G.R. No.
L-12219            March 15, 1918 In so doing the defendant assumed that the horseman would move
AMADO PICART, plaintiff-appellant,
vs.
FRANK SMITH, JR., defendant-appellee.
Alejo Mabanag for appellant.
G. E. Campbell for appellee.
STREET, J.:
In this action the plaintiff, Amado Picart, seeks to recover of the
defendant, Frank Smith, jr., the sum of P31,000, as damages alleged
to have been caused by an automobile driven by the defendant.
From a judgment of the Court of First Instance of the Province of La
Union absolving the defendant from liability the plaintiff has
appealed.
The occurrence which gave rise to the institution of this action took
place on December 12, 1912, on the Carlatan Bridge, at San
Fernando, La Union. It appears that upon the occasion in question
the plaintiff was riding on his pony over said bridge. Before he had
gotten half way across, the defendant approached from the opposite
direction in an automobile, going at the rate of about ten or twelve
miles per hour. As the defendant neared the bridge he saw a
horseman on it and blew his horn to give warning of his approach.
He continued his course and after he had taken the bridge he gave
two more successive blasts, as it appeared to him that the man on
horseback before him was not observing the rule of the road.
The plaintiff, it appears, saw the automobile coming and heard the
warning signals. However, being perturbed by the novelty of the
apparition or the rapidity of the approach, he pulled the pony closely
up against the railing on the right side of the bridge instead of going
to the left. He says that the reason he did this was that he thought he
did not have sufficient time to get over to the other side. The bridge is
shown to have a length of about 75 meters and a width of 4.80
meters. As the automobile approached, the defendant guided it
toward his left, that being the proper side of the road for the machine.
to the other side. The pony had not as yet exhibited fright, and the
rider had made no sign for the automobile to stop. Seeing that the
pony was apparently quiet, the defendant, instead of veering to the
right while yet some distance away or slowing down, continued to
approach directly toward the horse without diminution of speed.
When he had gotten quite near, there being then no possibility of the
horse getting across to the other side, the defendant quickly turned
his car sufficiently to the right to escape hitting the horse alongside of
the railing where it as then standing; but in so doing the automobile
passed in such close proximity to the animal that it became
frightened and turned its body across the bridge with its head toward
the railing. In so doing, it as struck on the hock of the left hind leg by
the flange of the car and the limb was broken. The horse fell and its
rider was thrown off with some violence. From the evidence adduced
in the case we believe that when the accident occurred the free
space where the pony stood between the automobile and the railing
of the bridge was probably less than one and one half meters. As a
result of its injuries the horse died. The plaintiff received contusions
which caused temporary unconsciousness and required medical
attention for several days.
The question presented for decision is whether or not the defendant
in maneuvering his car in the manner above described was guilty of
negligence such as gives rise to a civil obligation to repair the
damage done; and we are of the opinion that he is so liable. As the
defendant started across the bridge, he had the right to assume that
the horse and the rider would pass over to the proper side; but as he
moved toward the center of the bridge it was demonstrated to his
eyes that this would not be done; and he must in a moment have
perceived that it was too late for the horse to cross with safety in
front of the moving vehicle. In the nature of things this change of
situation occurred while the automobile was yet some distance away;
and from this moment it was not longer within the power of the
plaintiff to escape being run down by going to a place of greater
safety. The control of the situation had then passed entirely to the
defendant; and it was his duty either to bring his car to an immediate
stop or, seeing that there were no other persons on the bridge, to
take the other side and pass sufficiently far away from the horse to
avoid the danger of collision. Instead of doing this, the defendant ran
straight on until he was almost upon the horse. He was, we think,
deceived into doing this by the fact that the horse had not yet
exhibited fright. But in view of the known nature of horses, there was
an appreciable risk that, if the animal in question was unacquainted
with automobiles, he might get exited and jump under the conditions
which here confronted him. When the defendant exposed the horse
and rider to this danger he was, in our opinion, negligent in the eye of
the law.
The test by which to determine the existence of negligence in a
particular case may be stated as follows: Did the defendant in doing
the alleged negligent act use that person would have used in the
same situation? If not, then he is guilty of negligence. The law here in
effect adopts the standard supposed to be supplied by the imaginary
conduct of the discreet paterfamilias of the Roman law. The
existence of negligence in a given case is not determined by
reference to the personal judgment of the actor in the situation before
him. The law considers what would be reckless, blameworthy, or
negligent in the man of ordinary intelligence and prudence and
determines liability by that.
