA-G.R. CV No. 103529, which rulings reversed the
Decision dated July 7, 20143 of the Regional Trial Court
(RTC), Branch 84, Malolos City, Bulacan in Civil Case No.
145-M-2012 and remanded the case to the trial court for
reception of evidence on the amount of damages to be
awarded.
As a backgrounder, in 2006, the Commission on Higher
Education issued Memorandum Order No. 10, series of
2006 which required medical students to undergo rotating
clinical clerkship in their fourth year. As such, petitioner St.
Luke's College of Medicine (St. Luke's) entered into a
Memorandum of Intent with the Municipality of Cabiao,
Nueva Ecija for the construction of a community clinic. The
said facility consisted of a six-bed medical facility in the
ground floor, and a residential space for the medical staff in
the second floor.
The undisputed facts, as amply summarized by the CA, are
as follows:
15
In February 2010, St. Luke's sent four (4) of its 4th year
medical students to the clinic, namely: plaintiffs-appellants
Spouses Perez's daughter Jessa, plaintiffs-appellants
Spouses Quintos' daughter Cecille, Jerillie Ann Murillo
(Murillo) and Miguel Rafael Ramos (Ramos). They were
tasked to complete a four-week clerkship rotation at the
clinic and like the previous batches, they were housed in the
second floor of the clinic.
According to Ramos, he and his groupmates reported for
duty at the Cabiao clinic at approximately 10 o'clock in the
morning of February 8, 2010. When their shift ended at 5
o'clock that afternoon, the group went for a jog and returned
to the clinic at around 7 o'clock in the evening. They again
went out at 9 o'clock in the evening to buy beverages,
cooking oil and other items needed for their breakfast the
next day and went to sleep sometime after midnight. Ramos
admitted that one of the beverages they bought was an
alcoholic beverage called The Bar, which consisted of either
vodka or gin. He also admitted that only he and Cecille
drank the alcoholic beverage which they mixed with the
soda and that they did not consume the whole bottle.
Ramos was awakened sometime between 3 o'clock and 3:30
in the morning of February 9, 2010 when he heard Murillo
shouting from the other side of the room that there was a
fire. Ramos immediately ran to the door which led to the
living room and when he opened the same, he saw thick
smoke coming from the left portion of the living room where
there was a glow. He also felt extreme heat, prompting him
to run to the bathroom to get a pail of water with which he
tried to extinguish the fire. The girls, who had followed him
to the bathroom, stayed behind. When Ramos' attempt to
put out the fire proved to be futile, he went back to the
bathroom and poured water on the girls in an attempt to
alleviate the extreme heat coming from the fire.
According to Ramos, the smoke started to seep through the
bathroom door and the group had started shouting for help.
After a considerable amount of time, he heard somebody
outside instructing him to get back from the window. When
he did so, somebody broke the window and started to
dismantle the iron grills barring the same. By that time,
Ramos had started losing consciousness due to smoke
inhalation and only remembered that he was being pulled
out of the building through the window.
Unfortunately, the fire resulted in the deaths of the female
medical students, including the daughters of plaintiffs-
appellants due to smoke inhalation resulting" to asphyxia.
As a result of the deaths, defendant-appellee St. Luke's

compensated the parents of the three deceased students in
the amount of PhP300,000.00 each from insurance
proceeds. (Citations omitted)
The Bureau of Fire Protection (BFP) conducted an
investigation on the incident, and in a Certification dated
April 18, 2011, it certified that the fire was "purely accidental
in nature due to unattended cooking," to wit:4
THIS IS TO CERTIFY THAT as appearing on The Blotter
Book No. 0304-0287, pages 17 and 18, the two storey
Institutional building owned by Local Government Unit
(LGU) Cabiao, Nueva Ecija was partially razed by fire
including all the contents of the second floor that transpired
on or about 090245H February 2010. The estimated cost of
damage is two Million pesos (P2,000,000.00) more or less.
Result of investigation conducted by the Investigator on
Case of this station, Bureau of Fire Protection, Cabiao,
Nueva Ecija, disclosed that the fire was purely
ACCIDENTAL IN NATURE due to UNATTENDED
COOKING that occurred at the kitchen of said floor and no
evidence were gathered to show that the fire was
intentionally, deliberately or maliciously set.
Respondents had their doubts. Thus:5
xxx. xxx, plaintiffs-appellants, requested for a meeting with
defendant-appellee Dr. Alejandro Ortigas, Associate Dean
for Faculty and Student Affairs of St. Luke's. During the
meeting, plaintiffs-appellants were surprised by the
presence of defendants-appellees Dr. Brigido Carandang, St.
Luke's Dean of Medicine, the Municipal Health Officer of
Cabiao Dr. De Leon, as well as Municipal Fire Marshall of
Cabiao Baby Boy Esquivel, a Cabiao police officer and its
barangay captain.
The officials informed plaintiffs-appellants that the fire was
caused by the gas burner left open by the victims which
greatly disturbed plaintiffs-appellants. In a subsequent
meeting, they were informed that there was also evidence
that the victims were drinking alcoholic beverages on the
night of the fire which plaintiffs-appellants refused to
accept.
Convinced that there was a cover-up, plaintiffs-appellants
continued to question individual defendants-appellees.
Exasperated, defendant-appellee Dr. Carandang allegedly
asked "Ano pa bang gusto ninyo sa amin? Nakiramay na
kami."
Offended and still unconvinced, respondent Spouses
Manuel and Esmeralda Perez, the parents of Jessa, and
respondent Spouses Eric and Jurisita Quintos, the parents
of Cecille, sought the help of the National Bureau of
Investigation (NBI). In its Resolution dated August 3, 2010,
the existence of which is expressly admitted by petitioners,
having quoted the contents6 and having attached a copy
thereof to the present petition,7 the NBI declared that the
construction of the Cabiao Community Clinic building was
in violation of the provisions of Republic Act No. 9514 (R.A.
No. 9514) or the Revised Fire Code of the Philippines, that
the cause of the fire was due to faulty electrical wiring, and
that St. Luke's negligence is criminal in nature. The
pertinent parts of the said Resolution reads:8
xxxx
2. The building structure of Cabiao Community
Center
The Cabiao Community Clinic/Center is a two-storey
concrete building. The ground floor is used as the
municipality's lie-in clinic or hospital during day time. The
students and in particular the victims use this facility
together with the. medical complement of the municipality
for their community medical service.
On the 2nd floor was the office of Dr. LEON DE LEON,
Cabiao Municipal Health Officer, adjacent was a storage
room for office and medical supplies and documents, the
bedrooms for the medical students rendering community
service, a dining area, a kitchen, and the living-room. The
second floor, it may be said, is virtually dedicated for the
board and lodging of the students while on mission. These
rooms and areas are separated from each other by wood
panels made of plywood including the wall in which the gas
stove was located. All the windows at the second floor
are also covered by permanent iron grills. There
are no fire exits, fire alarms, fire extinguishers,
sprinklers, emergency lights.
The community center is a virtual fire/death trap.
During night time, medical students were left alone
inside the 2nd floor with the main gate locked from
the outside and with no apparent signs of fire
alarms, fire sprinklers, fire exit plan, emergency
lights, provisions of confining the fire to its source,
among others, for the occupants fire safety and
protection system. They were on their own at the second
floor, without anyone (maid or security guard) to attend to
their needs while the ground floors and the adjoining
building were uninhabited.
3. The electrical system of Cabiao Community
Clinic;
Engr. DAVID R. AOANAN, Chief Electrical Section of the
(sic) and member of the NBI investigating team observed
that the facility has a main circuit breaker and the two
16
distribution panels, located at the ground floor, just above
the comfort room of the 2ndfloor. The main breaker has a
500 amp capacity while the two distribution panels serving
the 1st floor and the 2nd floor has 200 amp capacity, each, as
against the main electrical service wire with the size 14 mm.
The ratio between the capacity of the circuit
breaker and the electrical service wire is out of
proportion and became electrically insensitive to
overload and wire short circuits; thereby negating
the very purpose the circuit breaker was designed.
The size of service wire is Small, suitable only for lighting
purposes and not to supply two buildings, dedicated for
public use. Six years of use in overload capacity
would have worn out the wire and its strength and
vitality, hence it will readily overheat,
notwithstanding at the time short circuits, only few
bulbs were in use.
The electrical meter used is appropriate only to residential
units and not to service the two buildings intended for
public which are [equipped] with modern medical
equipment; the old NFA and the [Cabiao] Community
Clinic.
Both live service wire and secondary electrical wires were
bundled together inside the same tube. At the 2nd floor,
visible signs of cut wires were found inside a tube,
including the service wire as it pass through going
down to the main panel board and several cut wires
of the secondary breaker going to the second floor
for power distribution.
The main and secondary panel boards were
wrongly situated at the ground floor, above which is
the location of a comfort room, where water could
easily slip to the panel boards.
The installation of the secondary panel board at the
ground floor distributing power to the 2nd floor
defeats its purpose, considering that if electrical
trouble happens at the 2nd floor one has to go to the
1st floor to shut off the power.
4. The construction of the Cabiao Community Center
building was in violation of the provision of Republic Act
No. 9514 (Revised Fire Code of the Philippines)
Owners, occupants or administrator of buildings or
structures are required to incorporate and provide fire
safety construction, protective and warning systems.

Investigation shows that a) there were no fire protection
features such as sprinkler systems, hose boxes, hose reels or
standpipe systems and other firefighting equipment; fire
alarm systems; b) no fire exit, fire exit plan for each floor of
the building showing the routes from each other [sic] room
to appropriate exits, displayed prominently on the door of
such room; c) no properly marked and lighted exits with
provision for emergency light to adequately illuminate exit
ways in case of power failure, and d) no provisions for
confining the fire at its source such as fire resistive floors
and walls.
5. The Cabiao Bureau of Fire Protection failed to
perform its mandate pursuant to RA 9514.
Under the Fire Code, the Bureau of Fire Protection is
required to conduct fire safety inspections as pre-requisite
to the grant of licenses and permits for the use and
occupancy of buildings, structures, facilities and their
premises including the installation of fire protections and
fire safety equipment and electrical systems in any building
structure or facility; and the storage of explosives or
combustible, flammable, toxic and other hazardous
materials.
The BFP is likewise responsible for designating fire
inspectors who shall inspect every building at least once a
year, and every time the owner, administrator or occupant
[renews] its business permit or permit to occupy; to issue a
business permit or permit to operate only after securing a
Fire Safety Inspection Certification (FSIC); require the
building owner occupant to submit plans and specifications
and other pertinent documents of building/structure in
order to ensure compliance of applicable codes and
standards and issue a written notice to the owner and/or
contractor to stop work on portion of any work due to
absence or in violation of approved plans and specifications;
to inspect at reasonable time, any building, structure or
premises and order the owner/occupant to remove
hazardous materials and/or stop operation if the standards
are not met; to declare and summarily abate hazardous
conditions of the buildings or structures and/or declare the
same as fire hazards.
It is worthy to note that despite the long period of time from
the occurrence of the fire until the termination of this
investigation, the Cabiao BFP headed by FO3 ESQUIVEL
has yet to submit its report and findings. However,
inasmuch as FO3 ESQUIVEL has bungled the
investigation of the fire by removing items from the
scene of the fire and his failure to explain the
disappearance of other electrical debris, the
opening and enlargement of the iron grill where the
sole survivor passed, the back door broken, and the
non-recording of the investigations, FO3 Esquivel's
action and behaviors are highly suspect of a
massive cover up of the real cause of the fire. xxxx
7. St. Luke's negligence is criminal in nature.
St. Luke's College of Medicine - William H. Quasha
Memorial, Inc., being the owner and operator of the Cabiao
Community Clinic is not without liability for the fate of the
fire victims. As a learning institution, which sends
out its students to rural areas to comply with its
curriculum requirement, St. Luke's has the duty
and responsibility to see to it that the premises to
where it sends its students are safe. It is significant to
stress that the Cabiao Community Clinic was established by
the Municipality of Cabiao and the St. Luke's College of
Medicine in line with the latter's expansion of its
Community Medicine undertaking to the rural areas in
order to train its students in health promotion and disease
prevention as well as to provide medical service to deserving
population and to undertake clinical research on various
health practices.
The victims were sent there as part of their community
medicine module in the curriculum and their assignments
were determined by the officials of the College of Medicine.
8. The origin of fire.
The Cabiao BFP has manifested its prejudice and
bias and thus, cannot be an independent, reliable
and credible investigator of this fire incident. They
could not even entertain any theory, other than the gas
burner, because in doing so would place themselves in
jeopardy. They even resorted to tampering of
premises by removing all electrical wire debris,
thinking that in its absence, fire caused by short
circuits cannot be proven.
It is highly probable that the origin of fire is
electrical based on the Electrical Report No. 04-10-001
submitted by Engr. DAVID R. AOANAN, Chief, Electrical
Section, NBI because of the following.
i. Presence of thick black smoke that indicates heat
caused by short-circuit
ii. Explosion or tripping off of the transformer, then a
black out - showing therefore that the circuit breaker
did not trip off
17
iii. Inspection of the main circuit breaker and the
secondary breakers show that these did not trip off
iv. Presence of short circuited wires located at the
2nd floor, where buddle wires were found
v. Presence of numerous spliced wires or jumped wires
in three different convenient outlets
vi. Mainboard panel is mismatched with the service wire
vii. Other defective wirings
It is a well done theory that the cause of the fire was
due to faulty electrical wiring with two reasons to
support it, first is the physical manifestation as
mentioned by Engr. DAVE AOANAN who conducted
evaluation/investigation on what is left on the
building of the Cabiao Community Clinic; second is
the personal experience of MIGUEL RAFAEL
RAMOS y DAVID the lone survivor of the incident
[who] narrated what he perceived during last hour
before he was rescued. MIGUEL['s] narration contradict
the theories laid down by Fire Marshall BABY BOY
ESQUIVEL that the fire was by the negligence of the victims
[whom] he suspect[s] to have left [burning a] gas stove.
MIGUEL'S narration specifically pointed out that the fire
was primarily coming from the living room and not at the
kitchen which is directly in front of their door way.
(Emphasis supplied.)
Respondents then filed a Complaint for damages against
petitioners St. Luke's College of Medicine-William H.
Quasha Memorial Foundation, Dean of Medicine Brigido L.
Carandang, and Associate Dean for Faculty and Student
Affairs Alejandro P. Ortigas, claiming that their negligence
caused the deaths of respondents' daughters. Respondents
maintained that, as a learning institution which sends out
its medical students to rural areas to comply with its
curriculum requirement, St. Luke's has the contractual duty
and legal responsibility to see to it that the premises to
where it sends its students are safe and that, in the case at
bar, St. Luke's refused to recognize its
obligations/liabilities.9 Respondents thus prayed as
follows:10
WHEREFORE, premises considered, it is respectfully
prayed that judgment be rendered in favor of plaintiffs -
1. Finding the defendants negligent and liable under their
contractual and legal obligations to Jessa and Cecille;
2. Directing defendants to pay plaintiffs, jointly and
severally, actual, moral and exemplary damages; and
3. Ordering defendants to pay the cost of suits and
attorney's fees.
Plaintiffs further pray for such other reliefs as the
Honorable Court may deem just and equitable under the
premises.