The question as to what would constitute the conduct of a prudent
man in a given situation must of course be always determined in the
light of human experience and in view of the facts involved in the
particular case. Abstract speculations cannot here be of much value
but this much can be profitably said: Reasonable men govern their
conduct by the circumstances which are before them or known to
them. They are not, and are not supposed to be, omniscient of the
future. Hence they can be expected to take care only when there is
something before them to suggest or warn of danger. Could a
prudent man, in the case under consideration, foresee harm as a
result of the course actually pursued? If so, it was the duty of the
actor to take precautions to guard against that harm. Reasonable
foresight of harm, followed by ignoring of the suggestion born of this
prevision, is always necessary before negligence can be held to
exist. Stated in these terms, the proper criterion for determining the
existence of negligence in a given case is this: Conduct is said to be
negligent when a prudent man in the position of the tortfeasor would
have foreseen that an effect harmful to another was sufficiently
probable to warrant his foregoing conduct or guarding against its
consequences.
Applying this test to the conduct of the defendant in the present case
we think that negligence is clearly established. A prudent man,
placed in the position of the defendant, would in our opinion, have
recognized that the course which he was pursuing was fraught with
risk, and would therefore have foreseen harm to the horse and the
rider as reasonable consequence of that course. Under these
circumstances the law imposed on the defendant the duty to guard
against the threatened harm.
It goes without saying that the plaintiff himself was not free from fault,
for he was guilty of antecedent negligence in planting himself on the
wrong side of the road. But as we have already stated, the defendant
was also negligent; and in such case the problem always is to
discover which agent is immediately and directly responsible. It will
be noted that the negligent acts of the two parties were not
contemporaneous, since the negligence of the defendant succeeded
the negligence of the plaintiff by an appreciable interval. Under these
circumstances the law is that the person who has the last fair chance
to avoid the impending harm and fails to do so is chargeable with the
consequences, without reference to the prior negligence of the other
party.
The decision in the case of Rkes vs. Atlantic, Gulf and Pacific Co. (7
Phil. Rep., 359) should perhaps be mentioned in this connection.
This Court there held that while contributory negligence on the part of
the person injured did not constitute a bar to recovery, it could be
received in evidence to reduce the damages which would otherwise
have been assessed wholly against the other party. The defendant
company had there employed the plaintiff, as a laborer, to assist in
transporting iron rails from a barge in Manila harbor to the company's
yards located not far away. The rails were conveyed upon cars which
were hauled along a narrow track. At certain spot near the water's
edge the track gave way by reason of the combined effect of the
weight of the car and the insecurity of the road bed. The car was in
consequence upset; the rails slid off; and the plaintiff's leg was
caught and broken. It appeared in evidence that the accident was
due to the effects of the typhoon which had dislodged one of the
supports of the track. The court found that the defendant company
was negligent in having failed to repair the bed of the track and also
that the plaintiff was, at the moment of the accident, guilty of
contributory negligence in walking at the side of the car instead of
being in front or behind. It was held that while the defendant was
liable to the plaintiff by reason of its negligence in having failed to
keep the track in proper repair nevertheless the amount of the
damages should be reduced on account of the contributory
negligence in the plaintiff. As will be seen the defendant's negligence
in that case consisted in an omission only. The liability of the
company arose from its responsibility for the dangerous condition of
its track. In a case like the one now before us, where the defendant
was actually present and operating the automobile which caused the
damage, we do not feel constrained to attempt to weigh the
negligence of the respective parties in order to apportion the damage
according to the degree of their relative fault. It is enough to say that
the negligence of the defendant was in this case the immediate and
determining cause of the accident and that the antecedent
negligence of the plaintiff was a more remote factor in the case.
A point of minor importance in the case is indicated in the special
defense pleaded in the defendant's answer, to the effect that the
subject matter of the action had been previously adjudicated in the
court of a justice of the peace. In this connection it appears that soon
after the accident in question occurred, the plaintiff caused criminal
proceedings to be instituted before a justice of the peace charging
the defendant with the infliction of serious injuries (lesiones graves).
At the preliminary investigation the defendant was discharged by the
magistrate and the proceedings were dismissed. Conceding that the
acquittal of the defendant at the trial upon the merits in a criminal
prosecution for the offense mentioned would be res adjudicata upon
the question of his civil liability arising from negligence -- a point
upon which it is unnecessary to express an opinion -- the action of
the justice of the peace in dismissing the criminal proceeding upon
the preliminary hearing can have no effect. (See U. S. vs. Banzuela
and Banzuela, 31 Phil. Rep., 564.)
From what has been said it results that the judgment of the lower
court must be reversed, and judgment is her rendered that the
plaintiff recover of the defendant the sum of two hundred pesos
(P200), with costs of other instances. The sum here awarded is
estimated to include the value of the horse, medical expenses of the
plaintiff, the loss or damage occasioned to articles of his apparel, and
lawful interest on the whole to the date of this recovery. The other
damages claimed by the plaintiff are remote or otherwise of such
character as not to be recoverable. So ordered.
G.R. No. 208293
PHILIPPINE NATIONAL BANK, Petitioner
vs.
CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L.
SANTOS, NONENG S. DIANCO, ET AL., Respondent
x-----------------------x
G.R. No. 208295
LINA B. AGUILAR, Petitioner
vs.
CARMELITA S. SANTOS, REYME L. SANTOS, ANGEL L.
SANTOS, BUENVENIDO L. SANTOS, ET AL., Respondents.
DECISION
LEONEN, J.:
The standard of diligence required of banks is higher than the degree
of diligence of a good father of a family. Respondents are children of
Angel C. Santos who died on March 21, 1991.1
Sometime in May 1996, respondents discovered that their father
maintained a premium savings account with Philippine National Bank
(PNB), Sta. Elena-Marikina City Branch.2 As of July 14, 1996, the
deposit amounted to 1,759,082.63.3 Later, respondents would
discover that their father also had a time deposit of 1,000,000.00 with
PNB.4
Respondents went to PNB to withdraw their father’s deposit. 5
Lina B. Aguilar, the Branch Manager of PNB-Sta. Elena-Marikina City
Branch, required them to submit the following: "(1) original or
certified true copy of the Death Certificate of Angel C. Santos; (2)
certificate of payment of, or exemption from, estate tax issued by the
Bureau of Internal Revenue (BIR); (3) Deed of Extrajudicial
Settlement; (4) Publisher’s Affidavit of publication of the Deed of
Extrajudicial Settlement; and (5) Surety bond effective for two (2)
years and in an amount equal to the balance of the deposit to be
withdrawn."6
By April 26, 1998, respondents had already obtained the necessary
documents.7 They tried to withdraw the deposit.8 However, Aguilar
informed them that the deposit had already "been released to a
certain Bernardito Manimbo (Manimbo) on April 1, 1997." 9 An
amount of 1,882,002.05 was released upon presentation of: (a) an
affidavit of selfadjudication purportedly executed by one of the
respondents, Reyme L. Santos; (b) a certificate of time deposit dated
December 14, 1989 amounting to 1,000,000.00; and (c) the death
certificate of Angel C. Santos, among others. 10 A special power of
attorney was purportedly executed by Reyme L. Santos in favor of
Manimbo and a certain Angel P. Santos for purposes of withdrawing
and receiving the proceeds of the certificate of time deposit. 11
On May 20, 1998, respondents filed before the Regional Trial Court
of Marikina City a complaint for sum of money and damages against
PNB, Lina B. Aguilar, and a John Doe.12 Respondents questioned
the release of the deposit amount to Manimbo who had no authority
from them to withdraw their father’s deposit and who failed to present
to PNB all the requirements for such withdrawal. 13 Respondents
prayed that they be paid: (a) the premium deposit amount; (b) the
certificate of time deposit amount; and (c) moral and exemplary
damages, attorney’s fees, and costs of suit.14
PNB and Aguilar denied that Angel C. Santos had two separate
accounts (premium deposit account and time deposit account) with
PNB.15 They alleged that Angel C. Santos’ deposit account was
originally a time deposit account that was subsequently converted
into a premium savings account.16 They also alleged that Aguilar did
not know about Angel C. Santos’ death in 1991 because she only
assumed office in 1996.17 Manimbo was able to submit an affidavit of
self-adjudication and the required surety bond. 18 He also submitted a
certificate of payment of estate tax dated March 31, 1997. 19 All
documents he submitted appeared to be regular.20
PNB and Aguilar filed a third-party complaint against Manimbo,
Angel P. Santos, and Capital Insurance and Surety Co., Inc. 21
Angel P. Santos denied having anything to do with the special power
of attorney and affidavit of self-adjudication presented by
Manimbo.22 He also alleged that Manimbo presented the certificate of
time deposit without his knowledge and consent.23
Capital Insurance and Surety Co., Inc. alleged that its undertaking
was to pay claims only when persons who were unduly deprived of
their lawful participation in the estate filed an action in court for their
claims.24 It did not undertake to pay claims resulting from PNB’s
negligence.25
In the decision26 dated February 22, 2011, the trial court held that
PNB and Aguilar were jointly and severally liable to pay respondents
the amount of 1,882,002.05 with an interest rate of 6% starting May
20, 1998.27 PNB and Aguilar were also declared jointly and severally
liable for moral and exemplary damages, attorney’s fees, and costs
of suit.28 Manimbo, Angel P. Santos, and Capital Insurance and
Surety Co., Inc. were held jointly and severally liable to pay PNB
1,877,438.83 pursuant to the heir’s bond and 50,000.00 as attorney’s
fees and the costs of suit. 29 The dispositive portion of the trial court’s
decision reads:
WHEREFORE, foregoing premises considered, judgment is hereby
rendered as follows:
1. ordering the defendants PNB and LINA B. AGUILAR jointly and
severally liable to pay the plaintiffs the amount of P1,882,002.05,
representing the face value of PNB Manager’s Check No. AF-
974686B as balance of the total deposits of decedent Angel C.