The RTC dismissed the complaint for lack of merit.11 It held
that the Cabiao Community Clinic was not a fire trap as
there were two (2) fire exits, and that respondents failed to
present any report or finding by a competent authority that
the said Clinic was not a safe and secure place for the
conduct of St. Luke's clerkship program. The RTC did not
take into consideration the NBI Report as it was allegedly
not presented.12
The RTC further held that the Clinic is owned by the
Municipality of Cabiao, and that the latter and/or its
responsible officials should have been impleaded as
indispensable parties.13
The RTC summarized its findings in this manner:14
Albeit the Court is saddened by what happened with the
untimely death of Perez and Quintos who are both very
bright with promising future in the field of medicine, it
cannot however close its eyes on the evidence submitted
before it by placing the blame on the cause of their death[s]
to the defendants just to put the fault on anybody in order to
appease their grieving love[d] ones. For in the mind of the
Court, the omission of the defendants to secure a copy of the
fire safety license of the Clinic or verify if it has one prior to
its construction before allowing their senior medical
students to occupy and reside therein is not per se a
negligent act. Neither is the failure of the defendants to
orient their senior medical students, who obviously are of
legal ages already such as the deceased, on how to take the
necessary measures for their safety and security before
retiring to sleep in the night considered negligent. Likewise,
the failure of the dialogue between the parties is not a
legitimate ground to declare the defendants negligent. Put
differently, the Court is not persuaded that there is basis or
justification to adjudge the defendants negligent for the
accidental death of Perez and Quintos.
Upon appeal, the CA reversed the RTC Decision and
remanded the case to the RTC for reception of evidence on
the amount of damages to be awarded.15 Addressing the
.preliminary issues, the CA held that the Municipality of
Cabiao was not an indispensable party as the Complaint was
one for damages based on the allegations in the enrollment
contract. It explained that:16
While there was indeed an allegation of St. Luke's
ownership of the clinic, bulk of the arguments in the
complaint were based on St. Luke's duty to ensure its
students' safety based on its obligation as a school. Not
being contractually obligated to keep plaintiffs-appellants'
children safe from any risk as a result of school-sanctioned
activities, the Municipality of Cabiao cannot be considered
an indispensable party to the action as it was not a
participant in the contract of enrollment.
Moreover, the CA held that although schools cannot be
insurers of its students against all risks, in the case at bar,
the safety of the victims was within the reach of petitioners
and the hazard of a fire was not unforeseeable.17 Also, while
the fire was beyond the control of petitioners, their decision
to house their students in a place where there are no means
of escape in case of such an emergency shows a blatant
disregard for the students' welfare.18
The CA elucidated as follows:19
The testimonies of Dr. Ortigas, Dr. Carandang and Dr.
Macabulos all show a lack of effort on their part to
thoroughly inspect the conditions of the building in relation
to the safety of their enrolled medical student-clerks.
According to Dr. Ortigas and Dr. Macabulos,20 they
considered the doors leading out from the pantry and the
bedrooms as fire exits. However, as doctors who presumably
have a wider degree of foresight than most, they failed to
consider that a fire might break out in areas which would
block these doors that are merely ordinary exits. Further,
Dr. Ortigas himself testified that permits are not part of
their consideration for safety and that they do not
specifically look for the same [xxx.] xxxx
Dr. Ortigas admitted that, as a doctor, he was not concerned
with the permits issued regarding the construction and
safety of the building. However, at the time he conducted
the inspections of the clinic, he was also the Associate Dean
of St. Luke's College of Medicine with the duty to ensure
that the building was safe for the security of the enrolled
students of St. Luke's College of Medicine who would be
assigned to the clinic during their clerkship and he
admittedly did not consider the same.
As Associate Dean for Student Affairs, it would be
reasonable to expect Dr. Ortigas to show concern for the
safety and security of the students enrolled in the institution
thus, ensure that the premises they were to reside in would
be properly equipped in case of fires and other calamities.
He himself stated that his position as such put him "in
charge of student and student affairs, xxx and in general, the
non-academic matters involving students and the faculty."
Consequently, it is safe to conclude that his task included
the safety and welfare of the students enrolled at St. Luke's
College of Medicine, one which he miserably failed to
discharge.
Defendants-appellees also made a big deal out of the
procedure of asking feedback from students which led to the
assumption that the clinic was safe and habitable. However,
it must be remembered that the students that gave the
18
feedback were more concerned with passing their course
and presumably trusted that the school would not send
them to a location which it has independently determined to
be unsafe. xxxx
In relation, defendants-appellees defend their judgment to
send plaintiffs-appellants' daughters to the community
clinic by contending that there has been no untoward
incident since the program began in 2004. xxx. xxxx
The same argument also runs contrary to defendants-
appellees' acceptance of the construction of iron grills on the
second floor windows of the clinic. According to Dr. Ortigas,
the same were constructed in order to prevent people from
using the same to enter the building and not designed to
prevent egress therefrom. Dr. Ortigas was specificallly
questioned if there were prior incidents of intrusion into the
clinic to which he replied in the negative. If defendants-
appellees' logic of "no untoward incident has happened" is
to be applied then, the presence of the grills was
unnecessary in the same way that they found the inspection
of fire safety permits to be unnecessary. It baffles the Court,
therefore, that defendants-appellees would accept the
precaution against an admittedly unlikely intrusion but
ignore any safety measures against a fire which was a great
possibility given that the clinic had flammable equipment
such as a gas burner for cooking. (Citations omitted)
Hence, the present petition for review on certiorari alleging
that the CA committed reversible error when it: (a) held that
the Municipality of Cabiao was not an indispensable
party,21 (b) disregarded the findings of the BFP that the fire
was purely accidental and caused by unattended
cooking,22 and (c) ruled that petitioners were negligent.23
We deny the petition.
A perusal of the Complaint readily shows that respondents
base their cause of action on petitioners' breach of the
contractual obligation, as an educational institution, of
ensuring that their students, in the performance of a
required school activity, would be safe and secure. The
Municipality of Cabiao, not being a party to said enrollment
contract, is not an indispensable party to the case.
An indispensable party is defined by the Rules of Court as a
party-in-interest without whom no final determination can
be had of an action.24 In the present case, respondents
premise petitioners' liability on their contractual obligation
to their students and, certainly, complete relief and a final
judgment can be arrived at by weighing the claims and
defenses of petitioners and respondents, without need of
evaluating the claims and defenses of the Municipality of

Cabiao. If at all, the Municipality of Cabiao is a necessary
party25cralawred whose non-inclusion in the case at bar
shall not prevent the court from proceeding with the action.
Indeed, the present case is one between a school and its
students, with their relationship being based on the
enrollment contracts. In the illuminating case of PSBA, et
al. v. CA, et al.,26 the Court had the opportunity to lay down
the principle 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.
Indubitably, institutions of learning have the "built-in"
obligation of providing a conducive atmosphere for
learning, an atmosphere where there are no constant threats
to life and limb, and one where peace and order are
maintained.
In the case at bar, the Cabiao Community Clinic is to be
considered as part of the campus premises of St. Luke's. In
the course description of the clerkship program in
preventive and community medicine, it is stated that the
Cabiao Community Clinic serves as the base operation of the
clerkship program.27 As such, petitioner had the same
obligation to their students, even though they were
stationed in the Cabiao Community Clinic, and it was
incumbent upon petitioners to ensure that said Clinic was
conducive for learning, that it had no constant threats to life
and limb, and that peace and order was maintained thereat.
After all, although away from the main campus of St. Luke's,
the students were still under the same protective and
supervisory custody of petitioners as the ones detailed in the
main campus.
In the performance of its contractual and inherent
obligations, the Court is mindful of the attendant difficulties
on the part of institutions of learning, and the Court
recognizes that the latter cannot be an insurer of its
students against all risks. Thus, as also laid out in
the PSBA case, "the school may still avoid liability by
proving that the breach of its contractual obligation to the
students was not due to its negligence, here statutorily
defined to be the 'omission of that degree of diligence which
is required by the nature of the obligation and
corresponding to the circumstances of persons, time and
place."28
Our next query, then, is, in relation to the fire incident, did
petitioners commit a breach of contract through negligence?
A review of the records compels the Court to answer in the
affirmative.
In Mendoza, et al. v. Sps. Gomez,29 we defined negligence as
"the failure to observe for the protection of the interests of
another person, that degree of care, precaution and
vigilance which the circumstances justly demand, whereby
such other person suffers injury."
In Gaid v. People,30 we enumerated the elements of simple
negligence as follows: (1) that there is lack of precaution on
the part of the offender, and (2) that the damage impending
to be caused is not immediate or the danger is not clearly
manifest. We explained that:
The standard test in determining whether a person is
negligent in doing an act whereby injury or damage results
to the person or property of another is this: could a prudent
man, in the position of the person to whom negligence is
attributed, foresee harm to the person injured as a
reasonable consequence of the course actually pursued? If
so, the law imposes a duty on the actor to refrain from that
course or to take precautions to guard against its
mischievous results, and the failure to do so constitutes
negligence. Reasonable foresight of harm, followed by the
ignoring of the admonition born of this provision, is always
necessary before negligence can be held to exist.31
virtuallawlibrary
In the case at bar, it is well to remember that the victims
were in the Cabiao Community Clinic because it was a
requirement of petitioners. The students were complying
with an obligation under the enrollment contract — they
were rendering medical services in a community center as
required by petitioners. It was thus incumbent upon
petitioners to comply with their own obligations under the
enrollment contract - to ensure that the community center
where they would designate their students is safe and
19
secure, among others.
Petitioners failed to take the necessary precautions to guard
their students against foreseeable harm. As correctly found
by the CA, petitioners were remiss in inspecting the
premises of the Cabiao Community Clinic and in ensuring
that the necessary permits were in order. These precautions
could have minimized the risk to the safety of the victims.
Indeed, the CA had basis in making the following
pronouncement:32
In the instant case, as previously emphasized, defendants-
appellees were aware that its medical students were residing
at the second floor of the clinic. At the very least, during
inspection, they should have thoroughly inspected the
building's physical appearance and the documents pertinent
to the premises to make sure that the same minimized the
risk to the safety of the students. There is no record that any
inquiry on the condition of the premises was even made by
defendants-appellees prior to the implementation of the
program. In addition to such failure, defendants-appellees
would have this Court believe that their participation in the
clinic was limited to providing the same with medical
personnel without considering that such personnel also
included its students which St. Luke's was obliged to protect
from unnecessary danger.
The petitioners were obviously negligent in detailing their
students to a virtual fire trap. As found by the NBI, the
Clinic was unsafe and was constructed in violation of
numerous provisions of the Revised Fire Code of the
Philippines. It had no emergency facilities, no fire exits, and
had no permits or clearances from the appropriate
government offices.
Petitioners additionally aver that the Clinic was built under
the direction, supervision, management and control of the
Municipality of Cabiao,33 and that it ensured that there was
an agreement for the Municipality of Cabiao to provide 24-
hour security to the Clinic.34
Petitioners, however, cannot escape liability based on these
arguments. As held in Saludaga v. FEU, et al.,35 a learning
institution should not be allowed to completely relinquish or
abdicate matters of safety and security to a third party as to
do so would result to contracting away its inherent
obligation of ensuring a safe learning environment for its
students.
In Saludaga, the Court chastised therein respondent Far
Eastern University (FEU) for its total reliance on a security
agency as to the qualifications of its security guards, viz:36
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.
Similarly, we cannot turn; a blind eye on petitioners' total
reliance on the Municipality of Cabiao in ensuring the safety
and security of their students. The enrollment contract is
between petitioners and the victims, and petitioners cannot
abdicate' on their contractual obligation to provide their
students a safe learning environment, nor can it pass or
contract away such obligation to a third party.
Moreover, as to the stipulation of 24-hour security in the
Clinic, petitioners failed to present evidence that this
stipulation was actually enforced or that they took measures
to ensure that it was enforced. This, once more, shows
petitioners' propensity of relying on third parties in carrying
out its obligations to its students.
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.37 In Gilat Satellite Networks, Ltd. v. UCPB General
Insurance Co., Inc.,38 the Court expounded:
xxx. The law, recognizing the obligatory force of contracts,
will not permit a party to be set free from liability for any
kind of misperformance of the contractual undertaking or a
contravention of the tenor thereof. A breach upon the
contract confers upon the injured party a valid cause for
recovering that which may have been lost or suffered. The
remedy serves to preserve the interests of the promissee
that may include his "expectation interest," which is his
interest in having the benefit of his bargain by being put in
as good a position as he would have been in had the contract
been performed, or his "reliance interest," which is his
interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would
have been in had the contract not been made; or his
"restitution interest," which is his interest in having restored
to him any benefit that he has conferred on the other party.
Indeed, agreements can accomplish little, either for their
makers or for society, unless they are made the basis for
action. The effect of every infraction is to create a new duty,
that is, to make RECOMPENSE to the one who has been
injured by the failure of another to observe his contractual
obligation unless he can show extenuating circumstances,
like proof of his exercise of due diligence x x x or of the
attendance of fortuitous event, to excuse him from his
ensuing liability. xxx. (Emphasis omitted)
In the case at bar, it was amply shown that petitioners and
the victims were bound by the enrollment contracts, and
that petitioners were negligent in complying with their
obligation under the said contracts to ensure the safety and
security of their students. For this contractual breach,
petitioners should be held liable.
WHEREFORE, in view of the foregoing, the Court resolves
to DENY the petition for review
on certiorariand AFFIRM the Court of Appeals' Decision
and Resolution.
SO ORDERED.
THIRD DIVISION
G.R. No. 162447 December 27, 2006
ANABELLE MUAJE-TUAZON and ALMER R.
ABING, petitioners,
vs.
WENPHIL CORPORATION, ELIZABETH P.
ORBITA*, and THE COURT OF
APPEALS, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review under Rule 45 assailing the
Decision1 dated August 27, 2003 of the Court of Appeals in
CA-G.R. SP No. 75419 and its Resolution dated February 23,
2004 denying reconsideration. The Court of Appeals
reversed the National Labor Relations Commission's finding
of illegal dismissal.
The pertinent facts of the case are as follows:
Petitioners Annabelle M. Tuazon and Almer R. Abing
worked as branch managers of the Wendy's food chains in
MCU Caloocan and Meycauayan, respectively, of
respondent Wenphil Corporation. From September 14 to
November 8, 1998, Wendy's had a "Biggie Size It! Crew
Challenge" promotion contest. The branch with the highest
sales of "Biggie Size It" wins. The Meycauayan and MCU
Caloocan branches won first and second places,
respectively. Because of its success, respondent had a
second run of the contest from April 26 to July 4, 1999. The
Meycauayan branch won again. The MCU Caloocan branch
failed to make it among the winners.2
Before the start of the third round from October 18, 1999 to
January 16, 2000, Abing was assigned to the SM North Edsa
20
Annex branch while Tuazon was assigned to the
Meycauayan branch. Before the announcement of the third
round winners, management received reports that as early
as the first round of the contest, the Meycauayan, MCU
Caloocan, Tandang Sora and Fairview branches cheated. An
internal investigation ensued.3
On February 3, 2000, petitioners were summoned to the
main office regarding the reported anomaly. Petitioners
denied there was cheating. Immediately thereafter,
petitioners were notified, in writing, of hearings scheduled
on February 4 and 7, 2000 and of their immediate
suspension.4 Thereafter, on February 29, 2000, petitioners
were dismissed.
Petitioners filed, with the Regional Arbitration Branch, a
complaint for illegal suspension and dismissal against
respondent Wenphil Corporation and its General Manager,
Elizabeth P. Orbita. Petitioners insisted that they were
innocent of the accusations and were dismissed without
cause. They claimed that the real reason for their
termination was their persistent demands for overtime and
holiday pay. They aver that (a) they were not notified
beforehand why they were called to the main office; (b) their
right to due process was denied; and (c) they were not
afforded counsel despite their request for one.
In their defense, respondents maintained that petitioners
were terminated for dishonesty amounting to serious
misconduct and willful breach of trust. They presented
affidavits of witnesses, receipts and other documents to
support the charges against petitioners. Respondents
posited that since petitioners occupied managerial
positions, loss of trust and confidence by the employer was
sufficient cause for their termination. Moreover,
respondents insisted that petitioners were afforded due
process, with two required notices, and the opportunity to
defend themselves. Lastly, respondents asserted that the
preventive suspension was necessary for the protection of
the company's property and possible destruction of evidence
pending investigation.
During the hearings, the Labor Arbiter disregarded the
affidavits of respondents' witnesses for being executed only
after the company investigation and held that respondents'
evidence insufficiently proved the alleged cheating of the
petitioners. The Labor Arbiter ruled in favor of the
petitioners as follows:

WHEREFORE, judgment is hereby rendered finding the
suspension and dismissal of complainants Almer R. Abing
and Annabelle M. Tuazon illegal. Respondent WENPHIL
CORPORATION is hereby ordered to:
1. immediately reinstate complainants to their former or
equivalent position, actual or in payroll at, their option,
without loss of seniority rights and benefits.
2. to pay them backwages from the time they were illegally
dismissed on 03 February 2000 until their reinstatement,
computed as of the date of this decision, as follows:
([P15,000] + 3,000 + 2,000 + 1,000) x 10 months
= P210,000.00 for each complainant.
3. to pay them ten (10%) percent attorney's fees.
All other claims are dismissed for lack of merit.
SO ORDERED.5
Respondents appealed to the National Labor Relations
Commission (NLRC), which affirmed with modification the
decision of the Labor Arbiter in this wise:
WHEREFORE, the appealed Decision is hereby AFFIRMED
but with the following modifications:
1. Declaring the preventive suspension of the complainants
to be legal. Accordingly, the period from February 3-28,
2000, during which they were preventively suspended, shall
be excluded in the computation of their backwages; and
2. Ordering respondent company to pay complainants
separation pay, in lieu of reinstatement, at the rate of one (1)
month salary for every year of service to be computed from
the date of employment up to the actual payment thereof.
SO ORDERED.6
Denied reconsideration, respondents elevated the case to
the Court of Appeals, which found substantial proof of
petitioners' misconduct. The appellate court held that
although the affidavits were executed after the company
investigation, the facts and issues therein were discussed
during the investigation and submitted to the management
before the decision to dismiss the petitioners was made. It
also ruled that respondent Wenphil sufficiently complied
with the due process requirement. The appellate court ruled
as follows:
WHEREFORE, premises considered, the instant petition for
certiorari is hereby GRANTED. The assailed resolutions of
the National Labor Relations Commission dated January
30, 2002 and September 24, 2002 are hereby SET ASIDE.
In lieu thereof, judgment is hereby rendered REVERSING
and SETTING ASIDE the decision of the Labor Arbiter,
dated December 8, 2000 rendered in NLRC NCR Cases Nos.
30-03-00993-00 and 30-03-01020-00. The private
respondents' complaints filed in the aforementioned cases
are hereby DISMISSED.
SO ORDERED.7
Petitioners moved for reconsideration but the same was
denied. Petitioners now come before us assigning the
following errors:
I. THE FACTUAL BASES USED BY THE COURT OF
APPEALS IN REVERSING THE RULING OF THE NLRC IS
(sic) ACTUALLY UNFOUNDED;
II. THE COURT OF APPEALS HAD DELIBERATELY
OVERLOOKED THE FACT THAT THE INTERROGATION
PROCESS CONDUCTED BY THE EMPLOYER IS VOID AB
INITIO, HENCE, CANNOT BE USED AS A SUBSTITUTE
FOR LAWFUL INVESTIGATION FOR PURPOSES OF DUE
PROCESS;
III. THE COURT OF APPEALS HAD WHIMSICALLY
GIVE[N] TOO MUCH WEIGHT TO THE AFFIDAVITS
WHICH ASIDE FROM BEING SELF-SERVING, ARE NON-
EXISTEN[T] AT THE TIME THEY WERE USED AS A
GROUND FOR THE DISMISSAL OF THE PETITIONERS;
IV. IN REVERSING THE FACTUAL FINDINGS OF THE
LABOR TRIBUNALS, THE COURT OF APPEALS WENT
TO THE EXTENT OF OVER-EXPANDING ITS
CERTIORARI JURISDICTION, IN VIOLATION OF LAW
AND ESTABLISHED JURISPRUDENCE ON THE
MATTER;
V. THE LABOR ARBITER, BEING THE ONE WHO
ACTUALLY CONDUCTED THE HEARING IN THE
ARBITRATION STATE AND HAD PERSONALLY
OBSERVED THE DEMEANOR OF [THE] PARTIES
21
DURING THE HEARING, HIS FACTUAL FINDINGS (sic)
CARRY HEAVIER WEIGHT THAN THE EVALUATION OF
[THE] COURT OF APPEALS' JUSTICES WHO MERELY
RELY (sic) THEIR FINDINGS SOLELY FROM THE
RECORD OF THE CASE (sic).8
Essentially, we are asked to resolve the following issues: (1)
Did the appellate court act in excess of its jurisdiction when
it reviewed factual findings of the Labor Arbiter and NLRC?
(2) Was there compliance with the due process
requirement? (3) Were petitioners illegally dismissed?
On the threshold procedural issue, petitioners contend that
the appellate court went beyond its jurisdiction when it re-
evaluated the findings of facts of the Labor Arbiter also
affirmed by the NLRC.
Respondents counter that the appellate court correctly
exercised its power of certiorari since the Labor Arbiter and
the NLRC gravely abused their discretion when it failed to
consider the affidavits of the witnesses against the
petitioners. They also point out that the present petition
raises questions of fact which are not proper in a petition for
review under Rule 45.
The rule is that a petition for certiorari is available when any
tribunal, board or officer exercising judicial or quasi-judicial
functions has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to
lack or excess of jurisdiction.9 Generally, factual issues are
not proper subjects for certiorari which is limited to the
issue of jurisdiction and grave abuse of discretion.10 Grave
abuse of discretion is committed when the board, tribunal
or officer exercising judicial function fails to consider
evidence adduced by the parties.11 In the present case, the
Labor Arbiter and the NLRC disregarded the affidavits of
the witnesses against the petitioners.
Moreover, where the party's contention appears to be clearly
tenable, or where the broader interest of justice and public
policy so require, the court may, in a certiorari proceeding,
correct the error committed.12 Hence, in our view, the Court
of Appeals correctly exercised its power of certiorari when it
re-evaluated the findings of fact by the Labor Arbiter and
the NLRC.
The general rule is that the jurisdiction of this Court in a
petition for review under Rule 45 is confined to a review of
questions of law. Further, the findings of fact of the Court of
Appeals, when supported by substantial evidence, are