Santos at the time of its issue, with interest thereon at the rate of 6%
starting on May 20, 1998, the date when the complaint was filed, until
fully paid;
2. ordering both defendants jointly and severally liable to pay
plaintiffs the amount of Php 100,000.00 as moral damages, another
Php100,000.00 as exemplary damages and Php 50,000.00 as
attorney’s fees and the costs of suit;
On the Third party complaint:
3. Ordering the third party defendants Bernardito P. Manimbo, Angel
P. Santos and Capital Insurance & Surety Co., Inc., jointly and
severally liable to pay third party plaintiff PNB, the amount of Php
1,877,438.83 pursuant to the Heir’s Bond and the amount of Php
50,000.00 as attorney’s fees and the costs of suit.
SO ORDERED.30
The trial court found that Angel C. Santos had only one account with
PNB.31 The account was originally a time deposit, which was
converted into a premium savings account when it was not renewed
on maturity.32 The trial court took judicial notice that in 1989,
automatic rollover of time deposit was not yet prevailing.33
On the liability of PNB and Aguilar, the trial court held that they were
both negligent in releasing the deposit to Manimbo. 34 The trial court
noted PNB’s failure to notify the depositor about the maturity of the
time deposit and the conversion of the time deposit into a premium
savings account.35 The trial court also noted PNB’s failure to cancel
the certificate of time deposit despite conversion. 36 PNB and Aguilar
also failed to require the production of birth certificates to prove
claimants’ relationship to the depositor. 37 Further, they relied on the
affidavit of self-adjudication when several persons claiming to be
heirs had already approached them previously.38
Aguilar filed a motion for reconsideration 39 of the February 22, 2011
Regional Trial Court decision. This was denied in the June 21, 2011
Regional Trial Court order.40
PNB and Aguilar appealed before the Court of Appeals. 41
Aguilar contended that she was not negligent and should not have
been made jointly and severally liable with PNB. 42 She merely
implemented PNB’s Legal Department’s directive to release the
deposit to Manimbo.43
PNB argued that it was not negligent. 44 The release of the deposit to
Manimbo was pursuant to an existing policy.45 Moreover, the
documents submitted by Manimbo were more substantial than those
submitted by respondents.46 Respondents could have avoided the
incident "had they accomplished the required documents
immediately."47
In the decision48 promulgated on July 25, 2013, the Court of Appeals
sustained the trial court’s finding that there was only one
account.49 Angel C. Santos could not have possibly opened the
premium savings account in 1994 since he already died in
1991.50 The Court of Appeals also held that PNB and Aguilar were
negligent in handling the deposit.51 The deposit amount was released
to Manimbo who did not present all the requirements, particularly the
Bureau of Internal Revenue (BIR) certification that estate taxes had
already been paid.52 They should also not have honored the
affidavit of self-adjudication.53
The Court of Appeals ruled that Aguilar could not escape liability by
pointing her finger at PNB’s Legal Department. 54 As the Bank
Manager, she should have given the Legal Department all the
necessary information that must be known in order to protect both
the depositors’ and the bank’s interests.55
The Court of Appeals removed the award of exemplary damages,
upon finding that there was no malice or bad faith. 56
The Court of Appeals considered the deposit as an ordinary loan by
the bank from Angel C. Santos or his heirs. 57 Therefore, the deposit
was a forbearance which should earn an interest of 12% per
annum.58 The dispositive portion of the Court of Appeals’ decision
reads:
WHEREFORE, premises considered, the assailed decision of the
court a quo dated February 22, 2011 is AFFIRMED with
the MODIFICATIONS in that the rate of interest shall be twelve
percent (12%) per annum computed from the filing of the case until
fully satisfied. The interest due shall further earn an interest of
12% per annum to be computed from the date of the filing of the
complaint until fully paid. Meanwhile, the award of exemplary
damages is DELETED.
SO ORDERED.59
PNB and Aguilar filed their separate petitions for review of the Court
of Appeals’ July 25, 2013 decision.60
We resolve the following issues:
I. Whether Philippine National Bank was negligent in releasing the
deposit to Bernardito Manimbo;
II. Whether Lina B. Aguilar is jointly and severally liable with
Philippine National Bank for the release of the deposit to Bernardito
Manimbo; and
III. Whether respondents were properly awarded damages.
Petitioner Aguilar argued that the Court of Appeals had already found
no malice or bad faith on her part. 61 Moreover, as a mere officer of
the bank, she cannot be made personally liable for acts that she was
authorized to do.62 These acts were mere directives to her by her
superiors.63 Hence, she should not be held solidarily liable with
PNB.64
Petitioner PNB argued that it was the presumptuousness and
cavalier attitude of respondents that gave rise to the controversy and
not its judgment call.65 Respondents were lacking in sufficient
documentation.66 Petitioner PNB also argued that respondents failed
to show any justification for the award of moral damages. 67 No bad
faith can be attributed to Aguilar.68
In their separate comments to the petitions, respondents argued that
the trial court and the Court of Appeals did not err in finding that
petitioners PNB and Aguilar were negligent in handling their father’s
deposit.69 The acceptance of invalid and incomplete documents to
support the deposit’s release to Manimbo was a violation of the
bank’s fiduciary duty to its clients. 70 These acts constituted gross
negligence on the part of petitioners PNB and Aguilar. 71
However, according to respondents, the Court of Appeals erred in
deleting the award for exemplary damages because the acts in
violation of the bank’s fiduciary were done in bad faith. 72
We rule for the respondents.