conclusive and binding on the parties, and are not reviewed
by this Court, except when the findings are contrary with
those of the lower court or quasi-judicial bodies.13 The
contradictory findings of the NLRC and the Court of
Appeals provide sufficient justification for our review of the
facts.
On the second issue. Did Wenphil comply with the due
process requirement before dismissing the petitioners?
Petitioners aver that their right to due process was violated.
They were not notified of the accusation against them before
they were summoned to the main office of Wenphil on
February 3, 2000 for investigation. Further, they assert that
the company investigation was irregular or void since they
were not allowed to seek the assistance of counsel, and that
they were not present when the testimonies of the witnesses
were taken, and they were not given the opportunity to
confront the witnesses against them.
First, the law requires that the employee be given two
written notices before terminating his employment, namely:
(1) a notice which apprises the employee of the particular
acts or omissions for which his dismissal is sought; and (2)
the subsequent notice which informs the employee of the
employer's decision to dismiss him.14
The records show that the petitioners were given written
notices informing them that they were charged with serious
misconduct and dishonesty in relation to the "Biggie Size It!
Crew Challenge" program, and notifying them of the
scheduled hearings on February 4 and 7, 2000.15 Although
notices were given to them only on February 3, 2000, it will
be noted that there were other investigations or hearings set
after February 4 and 7 where they had the opportunity to
explain their side after they were apprised of their alleged
infractions. We note likewise that petitioners, thinking that
their verbal explanations were sufficient, opted to forego a
written explanation, and did not appear during the set
hearing. These actions were choices that petitioners
voluntarily made.
On record are the written notices dated February 29,
2000,16 whereby petitioners were notified of respondents'
decision to terminate them. Petitioner Tuazon
acknowledged receipt of her notice as evidenced by her
signature on the company's copy. Petitioner Abing's refusal
to sign the company's copy, despite his own copy having
been tendered to him, does not invalidate the notice of his
termination.
Petitioners contend that they were not given the opportunity
to confront the witnesses against them. Petitioners must be
reminded, however, that confrontation of witnesses is
required only in adversarial criminal prosecutions, and not
in company investigations for the administrative liability of
the employee.17 Additionally, actual adversarial proceedings
become necessary only for clarification, or when there is a
need to propound searching questions to witnesses who give
vague testimonies. This is not an inherent right, and in
company investigations, summary proceedings may be
conducted.18
Finally, on the last issue. Petitioners contend that
respondents did not sufficiently prove the existence of a just
cause for their termination, hence they were illegally
dismissed.
There is no denying that petitioners were managerial
employees. They executed management policies, they had
the power to hire personnel and assign them tasks; and
discipline the employees in their branch. They
recommended actions on employees to the head
office.19 Pertinent is Article 212 (m) of the Labor Code
defining a managerial employee as one who is vested with
powers or prerogatives to lay down and execute
management policies and/or hire, transfer, suspend, lay-off,
recall, discharge, assign or discipline employees.
Consequently, as managerial employees, in the case of
petitioners, the mere existence of grounds for the loss of
trust and confidence justify their dismissal.20 Pursuant to
our ruling in Caoile v. National Labor Relations
Commission,21 as long as the employer has a reasonable
ground to believe that the managerial employee concerned
is responsible for the purported misconduct, or the nature
of his participation renders him unworthy of the trust and
confidence demanded by his position, the managerial
employee can be dismissed.
In the present case, the tape receipts presented by
respondents showed that there were anomalies committed
in the branches managed by the petitioners. On the
principle of respondeat superior or command responsibility
alone, petitioners may be held liable for negligence in the
performance of their managerial duties, unless petitioners
can positively show that they were not involved. Their
position requires a high degree of responsibility that
necessarily includes unearthing of fraudulent and irregular
activities.22 Their bare, unsubstantiated and uncorroborated
denial of any participation in the cheating does not prove
their innocence nor disprove their alleged
guilt.23 Additionally, some employees declared in their
22
affidavits24 that the cheating was actually the idea of the
petitioners.
Petitioners make much of the fact that the affidavits were
executed only after the investigation. This is of no moment.
For even without the affidavits, sufficient basis exists for
respondents' loss of trust and confidence on the petitioners
as managerial officers.
WHEREFORE, the petition is DENIED. The Decision
dated August 27, 2003 and Resolution dated February 23,
2004 of the Court of Appeals in CA-G.R. SP No. 75419 are
hereby AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
THIRD DIVISION
G.R. No. 164349 January 31, 2006
RADIO COMMUNICATIONS OF THE
PHILIPPINES, INC. (RCPI),Petitioner,
vs.
ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE,
MARDONIO INFANTE, ZENAIDA VERCHEZ-
CATIBOG, AND FORTUNATO
CATIBOG, Respondents.
DECISION
CARPIO MORALES, J.:
On January 21, 1991, Editha Hebron Verchez (Editha) was
confined at the Sorsogon Provincial Hospital due to an
ailment. On even date, her daughter Grace Verchez-Infante
(Grace) immediately hied to the Sorsogon Branch of the
Radio Communications of the Philippines, Inc. (RCPI)
whose services she engaged to send a telegram to her sister
Zenaida Verchez-Catibog (Zenaida) who was residing at 18
Legal St., GSIS Village, Quezon City1 reading: "Send check
money Mommy hospital." For RCPI’s services, Grace
paid P10.502 for which she was issued a receipt.3
As three days after RCPI was engaged to send the telegram
to Zenaida no response was received from her, Grace sent a
letter to Zenaida, this time thru JRS Delivery Service,
reprimanding her for not sending any financial aid.
Immediately after she received Grace’s letter, Zenaida, along
with her husband Fortunato Catibog, left on January 26,
1991 for Sorsogon. On her arrival at Sorsogon, she
disclaimed having received any telegram.
In the meantime, Zenaida and her husband, together with
her mother Editha left for Quezon City on January 28, 1991
and brought Editha to the Veterans Memorial Hospital in

Quezon City where she was confined from January 30, 1991
to March 21, 1991.
The telegram was finally delivered to Zenaida 25 days later
or on February 15, 1991.4 On inquiry from RCPI why it took
that long to deliver it, a messenger of RCPI replied that he
had nothing to do with the delivery thereof as it was another
messenger who previously was assigned to deliver the same
but the address could not be located, hence, the telegram
was resent on February 2, 1991, and the second messenger
finally found the address on February 15, 1991.
Editha’s husband Alfonso Verchez (Verchez), by letter of
March 5, 1991,5 demanded an explanation from the manager
of the Service Quality Control Department of the RCPI, Mrs.
Lorna D. Fabian, who replied, by letter of March 13,
1991,6 as follows:
Our investigation on this matter disclosed that subject
telegram was duly processed in accordance with our
standard operating procedure. However, delivery was not
immediately effected due to the occurrence of circumstances
which were beyond the control and foresight of RCPI.
Among others, during the transmission process, the radio
link connecting the points of communication involved
encountered radio noise and interferences such that subject
telegram did not initially registered (sic) in the receiving
teleprinter machine.
Our internal message monitoring led to the discovery of the
above. Thus, a repeat transmission was made and
subsequent delivery was effected. (Underscoring supplied)
Verchez’s lawyer thereupon wrote RCPI’s manager Fabian,
by letter of July 23, 1991,7 requesting for a conference on a
specified date and time, but no representative of RCPI
showed up at said date and time.
On April 17, 1992, Editha died.
On September 8, 1993, Verchez, along with his daughters
Grace and Zenaida and their respective spouses, filed a
complaint against RCPI before the Regional Trial Court
(RTC) of Sorsogon for damages. In their complaint, the
plaintiffs alleged that, inter alia, the delay in delivering the
telegram contributed to the early demise of the late Editha
to their damage and prejudice,8 for which they prayed for
the award of moral and exemplary damages9 and attorney’s
fees.10
23
After its motion to dismiss the complaint for improper The negligence on the part of the employees gives rise to
venue11 was denied12 by Branch 5 of the RTC of Sorsogon, the presumption of negligence on the part of the
RCPI filed its answer, alleging that except with respect to employer.17 (Underscoring supplied),
Grace,13 the other plaintiffs had no privity of contract with
it; any delay in the sending of the telegram was due to force rendered judgment against RCPI. Accordingly, it disposed:
majeure, "specifically, but not limited to, radio noise and
interferences which adversely affected the transmission
and/or reception of the telegraphic message";14 the clause in WHEREFORE, in the light of the foregoing premises,
judgment is hereby rendered in favor of the plaintiffs and
the Telegram Transmission Form signed by Grace absolved
it from liability for any damage arising from the against the defendant, to wit:
transmission other than the refund of telegram tolls;15 it
observed due diligence in the selection and supervision of Ordering the defendant to pay the plaintiffs the following
its employees; and at all events, any cause of action had amount:
been barred by laches.16 1. The amount of One Hundred Thousand (P100,000.00)
Pesos as moral damages;
2. The amount of Twenty Thousand (P20,000.00) Pesos as
The trial court, observing that "although the delayed
delivery of the questioned telegram was not apparently the attorney’s fees; and
3. To pay the costs.
proximate cause of the death of Editha," ruled out the
presence of force majeure. Respecting the clause in the
telegram relied upon by RCPI, the trial court held that it SO ORDERED.18
partakes of the nature of a contract of adhesion.
On appeal, the Court of Appeals, by Decision of February 27,
Finding that the nature of RCPI’s business obligated it to 2004,19 affirmed the trial court’s decision.
dispatch the telegram to the addressee at the earliest
possible time but that it did not in view of the negligence of
Hence, RCPI’s present petition for review on certiorari, it
its employees to repair its radio transmitter and the
raising the following questions: (1) "Is the award of moral
concomitant delay in delivering the telegram on time, the
damages proper even if the trial court found that there was
trial court, upon the following provisions of the Civil Code,
no direct connection between the injury and the alleged
to wit:
negligent acts?"20 and (2) "Are the stipulations in the
‘Telegram Transmission Form,’ in the nature "contracts of
Article 2176 – Whoever by act or omission causes damage to adhesion" (sic)?21
another, there being at fault or negligence, is obliged to pay
for the damage done. Such fault or negligence if there is no
RCPI insists that respondents failed to prove any causal
pre-existing contractual relation between the parties, is
connection between its delay in transmitting the telegram
called quasi-delict and is governed by the provisions of this
and Editha’s death.22
Chapter.
RCPI’s stand fails. It bears noting that its liability is
Article 1173 defines the fault of (sic) negligence of the
anchored on culpa contractual or breach of contract with
obligor as the "omission of the diligence which is required
regard to Grace, and on tort with regard to her co-plaintiffs-
by the nature of the obligation and corresponds with the
herein-co-respondents.
circumstances of the person, of the time, or the place."
Article 1170 of the Civil Code provides:
In the instant case, the obligation of the defendant to deliver
the telegram to the addressee is of an urgent nature. Its
essence is the early delivery of the telegram to the concerned Those who in the performance of their obligations are guilty
person. Yet, due to the negligence of its employees, the of fraud, negligence, or delay, and those who in any manner
defendant failed to discharge of its obligation on time contravene the tenor thereof, are liable for damages.
making it liable for damages under Article 2176. (Underscoring supplied)
Passing on this codal provision, this Court explained:

In culpa contractual x x x the mere proof of the existence of
the contract and the failure of its compliance justify, prima
facie, a corresponding right of relief. The law, recognizing
the obligatory force of contracts, will not permit a party to
be set free from liability for any kind of misperformance of
the contractual undertaking or a contravention of the tenor
thereof. A breach upon the contract confers upon the
injured party a valid cause for recovering that which may
have been lost or suffered. The remedy serves to preserve
the interests of the promissee that may include
his "expectation interest," which is his interest in having
the benefit of his bargain by being put in as good a position
as he would have been in had the contract been
performed, or his "reliance interest," which is his
interest in being reimbursed for loss caused by reliance on
the contract by being put in as good a position as he would
have been in had the contract not been made; or
his "restitution interest," which is his interest in having
restored to him any benefit that he has conferred on the
other party. Indeed, agreements can accomplish little, either
for their makers or for society, unless they are made the
basis for action. The effect of every infraction is to create a
new duty, that is, to make recompense to the one who has
been injured by the failure of another to observe his
contractual obligation unless he can show extenuating
circumstances, like proof of his exercise of due
diligence x x x or of the attendance of fortuitous
event, to excuse him from his ensuing liability.23 (Emphasis
and underscoring supplied)
In the case at bar, RCPI bound itself to deliver the telegram
within the shortest possible time. It took 25 days, however,
for RCPI to deliver it.
RCPI invokes force majeure, specifically, the alleged radio
noise and interferences which adversely affected the
transmission and/or reception of the telegraphic message.
Additionally, its messenger claimed he could not locate the
address of Zenaida and it was only on the third attempt that
he was able to deliver the telegram.
For the defense of force majeure to prosper,
x x x it is necessary that one has committed no negligence
or misconduct 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.
x x x x Article 1174 of the Civil Code states that no person
shall be responsible for a fortuitous event that could not be
foreseen or, though foreseen, was inevitable. In other
words, there must be an exclusion of human
intervention from the cause of injury or
loss.24 (Emphasis and underscoring supplied)
Assuming arguendo that fortuitous circumstances
prevented RCPI from delivering the telegram at the soonest
possible time, it should have at least informed Grace of the
non-transmission and the non-delivery so that she could
have taken steps to remedy the situation. But it did not.
There lies the fault or negligence.
In an earlier case also involving RCPI, this Court held:
Considering the public utility of RCPI’s business and its
contractual obligation to transmit messages, it should
exercise due diligence to ascertain that messages are
delivered to the persons at the given address and
should provide a system whereby in cases of undelivered
messages the sender is given notice of non-delivery.
Messages sent by cable or wireless means are
usually more important and urgent than those which
can wait for the mail.25 x x x x
People depend on telecommunications companies in
times of deep emotional stress or pressing financial
needs. Knowing that messages about the illnesses or deaths
of loved ones, births or marriages in a family, important
business transactions, and notices of conferences or
meetings as in this case, are coursed through the petitioner
and similar corporations, it is incumbent upon them to
exercise a greater amount of care and concern than that
shown in this case. Every reasonable effort to inform
senders of the non-delivery of messages should be
undertaken.26 (Emphasis and underscoring supplied)
RCPI argues, however, against the presence of urgency in
the delivery of the telegram, as well as the basis for the
award of moral damages, thus:27
The request to send check as written in the telegraphic text
negates the existence of urgency that private respondents’
24
allegations that ‘time was of the essence’ imports. A check
drawn against a Manila Bank and transmitted to Sorsogon,
Sorsogon will have to be deposited in a bank in Sorsogon
and pass thru a minimum clearing period of 5 days before it
may be encashed or withdrawn. If the transmittal of the
requested check to Sorsogon took 1 day – private
respondents could therefore still wait for 6 days before the
same may be withdrawn. Requesting a check that would
take 6 days before it could be withdrawn therefore
contradicts plaintiff’s claim of urgency or need.28
At any rate, any sense of urgency of the situation was met
when Grace Verchez was able to communicate to Manila via
a letter that she sent to the same addressee in Manila thru
JRS.29 x x x x
As far as the respondent court’s award for moral damages is
concerned, the same has no basis whatsoever since private
respondent Alfonso Verchez did not accompany his late wife
when the latter went to Manila by bus. He stayed behind in
Sorsogon for almost 1 week before he proceeded to
Manila. 30
When pressed on cross-examination, private respondent
Alfonso Verchez could not give any plausible reason as to
the reason why he did not accompany his ailing wife to
Manila.31 x x x x
It is also important to consider in resolving private
respondents’ claim for moral damages that
private respondent Grace Verchez did not accompany her
ailing mother to Manila.32 x x x x
It is the common reaction of a husband to be at his ailing
wife’s side as much as possible. The fact that private
respondent Alfonso Verchez stayed behind in Sorsogon for
almost 1 week convincingly demonstrates that he himself
knew that his wife was not in critical condition.33 (Emphasis
and underscoring supplied)
RCPI’s arguments fail. For it is its breach of contract upon
which its liability is, it bears repeating, anchored. Since
RCPI breached its contract, the presumption is that it was at
fault or negligent. It, however, failed to rebut this
presumption.
For breach of contract then, RCPI is liable to Grace for
damages.

And for quasi-delict, RCPI is liable to Grace’s co-
respondents following Article 2176 of the Civil Code which
provides:
Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a
quasi-delict and is governed by the provisions of this
Chapter. (Underscoring supplied)
RCPI’s liability as an employer could of course be avoided if
it could prove that it observed the diligence of a good father
of a family to prevent damage. Article 2180 of the Civil Code
so provides:
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. x x x x
The owners and managers of an establishment or enterprise
are likewise responsible for damages caused by their
employees in the service of the branches in which the latter
are employed or on the occasion of their functions.
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. x x x x
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.
(Underscoring supplied)
RCPI failed, however, to prove that it observed all the
diligence of a good father of a family to prevent damage.
Respecting the assailed award of moral damages, a
determination of the presence of the following requisites to
justify the award is in order:
x x x firstly, evidence of besmirched reputation or physical,
mental or psychological suffering sustained by the
claimant; secondly, a culpable act or omission factually
established; thirdly, proof that the wrongful act or omission
of the defendant is the proximate cause of damages
sustained by the claimant; and fourthly, that the case is
predicated on any of the instances expressed or envisioned
by Article 2219 and Article 2220 of the Civil Code.34
Respecting the first requisite, evidence of suffering by the
plaintiffs-herein respondents was correctly appreciated by
the CA in this wise:
The failure of RCPI to deliver the telegram containing the
message of appellees on time, disturbed their filial
tranquillity. Family members blamed each other for failing
to respond swiftly to an emergency that involved the life of
the late Mrs. Verchez, who suffered from diabetes.35
As reflected in the foregoing discussions, the second and
third requisites are present.
On the fourth requisite, Article 2220 of the Civil Code
provides:
Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under
the circumstances, such damages are justly due. The same
rule applies to breaches of contract where the
defendant acted fraudulently or in bad
faith. (Emphasis and underscoring supplied)
After RCPI’s first attempt to deliver the telegram failed, it
did not inform Grace of the non-delivery thereof and waited
for 12 days before trying to deliver it again, knowing – as it
should know – that time is of the essence in the delivery of
telegrams. When its second long-delayed attempt to deliver
the telegram again failed, it, again, waited for another 12
days before making a third attempt. Such nonchalance in
performing its urgent obligation indicates gross negligence
amounting to bad faith. The fourth requisite is thus also
present.
In applying the above-quoted Article 2220, this Court has
awarded moral damages in cases of breach of contract
where the defendant was guilty of gross negligence
amounting to bad faith, or in wanton disregard of his
contractual obligation.36
As for RCPI’s tort-based liability, Article 2219 of the Civil
Code provides:
Moral damages may be recovered in the following
and analogous cases: x x x x
25
(10) Acts and actions referred to in Articles 21, 26, 27, 28,
29, 30, 32, 34, and 35. (Emphasis supplied)
Article 26 of the Civil Code, in turn, provides:
Every person shall respect the dignity, personality, privacy
and peace of mind of his neighbors and other persons.
The following and similar acts, though they may not
constitute a criminal offense, shall produce a cause of action
for damages, prevention, and other relief: x x x x
(2) Meddling with or disturbing the private life or family
relations of another. (Emphasis supplied)
RCPI’s negligence in not promptly performing its obligation
undoubtedly disturbed the peace of mind not only of Grace
but also her co-respondents. As observed by the appellate
court, it disrupted the "filial tranquillity" among them as
they blamed each other "for failing to respond swiftly to an
emergency." The tortious acts and/or omissions complained
of in this case are, therefore, analogous to acts mentioned
under Article 26 of the Civil Code, which are among the
instances of quasi-delict when courts may award moral
damages under Article 2219 of the Civil Code.
In fine, the award to the plaintiffs-herein respondents of
moral damages is in order, as is the award of attorney’s fees,
respondents having been compelled to litigate to protect
their rights.
Clutching at straws, RCPI insists that the limited liability
clause in the "Telegram Transmission Form" is not a
contract of adhesion. Thus it argues:
Neither can the Telegram Transmission Form be considered
a contract of adhesion as held by the respondent court. The
said stipulations were all written in bold letters right in
front of the Telegram Transmission Form. As a matter of
fact they were beside the space where the telegram senders
write their telegraphic messages. It would have been
different if the stipulations were written at the back for
surely there is no way the sender will easily notice them. The
fact that the stipulations were located in a particular space
where they can easily be seen, is sufficient notice to any
sender (like Grace Verchez-Infante) where she could
manifest her disapproval, leave the RCPI station and avail of
the services of the other telegram
operators.37 (Underscoring supplied)

RCPI misunderstands the nature of a contract of adhesion.
Neither the readability of the stipulations nor their physical
location in the contract determines whether it is one of
adhesion.
A contract of adhesion is defined as one in which one of the
parties imposes a ready-made form of contract, which the
other party may accept or reject, but which the latter cannot
modify. One party prepares the stipulation in the contract,
while the other party merely affixes his signature or his
"adhesion" thereto, giving no room for negotiation
and depriving the latter of the opportunity to
bargain on equal footing.38 (Emphasis and underscoring
supplied)
While a contract of adhesion is not necessarily void and
unenforceable, since it is construed strictly against the party
who drafted it or gave rise to any ambiguity therein, it is
stricken down as void and unenforceable or subversive of
public policy when the weaker party is imposed upon in
dealing with the dominant bargaining party and is reduced
to the alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal footing.39
This Court holds that the Court of Appeals’ finding that the
parties’ contract is one of adhesion which is void is, given
the facts and circumstances of the case, thus well-taken.
WHEREFORE, the petition is DENIED, and the
challenged decision of the Court of Appeals is AFFIRMED.
Costs against petitioner.
SO ORDERED.
FIRST DIVISION
G.R. No. 159636 November 25, 2004
VICTORY LINER, INC., petitioner,
vs.
ROSALITO GAMMAD, APRIL ROSSAN P.
GAMMAD, ROI ROZANO P. GAMMAD and DIANA
FRANCES P. GAMMAD, respondents.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the April
11, 2003 decision1 of the Court of Appeals in CA-G.R. CV No.
63290 which affirmed with modification the November 6,
1998 decision2 of the Regional Trial Court of Tuguegarao,
Cagayan, Branch 5 finding petitioner Victory Liner, Inc.
liable for breach of contract of carriage in Civil Case No.
5023.
The facts as testified by respondent Rosalito Gammad show
that on March 14, 1996, his wife Marie Grace Pagulayan-
Gammad,3 was on board an air-conditioned Victory Liner
bus bound for Tuguegarao, Cagayan from Manila. At about
3:00 a.m., the bus while running at a high speed fell on a
ravine somewhere in Barangay Baliling, Sta. Fe, Nueva
Vizcaya, which resulted in the death of Marie Grace and
physical injuries to other passengers.4
On May 14, 1996, respondent heirs of the deceased filed a
complaint5 for damages arising from culpa contractual
against petitioner. In its answer,6 the petitioner claimed that
the incident was purely accidental and that it has always
exercised extraordinary diligence in its 50 years of
operation.
After several re-settings,7 pre-trial was set on April 10,
1997.8 For failure to appear on the said date, petitioner was
declared as in default.9 However, on petitioner’s motion10 to
lift the order of default, the same was granted by the trial
court.11
At the pre-trial on May 6, 1997, petitioner did not want to
admit the proposed stipulation that the deceased was a
passenger of the Victory Liner Bus which fell on the ravine
and that she was issued Passenger Ticket No. 977785.
Respondents, for their part, did not accept petitioner’s
proposal to pay P50,000.00.12
After respondent Rosalito Gammad completed his direct
testimony, cross-examination was scheduled for November
17, 199713 but moved to December 8, 1997,14 because the
parties and the counsel failed to appear. On December 8,
1997, counsel of petitioner was absent despite due notice
and was deemed to have waived right to cross-examine
respondent Rosalito.15
Petitioner’s motion to reset the presentation of its evidence
to March 25, 199816 was granted. However, on March 24,
1998, the counsel of petitioner sent the court a
telegram17 requesting postponement but the telegram was
received by the trial court on March 25, 1998, after it had
issued an order considering the case submitted for decision
for failure of petitioner and counsel to appear.18
On November 6, 1998, the trial court rendered its decision
in favor of respondents, the dispositive portion of which
reads:
26
WHEREFORE, premises considered and in the interest of
justice, judgment is hereby rendered in favor of the
plaintiffs and against the defendant Victory Liner,
Incorporated, ordering the latter to pay the following:
1. Actual Damages -------------------- P 122,000.00
2. Death Indemnity --------------------- 50,000.00
3. Exemplary and Moral Damages----- 400,000.00
4. Compensatory Damages ---------- 1,500,000.00
5. Attorney’s Fees --------------------- 10% of the total
amount granted
6. Cost of the Suit. SO ORDERED.19
On appeal by petitioner, the Court of Appeals affirmed the
decision of the trial court with modification as follows:
[T]he Decision dated 06 November 1998 is hereby
MODIFIED to reflect that the following are hereby adjudged
in favor of plaintiffs-appellees:
1. Actual Damages in the amount of P88,270.00;
2. Compensatory Damages in the amount of P1,135,536,10;
3. Moral and Exemplary Damages in the amount of
P400,000.00; and
4. Attorney’s fees equivalent to 10% of the sum of the actual,
compensatory, moral, and exemplary damages herein
adjudged.
The court a quo’s judgment of the cost of the suit against
defendant-appellant is hereby AFFIRMED. SO
ORDERED.20
Represented by a new counsel, petitioner on May 21, 2003
filed a motion for reconsideration praying that the case be
remanded to the trial court for cross- examination of
respondents’ witness and for the presentation of its
evidence; or in the alternative, dismiss the respondents’
complaint.21 Invoking APEX Mining, Inc. v. Court of
Appeals,22 petitioner argues, inter alia, that the decision of
the trial court should be set aside because the negligence of
its former counsel, Atty. Antonio B. Paguirigan, in failing to
appear at the scheduled hearings and move for
reconsideration of the orders declaring petitioner to have
waived the right to cross-examine respondents’ witness and
right to present evidence, deprived petitioner of its day in
court.
On August 21, 2003, the Court of Appeals denied
petitioner’s motion for reconsideration.23
Hence, this petition for review principally based on the fact
that the mistake or gross negligence of its counsel deprived