The trial court and the Court of Appeals correctly found that
petitioners PNB and Aguilar were negligent in handling the deposit of
Angel C. Santos.
The contractual relationship between banks and their depositors is
governed by the Civil Code provisions on simple loan. 73 Once a
person makes a deposit of his or her money to the bank, he or she is
considered to have lent the bank that money.74 The bank becomes
his or her debtor, and he or she becomes the creditor of the bank,
which is obligated to pay him or her on demand.75
The default standard of diligence in the performance of obligations is
"diligence of a good father of a family." Thus, the Civil Code
provides:
ART. 1163. Every person obliged to give something is also obliged
to take care of it with the proper diligence of a good father of a family,
unless the law or the stipulation of the parties requires another
standard of care.
....
ART. 1173. The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the
obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the
provisions of articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be
observed in the performance, that which is expected of a good father
of a family shall be required. (Emphasis supplied)
"Diligence of a good father of a family" is the standard of diligence
expected of, among others,
usufructuaries,76 passengers of common
carriers,77 agents,78 depositaries,79 pledgees,80 officious
managers,81 and persons deemed by law as responsible for the acts
of others.82 "The diligence of a good father of a family requires only
that diligence which an ordinary prudent man would exercise with
regard to his own property.83
Other industries, because of their nature, are bound by law to
observe higher standards of diligence. Common carriers, for
example, must observe "extraordinary diligence in the vigilance over
the goods and for the safety of [their] passengers" 84 because it is
considered a business affected with public interest. "Extraordinary
diligence" with respect to passenger safety is further qualified as
"carry[ing] 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."85
Similar to common carriers, banking is a business that is impressed
with public interest. It affects economies and plays a significant role
in businesses and commerce.86 The public reposes its faith and
confidence upon banks, such that "even the humble wage-earner
has not hesitated to entrust his life’s savings to the bank of his
choice, knowing that they will be safe in its custody and will even
earn some interest for him." 87 This is why we have recognized the
fiduciary nature of the banks’ functions, and attached a special
standard of diligence for the exercise of their functions.
In Simex International (Manila), Inc. v. Court of Appeals,88 this court
described the nature of banks’ functions and the attitude expected of
banks in handling their depositors’ accounts, thus:
In every case, the depositor expects the bank to treat his account
with the utmost fidelity, whether such account consists only of a few
hundred pesos or of millions. . . .
The point is that as a business affected with public interest and
because of the nature of its functions, the bank is under obligation to
treat the accounts of its depositors with  meticulous care, always
having in mind the fiduciary nature of their relationship.89 (Emphasis
supplied)
The fiduciary nature of banking is affirmed in Republic Act No. 8791
or The General Banking Law, thus:
SEC. 2. Declaration of Policy.—The State recognizes the vital role of
banks in providing an environment conducive to the sustained
development of the national economy and the fiduciary nature of
banking that requires high standards of integrity and performance. In
furtherance thereof, the State shall promote and maintain a stable
and efficient banking and financial system that is globally
competitive, dynamic and responsive to the demands of a developing
economy. (Emphasis supplied)
In The Consolidated Bank and Trust Corporation v. Court of
Appeals,90 this court explained the meaning of fiduciary relationship
and the standard of diligence assumed by banks:
This fiduciary relationship means that the bank’s obligation to
observe "high standards of integrity and performance" is deemed
written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father of a family.
Article 1172 of the Civil Code states that the degree of diligence
required of an obligor is that prescribed by law or contract, and 1. Death certificate of Angel C. Santos;
absent such stipulation then the diligence of a good father of a
family.91 (Emphasis supplied, citation omitted) 2. Birth certificate of Reyme L. Santos;

Petitioners PNB and Aguilar’s treatment of Angel C. Santos’ account 3. Affidavit of self-adjudication of Reyme L. Santos;
is inconsistent with the high standard of diligence required of banks.
They accepted Manimbo’s representations despite knowledge of the 4. Affidavit of publication;
existence of circumstances that should have raised doubts on such
representations. As a result, Angel C. Santos’ deposit was given to a
person stranger to him. 5. Special power of attorney that Reyme L. Santos executed in favor
of Bernardito Manimbo and Angel P. Santos;
Petitioner PNB pointed out that since petitioner Aguilar assumed
office as PNB-Sta. Elena-Marikina City Branch Manager only five (5) 6. Personal items of Angel C. Santos, such as photocopies or
years from Angel C. Santos’ death, she was not in the position to originals of passport, residence certificate for year 1990, SSS I.D.,
know that respondents were the heirs of Angel C. Santos. 92 She etc.;
could not have accepted the unsigned and unnotarized extrajudicial
settlement deed that respondents had first showed her. 93 She was 7. Surety good for two (2) years; and
not competent to make a conclusion whether that deed was
genuine.94 Neither could petitioners PNB and Aguilar pass judgment 8. Certificate of Time Deposit No. 341306.97
on a letter from respondents’ lawyer stating that respondents were
the nine heirs of Angel C. Santos. 95 Petitioners PNB and Aguilar’s Based on these enumerations, petitioners PNB and Aguilar either
negligence is not based on their failure to accept respondents’ have no fixed standards for the release of their deceased clients’
documents as evidence of their right to claim Angel C. Santos’ deposits or they have standards that they disregard for convenience,
deposit. Rather, it is based on their failure to exercise the diligence favor, or upon exercise of discretion. Both are inconsistent with the
required of banks when they accepted the fraudulent representations required diligence of banks. These threaten the safety of the
of Manimbo. Petitioners PNB and Aguilar disregarded their own depositors’ accounts as they provide avenues for fraudulent
requirements for the release of the deposit to persons claiming to be practices by third persons or by bank officers themselves.
heirs of a deceased depositor. When respondents asked for the
release of Angel C. Santos’ deposit, they were required to present
In this case, petitioners PNB and Aguilar released Angel C. Santos’
the following: "(1) original or certified true copy of the Death
deposit to Manimbo without having been presented the BIR-issued
Certificate of Angel C. Santos; (2) certificate of payment of, or
certificate of payment of, or exception from, estate tax. This is a legal
exemption from, estate tax issued by the Bureau of Internal Revenue
requirement before the deposit of a decedent is released.
(BIR); (3) Deed of Extrajudicial Settlement; (4) Publisher’s Affidavit of
Presidential Decree No. 1158,98 the tax code applicable when Angel
publication of the Deed of Extrajudicial Settlement; and (5) Surety
C. Santos died in 1991, provides:
bond effective for two (2) years and in an amount equal to the
balance of the deposit to be withdrawn."96
SEC. 118. Payment of tax antecedent to the transfer of shares,
bonds, or rights. — There shall not be transferred to any new owner
Petitioners PNB and Aguilar, however, accepted Manimbo’s
in the books of any corporation, sociedad anonima, partnership,
representations, and they released Angel C. Santos’ deposit based
business, or industry organized or established in the Philippines, any
on only the following documents:
shares, obligations, bonds or rights by way of gift inter vivos or mortis
causa, legacy, or inheritance unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have
been paid is shown.
If a bank has knowledge of the death of a person who maintained a
bank deposit account alone, or jointly with another, it shall not allow
any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon by this
Title have been paid; Provided, however, That the administrator of
the estate or any one of the heirs of the decedent may upon
authorization by the Commissioner of Internal Revenue, withdraw an
amount not exceeding 10,000 without the said certification. For this
purpose, all withdrawal slips shall contain a statement to the effect
that all of the joint depositors are still living at the time of withdrawal
by any one of the joint depositors and such statement shall be under
oath by the said depositors.99 (Emphasis supplied)
This provision was reproduced in Section 97 of the 1997 National
Internal Revenue Code, thus:
SEC. 97. Payment of Tax Antecedent to the Transfer of Shares,
Bonds or Rights. - There shall not be transferred to any new owner in
the books of any corporation, sociedad anonima, partnership,
business, or industry organized or established in the Philippines any
share, obligation, bond or right by way of gift inter vivos or mortis
causa, legacy or inheritance, unless a certification from the
Commissioner that the taxes fixed in this Title and due thereon have
been paid is shown.
If a bank has knowledge of the death of a person, who maintained a
bank deposit account alone, or jointly with another, it shall not allow
any withdrawal from the said deposit account, unless the
Commissioner has certified that the taxes imposed thereon by this
Title have been paid: Provided, however, That the administrator of
the estate or any one (1) of the heirs of the decedent may, upon
authorization by the Commissioner, withdraw an amount not
exceeding Twenty thousand pesos (20,000) without the said
certification. For this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors are still living at
the time of withdrawal by any one of the joint depositors and such
statement shall be under oath by the said depositors. (Emphasis
supplied)
Taxes are created primarily to generate revenues for the
maintenance of the government. However, this particular tax may
also serve as guard against the release of deposits to persons who
have no sufficient and valid claim over the deposits. Based on the
assumption that only those with sufficient and valid claim to the
deposit will pay the taxes for it, requiring the certificate from the BIR
increases the chance that the deposit will be released only to them.