petitioner of due process of law. Petitioner also argues that
the trial court’s award of damages were without basis and
should be deleted.
The issues for resolution are: (1) whether petitioner’s
counsel was guilty of gross negligence; (2) whether
petitioner should be held liable for breach of contract of
carriage; and (3) whether the award of damages was proper.
It is settled that the negligence of counsel binds the client.
This is based on the rule that any act performed by a counsel
within the scope of his general or implied authority is
regarded as an act of his client. Consequently, the mistake
or negligence of counsel may result in the rendition of an
unfavorable judgment against the client. However, the
application of the general rule to a given case should be
looked into and adopted according to the surrounding
circumstances obtaining. Thus, exceptions to the foregoing
have been recognized by the court in cases where reckless or
gross negligence of counsel deprives the client of due
process of law, or when its application will result in outright
deprivation of the client’s liberty or property or where the
interests of justice so require, and accord relief to the client
who suffered by reason of the lawyer’s gross or palpable
mistake or negligence.24
The exceptions, however, are not present in this case. The
record shows that Atty. Paguirigan filed an Answer and Pre-
trial Brief for petitioner. Although initially declared as in
default, Atty. Paguirigan successfully moved for the setting
aside of the order of default. In fact, petitioner was
represented by Atty. Paguirigan at the pre-trial who
proposed settlement for P50,000.00. Although Atty.
Paguirigan failed to file motions for reconsideration of the
orders declaring petitioner to have waived the right to cross-
examine respondents’ witness and to present evidence, he
nevertheless, filed a timely appeal with the Court of Appeals
assailing the decision of the trial court. Hence, petitioner’s
claim that it was denied due process lacks basis.
Petitioner too is not entirely blameless. Prior to the issuance
of the order declaring it as in default for not appearing at
the pre-trial, three notices (dated October 23,
1996,25 January 30, 1997,26 and March 26, 1997,27 ) requiring
attendance at the pre-trial were sent and duly received by
petitioner. However, it was only on April 27, 1997, after the
issuance of the April 10, 1997 order of default for failure to
appear at the pre-trial when petitioner, through its finance
and administrative manager, executed a special power of
attorney28 authorizing Atty. Paguirigan or any member of
his law firm to represent petitioner at the pre-trial.
Petitioner is guilty, at the least, of contributory negligence
and fault cannot be imputed solely on previous counsel.
The case of APEX Mining, Inc., invoked by petitioner is not
on all fours with the case at bar. In APEX, the negligent
counsel not only allowed the adverse decision against his
client to become final and executory, but deliberately
misrepresented in the progress report that the case was still
pending with the Court of Appeals when the same was
dismissed 16 months ago.29 These circumstances are absent
in this case because Atty. Paguirigan timely filed an appeal
from the decision of the trial court with the Court of
Appeals.
In Gold Line Transit, Inc. v. Ramos,30 the Court was
similarly confronted with the issue of whether or not the
client should bear the adverse consequences of its counsel’s
negligence. In that case, Gold Line Transit, Inc. (Gold Line)
and its lawyer failed to appear at the pre-trial despite notice
and was declared as in default. After the plaintiff’s
presentation of evidence ex parte, the trial court rendered
decision ordering Gold Line to pay damages to the heirs of
its deceased passenger. The decision became final and
executory because counsel of Gold Line did not file any
appeal. Finding that Goldline was not denied due process of
law and is thus bound by the negligence of its lawyer, the
Court held as follows –
This leads us to the question of whether the negligence of
counsel was so gross and reckless that petitioner was
deprived of its right to due process of law. We do not believe
so. It cannot be denied that the requirements of due process
were observed in the instant case. Petitioner was never
deprived of its day in court, as in fact it was afforded every
opportunity to be heard. Thus, it is of record that notices
were sent to petitioner and that its counsel was able to file a
motion to dismiss the complaint, an answer to the
complaint, and even a pre-trial brief. What was irretrievably
lost by petitioner was its opportunity to participate in the
trial of the case and to adduce evidence in its behalf because
of negligence.
In the application of the principle of due process, what is
sought to be safeguarded against is not the lack of previous
notice but the denial of the opportunity to be heard. The
question is not whether petitioner succeeded in defending
its rights and interests, but simply, whether it had the
opportunity to present its side of the controversy. Verily, as
petitioner retained the services of counsel of its choice, it
should, as far as this suit is concerned, bear the
consequences of its choice of a faulty option. Its plea that it
27
was deprived of due process echoes on hollow ground and
certainly cannot elicit approval nor sympathy.
To cater to petitioner’s arguments and reinstate its petition
for relief from judgment would put a premium on the
negligence of its former counsel and encourage the non-
termination of this case by reason thereof. This is one case
where petitioner has to bear the adverse consequences of its
counsel’s act, for a client is bound by the action of his
counsel in the conduct of a case and he cannot thereafter be
heard to complain that the result might have been different
had his counsel proceeded differently. The rationale for the
rule is easily discernible. If the negligence of counsel be
admitted as a reason for opening cases, there would never
be an end to a suit so long as a new counsel could be hired
every time it is shown that the prior counsel had not been
sufficiently diligent, experienced or learned.”31
Similarly, in Macalalag v. Ombudsman,32 a Philippine Postal
Corporation employee charged with dishonesty was not able
to file an answer and position paper. He was found guilty
solely on the basis of complainant’s evidence and was
dismissed with forfeiture of all benefits and disqualification
from government service. Challenging the decision of the
Ombudsman, the employee contended that the gross
negligence of his counsel deprived him of due process of
law. In debunking his contention, the Court said –
“Neither can he claim that he is not bound by his lawyer’s
actions; it is only in case of gross or palpable negligence of
counsel when the courts can step in and accord relief to a
client who would have suffered thereby. If every perceived
mistake, failure of diligence, lack of experience or
insufficient legal knowledge of the lawyer would be
admitted as a reason for the reopening of a case, there
would be no end to controversy. Fundamental to our judicial
system is the principle that every litigation must come to an
end. It would be a clear mockery if it were otherwise. Access
to the courts is guaranteed, but there must be a limit to it.”
Viewed vis-à-vis the foregoing jurisprudence, to sustain
petitioner’s argument that it was denied due process of law
due to negligence of its counsel would set a dangerous
precedent. It would enable every party to render inutile any
adverse order or decision through the simple expedient of
alleging gross negligence on the part of its counsel. The
Court will not countenance such a farce which contradicts
long-settled doctrines of trial and procedure.33

Anent the second issue, petitioner was correctly found liable
for breach of contract of carriage. A common carrier is
bound to carry its passengers safely as far as human care
and foresight can provide, using the utmost diligence of very
cautious persons, with due regard to all the circumstances.
In a contract of carriage, it is presumed that the common
carrier was at fault or was negligent when a passenger dies
or is injured. Unless the presumption is rebutted, the court
need not even make an express finding of fault or negligence
on the part of the common carrier. This statutory
presumption may only be overcome by evidence that the
carrier exercised extraordinary diligence.34
In the instant case, there is no evidence to rebut the
statutory presumption that the proximate cause of Marie
Grace’s death was the negligence of petitioner. Hence, the
courts below correctly ruled that petitioner was guilty of
breach of contract of carriage.
Nevertheless, the award of damages should be modified.
Article 176435 in relation to Article 220636 of the Civil Code,
holds the common carrier in breach of its contract of
carriage that results in the death of a passenger liable to pay
the following: (1) indemnity for death, (2) indemnity for loss
of earning capacity, and (3) moral damages.
In the present case, respondent heirs of the deceased are
entitled to indemnity for the death of Marie Grace which
under current jurisprudence is fixed at P50,000.00.37
The award of compensatory damages for the loss of the
deceased’s earning capacity should be deleted for lack of
basis. As a rule, documentary evidence should be presented
to substantiate the claim for damages for loss of earning
capacity. By way of exception, damages for loss of earning
capacity may be awarded despite the absence of
documentary evidence when (1) the deceased is self-
employed earning less than the minimum wage under
current labor laws, and judicial notice may be taken of the
fact that in the deceased’s line of work no documentary
evidence is available; or (2) the deceased is employed as a
daily wage worker earning less than the minimum wage
under current labor laws.38
In People v. Oco,39 the evidence presented by the
prosecution to recover damages for loss of earning capacity
was the bare testimony of the deceased’s wife that her
husband was earning P8,000.00 monthly as a legal
researcher of a private corporation. Finding that the
deceased was neither self-employed nor employed as a
daily-wage worker earning less than the minimum wage
under the labor laws existing at the time of his death, the
Court held that testimonial evidence alone is insufficient to
justify an award for loss of earning capacity.
Likewise, in People v. Caraig,40 damages for loss of earning
capacity was not awarded because the circumstances of the
3 deceased did not fall within the recognized exceptions,
and except for the testimony of their wives, no documentary
proof about their income was presented by the prosecution.
Thus –
The testimonial evidence shows that Placido Agustin,
Roberto Raagas, and Melencio Castro Jr. were not self-
employed or employed as daily-wage workers earning less
than the minimum wage under the labor laws existing at the
time of their death. Placido Agustin was a Social Security
System employee who received a monthly salary of P5,000.
Roberto Raagas was the President of Sinclair Security and
Allied Services, a family owned corporation, with a monthly
compensation of P30,000. Melencio Castro Jr. was a taxi
driver of New Rocalex with an average daily earning of P500
or a monthly earning of P7,500. Clearly, these cases do not
fall under the exceptions where indemnity for loss of
earning capacity can be given despite lack of documentary
evidence. Therefore, for lack of documentary proof, no
indemnity for loss of earning capacity can be given in these
cases. (Emphasis supplied)
Here, the trial court and the Court of Appeals computed the
award of compensatory damages for loss of earning capacity
only on the basis of the testimony of respondent Rosalito
that the deceased was 39 years of age and a Section Chief of
the Bureau of Internal Revenue, Tuguergarao District Office
with a salary of P83,088.00 per annum when she died.41 No
other evidence was presented. The award is clearly
erroneous because the deceased’s earnings does not fall
within the exceptions.
However, the fact of loss having been established, temperate
damages in the amount of P500,000.00 should be awarded
to respondents. Under Article 2224 of the Civil Code,
temperate or moderate damages, which are more than
nominal but less than compensatory damages, may be
recovered when the court finds that some pecuniary loss has
been suffered but its amount can not, from the nature of the
case, be proved with certainty.
28
In Pleno v. Court of Appeals,42 the Court sustained the trial
court’s award of P200,000.00 as temperate damages in lieu
of actual damages for loss of earning capacity because the
income of the victim was not sufficiently proven, thus –
The trial court based the amounts of damages awarded to
the petitioner on the following circumstances: ...
"As to the loss or impairment of earning capacity, there is no
doubt that Pleno is an ent[re]preneur and the founder of his
own corporation, the Mayon Ceramics Corporation. It
appears also that he is an industrious and resourceful
person with several projects in line, and were it not for the
incident, might have pushed them through. On the day of
the incident, Pleno was driving homeward with geologist
Longley after an ocular inspection of the site of the Mayon
Ceramics Corporation. His actual income however has not
been sufficiently established so that this Court cannot award
actual damages, but, an award of temperate or moderate
damages may still be made on loss or impairment of earning
capacity. That Pleno sustained a permanent deformity due
to a shortened left leg and that he also suffers from double
vision in his left eye is also established. Because of this, he
suffers from some inferiority complex and is no longer
active in business as well as in social life. In similar cases as
in Borromeo v. Manila Electric Railroad Co., 44 Phil 165;
Coriage, et al. v. LTB Co., et al., L-11037, Dec. 29, 1960, and
in Araneta, et al. v. Arreglado, et al., L-11394, Sept. 9, 1958,
the proper award of damages were given." ...
We rule that the lower court’s awards of damages are more
consonant with the factual circumstances of the instant
case. The trial court’s findings of facts are clear and well-
developed. Each item of damages is adequately supported
by evidence on record.”
Article 2224 of the Civil Code was likewise applied in the
recent cases of People v. Singh43 and People v.
Almedilla,44 to justify the award of temperate damages in
lieu of damages for loss of earning capacity which was not
substantiated by the required documentary proof.
Anent the award of moral damages, the same cannot be
lumped with exemplary damages because they are based on
different jural foundations.45 These damages are different in
nature and require separate determination.46 In culpa
contractual or breach of contract, moral damages may be
recovered when the defendant acted in bad faith or was
guilty of gross negligence (amounting to bad faith) or in
wanton disregard of contractual obligations and, as in this