In their compulsory counterclaim, 100 petitioners PNB and Aguilar
claimed that Manimbo presented a certificate of payment of estate
tax.101 During trial, however, it turned out that this certificate was
instead an authority to accept payment, which is not the certificate
required for the release of bank deposits. 102 It appears that Manimbo
was not even required to submit the BIR certificate. 103 He, thus, failed
to present such certificate. Petitioners PNB and Aguilar provided no
satisfactory explanation why Angel C. Santos’ deposit was released
without it.
Petitioners PNB and Aguilar’s negligence is also clear when they
accepted as bases for the release of the deposit to Manimbo: (a) a
mere photocopy of Angel C. Santos’ death certificate; 104 (b) the
falsified affidavit of self-adjudication and special power of attorney
purportedly executed by Reyme L. Santos;105 and (c) the certificate of
time deposit.106
Petitioner Aguilar was aware that there were other claimants to Angel
C. Santos’ deposit. Respondents had already communicated with
petitioner Aguilar regarding Angel C. Santos’ account before
Manimbo appeared. Petitioner Aguilar even gave respondents the
updated passbook of Angel C. Santos’ account. 107 Yet, petitioners
PNB and Aguilar did not think twice before they released the deposit
to Manimbo. They did not doubt why no original death certificate
could be submitted. They did not doubt why Reyme L. Santos would
execute an affidavit of self-adjudication when he, together with
others, had previously asked for the release of Angel C. Santos’
deposit. They also relied on the certificate of time deposit and on
Manimbo’s representation that the passbook was lost when the
passbook had just been previously presented to Aguilar for
updating.108
During the trial, petitioner PNB’s counsel only reasoned that the
photocopy of the death certificate was also submitted with other
documents, which led him to no other conclusion than that Angel C.
Santos was already dead.109 On petitioners PNB and Aguilar’s
reliance special power of attorney allegedly executed by Reyme L.
Santos, Aguilar admitted that she did not contact Reyme L. Santos
for verification. Her reason was that Reyme L. Santos was their
client. Therefore, they had no obligation to do so. 110
Given the circumstances, "diligence of a good father of a family"
would have required petitioners PNB and Aguilar to verify. A prudent
man would have inquired why Reyme L. Santos would issue an
affidavit of selfadjudication when others had also claimed to be heirs
of Angel C. Santos. Contrary to petitioner Aguilar’s reasoning, the
fact that Reyme L. Santos was not petitioner PNB’s client should
have moved her to take measures to ensure the veracity of
Manimbo’s documents and representations. This is because she had
no previous knowledge of Reyme L. Santos his representatives, and
his signature.
Petitioner PNB is a bank from which a degree of diligence higher
than that of a good father of a family is expected. Petitioner PNB and
its manager, petitioner Aguilar, failed to meet even the standard of
diligence of a good father of a family. Their actions and inactions
constitute gross negligence. It is for this reason that we sustain the
trial court’s and the Court of Appeals’ rulings that petitioners PNB
and Aguilar are solidarily liable with each other. 111
For the same reason, we sustain the award for moral damages.
Petitioners PNB and Aguilar’s gross negligence deprived Angel C.
Santos’ heirs what is rightfully theirs. Respondents also testified that
they experienced anger and embarrassment when petitioners PNB
and Aguilar refused to release Angel C. Santos’ deposit. 112 "The
bank’s negligence was the result of lack of due care and caution
required of managers and employees of a firm engaged in so
sensitive and demanding business as banking."113
Exemplary damages should also be awarded. "The law allows the
grant of exemplary damages by way of example for the public good.
The public relies on the banks’ sworn profession of diligence and
meticulousness in giving irreproachable service. The level of
meticulousness must be maintained at all times by the banking
sector."114
Since exemplary damages are awarded and since respondents were
compelled to litigate to protect their interests, 115 the award of
attorney’s fees is also proper.
The Court of Appeals' award of interest should be modified to 12%
from demand on April 26, 1998 until June 30, 2013, and 6% from
July I, 2013 until fully paid. In Nacar v. Gallery Frames:116
Thus, from the foregoing, in the absence of an express stipulation as
to the rate of interest that would govern the parties, the rate of legal
interest for loans or forbearance of any money. . . s.hall no longer be
twelve percent (12%) per annum ... but will now be six percent
(6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that. .. the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the
new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable.
....
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 6% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand ...
....
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 6% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of
credit.117
WHEREFORE, the Court of Appeals' decision dated July 25, 2013
is AFFIRMED with the MODIFICATIONS in that petitioners Philippine
National Bank and Lina B. Aguilar are ordered solidarily liable to pay
respondents Pl 00,000.00 as exemplary damages. Further, the
interest rate for the amount of Pl,882,002.05, representing the face
value of PNB Manager's Check No. AF-974686B is modified to 12%
from April 26, 1998 until June 30, 2013, and 6% from July 1, 2013
until satisfaction. All monetary awards shall then earn interest at the
rate of 6% per annum from finality of the decision until full
satisfaction.