case, when the act of breach of contract itself constitutes the
tort that results in physical injuries. By special rule in
Article 1764 in relation to Article 2206 of the Civil Code,
moral damages may also be awarded in case the death of a
passenger results from a breach of carriage.47 On the other
hand, exemplary damages, which are awarded by way of
example or correction for the public good may be recovered
in contractual obligations if the defendant acted in wanton,
fraudulent, reckless, oppressive, or malevolent manner.48
Respondents in the instant case should be awarded moral
damages to compensate for the grief caused by the death of
the deceased resulting from the petitioner’s breach of
contract of carriage. Furthermore, the petitioner failed to
prove that it exercised the extraordinary diligence required
for common carriers, it is presumed to have acted
recklessly.49 Thus, the award of exemplary damages is
proper. Under the circumstances, we find it reasonable to
award respondents the amount of P100,000.00 as moral
damages and P100,000.00 as exemplary damages. These
amounts are not excessive.50
The actual damages awarded by the trial court reduced by
the Court of Appeals should be further reduced. In People v.
Duban,51 it was held that only substantiated and proven
expenses or those that appear to have been genuinely
incurred in connection with the death, wake or burial of the
victim will be recognized. A list of expenses (Exhibit
"J"),52 and the contract/receipt for the construction of the
tomb (Exhibit "F")53 in this case, cannot be considered
competent proof and cannot replace the official receipts
necessary to justify the award. Hence, actual damages
should be further reduced to P78,160.00,54 which was the
amount supported by official receipts.
Pursuant to Article 220855 of the Civil Code, attorney’s fees
may also be recovered in the case at bar where exemplary
damages are awarded. The Court finds the award of
attorney’s fees equivalent to 10% of the total amount
adjudged against petitioner reasonable.
Finally, in Eastern Shipping Lines, Inc. v. Court of
Appeals,56 it was held that when an obligation, regardless of
its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable
for payment of interest in the concept of actual and
compensatory damages, subject to the following rules, to wit
– decision of the Regional Trial Court of Tuguegarao, Cagayan
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims
or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where
the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when
such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run
only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of
credit. (Emphasis supplied).
In the instant case, petitioner should be held liable for
payment of interest as damages for breach of contract of
carriage. Considering that the amounts payable by
petitioner has been determined with certainty only in the
instant petition, the interest due shall be computed upon
the finality of this decision at the rate of 12% per annum
until satisfaction, per paragraph 3 of the aforecited rule.57
WHEREFORE, in view of all the foregoing, the petition is
partially granted. The April 11, 2003 decision of the Court of
Appeals in CA-G.R. CV No. 63290, which modified the
in Civil Case No. 5023, is AFFIRMED with
MODIFICATION. As modified, petitioner Victory Liner,
Inc., is ordered to pay respondents the following: (1)
29
P50,000.00 as indemnity for the death of Marie Grace
Pagulayan-Gammad; (2) P100,000.00 as moral damages;
(3) P100,000.00 as exemplary damages; (4) P78,160.00 as
actual damages; (5) P500,000.00 as temperate damages;
(6) 10% of the total amount as attorneys fees; and the costs
of suit.
Furthermore, the total amount adjudged against petitioner
shall earn interest at the rate of 12% per annum computed
from the finality of this decision until fully paid.
SO ORDERED.
FIRST DIVISION
G.R. No. 141910 August 6, 2002
FGU INSURANCE CORPORATION, petitioner,
vs.
G.P. SARMIENTO TRUCKING CORPORATION and
LAMBERT M. EROLES, respondents.
VITUG, J.:
G.P. Sarmiento Trucking Corporation (GPS) undertook to
deliver on 18 June 1994 thirty (30) units of Condura S.D.
white refrigerators aboard one of its Isuzu truck, driven by
Lambert Eroles, from the plant site of Concepcion
Industries, Inc., along South Superhighway in Alabang,
Metro Manila, to the Central Luzon Appliances in Dagupan
City. While the truck was traversing the north diversion
road along McArthur highway in Barangay Anupol,
Bamban, Tarlac, it collided with an unidentified truck,
causing it to fall into a deep canal, resulting in damage to
the cargoes.
FGU Insurance Corporation (FGU), an insurer of the
shipment, paid to Concepcion Industries, Inc., the value of
the covered cargoes in the sum of P204,450.00. FGU, in
turn, being the subrogee of the rights and interests of
Concepcion Industries, Inc., sought reimbursement of the
amount it had paid to the latter from GPS. Since the
trucking company failed to heed the claim, FGU filed a
complaint for damages and breach of contract of carriage
against GPS and its driver Lambert Eroles with the Regional
Trial Court, Branch 66, of Makati City. In its answer,
respondents asserted that GPS was the exclusive hauler only
of Concepcion Industries, Inc., since 1988, and it was not so
engaged in business as a common carrier. Respondents
further claimed that the cause of damage was purely
accidental.
The issues having thus been joined, FGU presented its
evidence, establishing the extent of damage to the cargoes
and the amount it had paid to the assured. GPS, instead of
submitting its evidence, filed with leave of court a motion to
dismiss the complaint by way of demurrer to evidence on

the ground that petitioner had failed to prove that it was a
common carrier.
The trial court, in its order of 30 April 1996,1 granted the
motion to dismiss, explaining thusly:
"Under Section 1 of Rule 131 of the Rules of Court, it is
provided that ‘Each party must prove his own affirmative
allegation, xxx.’
"In the instant case, plaintiff did not present any single
evidence that would prove that defendant is a common
carrier. "x x x xxx xxx
"Accordingly, the application of the law on common carriers
is not warranted and the presumption of fault or negligence
on the part of a common carrier in case of loss, damage or
deterioration of goods during transport under 1735 of the
Civil Code is not availing.
"Thus, the laws governing the contract between the owner of
the cargo to whom the plaintiff was subrogated and the
owner of the vehicle which transports the cargo are the laws
on obligation and contract of the Civil Code as well as the
law on quasi delicts.
"Under the law on obligation and contract, negligence or
fault is not presumed. The law on quasi delict provides for
some presumption of negligence but only upon the
attendance of some circumstances. Thus, Article 2185
provides:
‘Art. 2185. Unless there is proof to the contrary, it is
presumed that a person driving a motor vehicle has been
negligent if at the time of the mishap, he was violating any
traffic regulation.’
"Evidence for the plaintiff shows no proof that defendant
was violating any traffic regulation. Hence, the presumption
of negligence is not obtaining.
"Considering that plaintiff failed to adduce evidence that
defendant is a common carrier and defendant’s driver was
the one negligent, defendant cannot be made liable for the
damages of the subject cargoes."2
The subsequent motion for reconsideration having been
denied,3 plaintiff interposed an appeal to the Court of
Appeals, contending that the trial court had erred (a) in
holding that the appellee corporation was not a common
carrier defined under the law and existing jurisprudence;
and (b) in dismissing the complaint on a demurrer to
evidence.
The Court of Appeals rejected the appeal of petitioner and
ruled in favor of GPS. The appellate court, in its decision of
10 June 1999,4 discoursed, among other things, that -
"x x x in order for the presumption of negligence provided
for under the law governing common carrier (Article 1735,
Civil Code) to arise, the appellant must first prove that the
appellee is a common carrier. Should the appellant fail to
prove that the appellee is a common carrier, the
presumption would not arise; consequently, the appellant
would have to prove that the carrier was negligent.
"x x x xxx x x x "Because it is the appellant who
insists that the appellees can still be considered as a
common carrier, despite its `limited clientele,’ (assuming it
was really a common carrier), it follows that it (appellant)
has the burden of proving the same. It (plaintiff-appellant)
`must establish his case by a preponderance of evidence,
which means that the evidence as a whole adduced by one
side is superior to that of the other.’ (Summa Insurance
Corporation vs. Court of Appeals, 243 SCRA 175). This,
unfortunately, the appellant failed to do -- hence, the
dismissal of the plaintiff’s complaint by the trial court is
justified. "x x x xxx xxx
"Based on the foregoing disquisitions and considering the
circumstances that the appellee trucking corporation has
been `its exclusive contractor, hauler since 1970, defendant
has no choice but to comply with the directive of its
principal,’ the inevitable conclusion is that the appellee is a
private carrier. "x x x xxx xxx
"x x x the lower court correctly ruled that 'the application of
the law on common carriers is not warranted and the
presumption of fault or negligence on the part of a common
carrier in case of loss, damage or deterioration of good[s]
during transport under [article] 1735 of the Civil Code is not
availing.' x x x.
"Finally, We advert to the long established rule that
conclusions and findings of fact of a trial court are entitled
to great weight on appeal and should not be disturbed
unless for strong and valid reasons."5
30
Petitioner's motion for reconsideration was likewise
denied;6 hence, the instant petition,7 raising the following
issues:
I
WHETHER RESPONDENT GPS MAY BE CONSIDERED
AS A COMMON CARRIER AS DEFINED UNDER THE
LAW AND EXISTING JURISPRUDENCE.
II
WHETHER RESPONDENT GPS, EITHER AS A COMMON
CARRIER OR A PRIVATE CARRIER, MAY BE PRESUMED
TO HAVE BEEN NEGLIGENT WHEN THE GOODS IT
UNDERTOOK TO TRANSPORT SAFELY WERE
SUBSEQUENTLY DAMAGED WHILE IN ITS
PROTECTIVE CUSTODY AND POSSESSION.
III
WHETHER THE DOCTRINE OF RES IPSA LOQUITUR IS
APPLICABLE IN THE INSTANT CASE.
On the first issue, the Court finds the conclusion of the trial
court and the Court of Appeals to be amply justified. GPS,
being an exclusive contractor and hauler of Concepcion
Industries, Inc., rendering or offering its services to no other
individual or entity, cannot be considered a common
carrier. Common carriers are persons, corporations, firms
or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or
air, for hire or compensation, offering their services to
the public,8 whether to the public in general or to a limited
clientele in particular, but never on an exclusive basis.9 The
true test of a common carrier is the carriage of passengers or
goods, providing space for those who opt to avail themselves
of its transportation service for a fee.10Given accepted
standards, GPS scarcely falls within the term "common
carrier."
The above conclusion nothwithstanding, GPS cannot escape
from liability.
In culpa contractual, upon which the action of petitioner
rests as being the subrogee of Concepcion Industries, Inc.,
the mere proof of the existence of the contract and the
failure of its compliance justify, prima facie, a
corresponding right of relief.11 The law, recognizing the
obligatory force of contracts,12 will not permit a party to be
set free from liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor
thereof.13 A breach upon the contract confers upon the
injured party a valid cause for recovering that which may
have been lost or suffered. The remedy serves to preserve
the interests of the promisee that may include his
"expectation interest," which is his interest in having the

benefit of his bargain by being put in as good a position as
he would have been in had the contract been performed, or
his "reliance interest," which is his interest in being
reimbursed for loss caused by reliance on the contract by
being put in as good a position as he would have been in had
the contract not been made; or his "restitution interest,"
which is his interest in having restored to him any benefit
that he has conferred on the other party.14 Indeed,
agreements can accomplish little, either for their makers or
for society, unless they are made the basis for action.15 The
effect of every infraction is to create a new duty, that is, to
make recompense to the one who has been injured by the
failure of another to observe his contractual
obligation16 unless he can show extenuating circumstances,
like proof of his exercise of due diligence (normally that of
the diligence of a good father of a family or, exceptionally by
stipulation or by law such as in the case of common carriers,
that of extraordinary diligence) or of the attendance of
fortuitous event, to excuse him from his ensuing liability.
Respondent trucking corporation recognizes the existence of
a contract of carriage between it and petitioner’s assured,
and admits that the cargoes it has assumed to deliver have
been lost or damaged while in its custody. In such a
situation, a default on, or failure of compliance with, the
obligation – in this case, the delivery of the goods in its
custody to the place of destination - gives rise to a
presumption of lack of care and corresponding liability on
the part of the contractual obligor the burden being on him
to establish otherwise. GPS has failed to do so.
Respondent driver, on the other hand, without concrete
proof of his negligence or fault, may not himself be ordered
to pay petitioner. The driver, not being a party to the
contract of carriage between petitioner’s principal and
defendant, may not be held liable under the agreement. A
contract can only bind the parties who have entered into it
or their successors who have assumed their personality or
their juridical position.17 Consonantly with the axiom res
inter alios acta aliis neque nocet prodest, such contract can
neither favor nor prejudice a third person. Petitioner’s civil
action against the driver can only be based on culpa
aquiliana, which, unlike culpa contractual, would require
the claimant for damages to prove negligence or fault on the
part of the defendant.18
A word in passing. Res ipsa loquitur, a doctrine being
invoked by petitioner, holds a defendant liable where the
thing which caused the injury complained of is shown to be
under the latter’s management and the accident is such that,
in the ordinary course of things, cannot be expected to
happen if those who have its management or control use
proper care. It affords reasonable evidence, in the absence
of explanation by the defendant, that the accident arose
from want of care.19 It is not a rule of substantive law and, as
such, it does not create an independent ground of liability.
Instead, it is regarded as a mode of proof, or a mere
procedural convenience since it furnishes a substitute for,
and relieves the plaintiff of, the burden of producing specific
proof of negligence. The maxim simply places on the
defendant the burden of going forward with the
proof.20 Resort to the doctrine, however, may be allowed
only when (a) the event is of a kind which does not
ordinarily occur in the absence of negligence; (b) other
responsible causes, including the conduct of the plaintiff
and third persons, are sufficiently eliminated by the
evidence; and (c) the indicated negligence is within the
scope of the defendant's duty to the plaintiff.21 Thus, it is not
applicable when an unexplained accident may be
attributable to one of several causes, for some of which the
defendant could not be responsible.22
Res ipsa loquitur generally finds relevance whether or not a
contractual relationship exists between the plaintiff and the
defendant, for the inference of negligence arises from the
circumstances and nature of the occurrence and not from
the nature of the relation of the parties.23 Nevertheless, the
requirement that responsible causes other than those due to
defendant’s conduct must first be eliminated, for the
doctrine to apply, should be understood as being confined
only to cases of pure (non-contractual) tort since obviously
the presumption of negligence in culpa contractual, as
previously so pointed out, immediately attaches by a failure
of the covenant or its tenor. In the case of the truck driver,
whose liability in a civil action is predicated on culpa
acquiliana, while he admittedly can be said to have been in
control and management of the vehicle which figured in the
accident, it is not equally shown, however, that the accident
could have been exclusively due to his negligence, a matter
that can allow, forthwith, res ipsa loquitur to work against
him.
If a demurrer to evidence is granted but on appeal the order
of dismissal is reversed, the movant shall be deemed to have
waived the right to present evidence.24 Thus, respondent
corporation may no longer offer proof to establish that it has
exercised due care in transporting the cargoes of the assured
so as to still warrant a remand of the case to the trial court.
WHEREFORE, the order, dated 30 April 1996, of the
Regional Trial Court, Branch 66, of Makati City, and the
decision, dated 10 June 1999, of the Court of Appeals,
31
are AFFIRMED only insofar as respondent Lambert M.
Eroles is concerned, but said assailed order of the trial court
and decision of the appellate court are REVERSED as
regards G.P. Sarmiento Trucking Corporation which,
instead, is hereby ordered to pay FGU Insurance
Corporation the value of the damaged and lost cargoes in
the amount of P204,450.00. No costs.
SO ORDERED.
FIRST DIVISION
G.R. No. 145804 February 6, 2003
LIGHT RAIL TRANSIT AUTHORITY & RODOLFO
ROMAN, petitioners,
vs.
MARJORIE NAVIDAD, Heirs of the Late NICANOR
NAVIDAD & PRUDENT SECURITY
AGENCY, respondents.
DECISION
VITUG, J.:
The case before the Court is an appeal from the decision and
resolution of the Court of Appeals, promulgated on 27 April
2000 and 10 October 2000, respectively, in CA-G.R. CV No.
60720, entitled "Marjorie Navidad and Heirs of the Late
Nicanor Navidad vs. Rodolfo Roman, et. al.," which has
modified the decision of 11 August 1998 of the Regional
Trial Court, Branch 266, Pasig City, exonerating Prudent
Security Agency (Prudent) from liability and finding Light
Rail Transit Authority (LRTA) and Rodolfo Roman liable for
damages on account of the death of Nicanor Navidad.
On 14 October 1993, about half an hour past seven o’clock in
the evening, Nicanor Navidad, then drunk, entered the
EDSA LRT station after purchasing a "token" (representing
payment of the fare). While Navidad was standing on the
platform near the LRT tracks, Junelito Escartin, the security
guard assigned to the area approached Navidad. A
misunderstanding or an altercation between the two
apparently ensued that led to a fist fight. No evidence,
however, was adduced to indicate how the fight started or
who, between the two, delivered the first blow or how
Navidad later fell on the LRT tracks. At the exact moment
that Navidad fell, an LRT train, operated by petitioner
Rodolfo Roman, was coming in. Navidad was struck by the
moving train, and he was killed instantaneously.
On 08 December 1994, the widow of Nicanor, herein
respondent Marjorie Navidad, along with her children, filed
a complaint for damages against Junelito Escartin, Rodolfo
Roman, the LRTA, the Metro Transit Organization, Inc.
(Metro Transit), and Prudent for the death of her husband.
LRTA and Roman filed a counterclaim against Navidad and
a cross-claim against Escartin and Prudent. Prudent, in its
answer, denied liability and averred that it had exercised

due diligence in the selection and supervision of its security
guards.
The LRTA and Roman presented their evidence while
Prudent and Escartin, instead of presenting evidence, filed a
demurrer contending that Navidad had failed to prove that
Escartin was negligent in his assigned task. On 11 August
1998, the trial court rendered its decision; it adjudged:
"WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendants Prudent Security and
Junelito Escartin ordering the latter to pay jointly and
severally the plaintiffs the following:
"a) 1) Actual damages of P44,830.00;
2) Compensatory damages of P443,520.00;
3) Indemnity for the death of Nicanor Navidad in the sum of
P50,000.00;
"b) Moral damages of P50,000.00;
"c) Attorney’s fees of P20,000;
"d) Costs of suit.
"The complaint against defendants LRTA and Rodolfo
Roman are dismissed for lack of merit.
"The compulsory counterclaim of LRTA and Roman are
likewise dismissed."1
Prudent appealed to the Court of Appeals. On 27 August
2000, the appellate court promulgated its now assailed
decision exonerating Prudent from any liability for the
death of Nicanor Navidad and, instead, holding the LRTA
and Roman jointly and severally liable thusly:
"WHEREFORE, the assailed judgment is hereby
MODIFIED, by exonerating the appellants from any liability
for the death of Nicanor Navidad, Jr. Instead, appellees
Rodolfo Roman and the Light Rail Transit Authority (LRTA)
are held liable for his death and are hereby directed to pay
jointly and severally to the plaintiffs-appellees, the following
amounts:
a) P44,830.00 as actual damages;
b) P50,000.00 as nominal damages;
c) P50,000.00 as moral damages;
d) P50,000.00 as indemnity for the death of the deceased;
and
e) P20,000.00 as and for attorney’s fees."2
The appellate court ratiocinated that while the deceased
might not have then as yet boarded the train, a contract of
carriage theretofore had already existed when the victim
entered the place where passengers were supposed to be
after paying the fare and getting the corresponding token
therefor. In exempting Prudent from liability, the court
stressed that there was nothing to link the security agency to
the death of Navidad. It said that Navidad failed to show
that Escartin inflicted fist blows upon the victim and the
evidence merely established the fact of death of Navidad by
reason of his having been hit by the train owned and
managed by the LRTA and operated at the time by Roman.
The appellate court faulted petitioners for their failure to
present expert evidence to establish the fact that the
application of emergency brakes could not have stopped the
train.
The appellate court denied petitioners’ motion for
reconsideration in its resolution of 10 October 2000.
In their present recourse, petitioners recite alleged errors on
the part of the appellate court; viz:
"I.
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED BY DISREGARDING THE FINDINGS OF FACTS
BY THE TRIAL COURT
"II.
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN FINDING THAT PETITIONERS ARE LIABLE
FOR THE DEATH OF NICANOR NAVIDAD, JR.
"III.
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN FINDING THAT RODOLFO ROMAN IS AN
EMPLOYEE OF LRTA."3
Petitioners would contend that the appellate court ignored
the evidence and the factual findings of the trial court by
holding them liable on the basis of a sweeping conclusion
that the presumption of negligence on the part of a common
carrier was not overcome. Petitioners would insist that
Escartin’s assault upon Navidad, which caused the latter to
fall on the tracks, was an act of a stranger that could not
have been foreseen or prevented. The LRTA would add that
the appellate court’s conclusion on the existence of an
employer-employee relationship between Roman and LRTA
lacked basis because Roman himself had testified being an
employee of Metro Transit and not of the LRTA.
Respondents, supporting the decision of the appellate court,
contended that a contract of carriage was deemed created
from the moment Navidad paid the fare at the LRT station
and entered the premises of the latter, entitling Navidad to
32
all the rights and protection under a contractual relation,
and that the appellate court had correctly held LRTA and
Roman liable for the death of Navidad in failing to exercise
extraordinary diligence imposed upon a common carrier.
Law and jurisprudence dictate that a common carrier, both
from the nature of its business and for reasons of public
policy, is burdened with the duty of exercising utmost
diligence in ensuring the safety of passengers.4 The Civil
Code, governing the liability of a common carrier for death
of or injury to its passengers, provides:
"Article 1755. A common carrier is bound to carry the
passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances.
"Article 1756. In case of death of or injuries to passengers,
common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and
1755."
"Article 1759. Common carriers are liable for the death of or
injuries to passengers through the negligence or willful acts
of the former’s employees, although such employees may
have acted beyond the scope of their authority or in
violation of the orders of the common carriers.
"This liability of the common carriers does not cease upon
proof that they exercised all the diligence of a good father of
a family in the selection and supervision of their
employees."
"Article 1763. A common carrier is responsible for injuries
suffered by a passenger on account of the willful acts or
negligence of other passengers or of strangers, if the
common carrier’s employees through the exercise of the
diligence of a good father of a family could have prevented
or stopped the act or omission."
The law requires common carriers to carry passengers safely
using the utmost diligence of very cautious persons with due
regard for all circumstances.5 Such duty of a common carrier
to provide safety to its passengers so obligates it not only
during the course of the trip but for so long as the
passengers are within its premises and where they ought to
be in pursuance to the contract of carriage.6 The statutory
provisions render a common carrier liable for death of or
injury to passengers (a) through the negligence or wilful acts
 33

of its employees or b) on account of wilful acts or negligence the parties, the contract can be said to have been breached
of other passengers or of strangers if the common carrier’s by tort, thereby allowing the rules on tort to apply.17
employees through the exercise of due diligence could have
prevented or stopped the act or omission.7 In case of such Regrettably for LRT, as well as perhaps the surviving spouse
death or injury, a carrier is presumed to have been at fault and heirs of the late Nicanor Navidad, this Court is
or been negligent, and8 by simple proof of injury, the concluded by the factual finding of the Court of Appeals that
passenger is relieved of the duty to still establish the fault or "there is nothing to link (Prudent) to the death of Nicanor
negligence of the carrier or of its employees and the burden (Navidad), for the reason that the negligence of its
shifts upon the carrier to prove that the injury is due to an employee, Escartin, has not been duly proven x x x." This
unforeseen event or to force majeure.9 In the absence of finding of the appellate court is not without substantial
satisfactory explanation by the carrier on how the accident justification in our own review of the records of the case.
occurred, which petitioners, according to the appellate
court, have failed to show, the presumption would be that it
has been at fault,10 an exception from the general rule that There being, similarly, no showing that petitioner Rodolfo
negligence must be proved.11 Roman himself is guilty of any culpable act or omission, he
must also be absolved from liability. Needless to say, the
contractual tie between the LRT and Navidad is not itself a
The foundation of LRTA’s liability is the contract of carriage juridical relation between the latter and Roman; thus,
and its obligation to indemnify the victim arises from the Roman can be made liable only for his own fault or
breach of that contract by reason of its failure to exercise the negligence.
high diligence required of the common carrier. In the
discharge of its commitment to ensure the safety of
passengers, a carrier may choose to hire its own employees The award of nominal damages in addition to actual
or avail itself of the services of an outsider or an damages is untenable. Nominal damages are adjudicated in
independent firm to undertake the task. In either case, the order that a right of the plaintiff, which has been violated or
common carrier is not relieved of its responsibilities under invaded by the defendant, may be vindicated or recognized,
the contract of carriage. and not for the purpose of indemnifying the plaintiff for any
loss suffered by him.18 It is an established rule that nominal
damages cannot co-exist with compensatory damages.19
Should Prudent be made likewise liable? If at all, that
liability could only be for tort under the provisions of Article
217612 and related provisions, in conjunction with Article WHEREFORE, the assailed decision of the appellate court
2180,13 of the Civil Code. The premise, however, for the is AFFIRMED with MODIFICATION but only in that (a) the
employer’s liability is negligence or fault on the part of the award of nominal damages is DELETED and (b) petitioner
employee. Once such fault is established, the employer can Rodolfo Roman is absolved from liability. No costs.
then be made liable on the basis of the presumption juris
tantum that the employer failed to exercise diligentissimi SO ORDERED.
patris families in the selection and supervision of its
employees. The liability is primary and can only be negated
by showing due diligence in the selection and supervision of
the employee, a factual matter that has not been shown.
Absent such a showing, one might ask further, how then
must the liability of the common carrier, on the one hand,
and an independent contractor, on the other hand, be
described? It would be solidary. A contractual obligation can
be breached by tort and when the same act or omission
causes the injury, one resulting in culpa contractual and the
other in culpa aquiliana, Article 219414 of the Civil Code can
well apply.15 In fine, a liability for tort may arise even under
a contract, where tort is that which breaches the
contract.16 Stated differently, when an act which constitutes
a breach of contract would have itself constituted the source
of a quasi-delictual liability had no contract existed between