G.R. No. L-15645             January 31, 1964
PAZ P. ARRIETA and VITALIADO ARRIETA, plaintiffs-appellees,
vs.
NATIONAL RICE AND CORN CORPORATION, defendant-
appellant,
MANILA UNDERWRITERS INSURANCE CO., INC., defendant-
appellee.
Teehankee and Carreon for plaintiffs-appellees.
The Government Corporate Counsel for defendant-appellant.
Isidro A. Vera for defendant-appellee.
REGALA, J.:
This is an appeal of the defendant-appellant NARIC from the
decision of the trial court dated February 20, 1958, awarding to the
plaintiffs-appellees the amount of $286,000.00 as damages for
breach of contract and dismissing the counterclaim and third party
complaint of the defendant-appellant NARIC.
In accordance with Section 13 of Republic Act No. 3452, "the
National Rice and Corn Administration (NARIC) is hereby abolished
and all its assets, liabilities, functions, powers which are not
inconsistent with the provisions of this Act, and all personnel are
transferred "to the Rice and Corn Administration (RCA).
All references, therefore, to the NARIC in this decision must
accordingly be adjusted and read as RCA pursuant to the
aforementioned law.
On May 19, 1952, plaintiff-appellee participated in the public bidding
called by the NARIC for the supply of 20,000 metric tons of Burmese
rice. As her bid of $203.00 per metric ton was the lowest, she was
awarded the contract for the same. Accordingly, on July 1, 1952,
plaintiff-appellee Paz P. Arrieta and the appellant corporation entered
into a Contract of Sale of Rice, under the terms of which the former
obligated herself to deliver to the latter 20,000 metric tons of
Burmess Rice at $203.00 per metric ton, CIF Manila. In turn, the
defendant corporation committed itself to pay for the imported rice
"by means of an irrevocable, confirmed and assignable letter of
credit in U.S. currency in favor of the plaintiff-appellee and/or supplier
in Burma, immediately." Despite the commitment to pay immediately
"by means of an irrevocable, confirmed and assignable Letter of
Credit," however, it was only on July 30, 1952, or a full month from
the execution of the contract, that the defendant corporation, thru its
general manager, took the first to open a letter of credit by forwarding
to the Philippine National Bank its Application for Commercial Letter
Credit. The application was accompanied by a transmittal letter, the
relevant paragraphs of which read:
In view of the fact that we do not have sufficient deposit with
your institution with which to cover the amount required to be
deposited as a condition for the opening of letters of credit,
we will appreciate it if this application could be considered
special case.
 We understand that our supplier, Mrs. Paz P. Arrieta, has a
deadline to meet which is August 4, 1952, and in order to
comply therewith, it is imperative that the L/C be opened
prior to that date. We would therefore request your full
cooperation on this matter.
On the same day, July 30, 1952, Mrs. Paz P. Arrieta thru counsel,
advised the appellant corporation of the extreme necessity for the
immediate opening of the letter credit since she had by then made a
tender to her supplier in Rangoon, Burma, "equivalent to 5% of the
F.O.B. price of 20,000 tons at $180.70 and in compliance with the
regulations in Rangoon this 5% will be confiscated if the required
letter of credit is not received by them before August 4, 1952."
On August 4, 1952, the Philippine National Bank informed the
appellant corporation that its application, "for a letter of credit for
$3,614,000.00 in favor of Thiri Setkya has been approved by the
Board of Directors with the condition that marginal cash deposit be
paid and that drafts are to be paid upon presentment." (Exh. J-pl.;
Exh. 10-def., p. 19, Folder of Exhibits). Furthermore, the Bank
represented that it "will hold your application in abeyance pending
compliance with the above stated requirement."
As it turned out, however, the appellant corporation not in any
financial position to meet the condition. As matter of fact, in a letter
dated August 2, 1952, the NARIC bluntly confessed to the appellee
its dilemma: "In this connection, please be advised that our
application for opening of the letter of credit has been presented to
the bank since July 30th but the latter requires that we first deposit
50% of the value of the letter amounting to aproximately
$3,614,000.00 which we are not in a position to meet." (Emphasis
supplied. Exh. 9-Def.; Exh. 1-Pe., p. 18, Folder of Exhibits)
Consequently, the credit instrument applied for was opened only on
September 8, 1952 "in favor of Thiri Setkya, Rangoon, Burma, and/or
assignee for $3,614,000.00," (which is more than two months from
the execution of the contract) the party named by the appellee as
beneficiary of the letter of credit.1äwphï1.ñët
As a result of the delay, the allocation of appellee's supplier in
Rangoon was cancelled and the 5% deposit, amounting to 524,000
kyats or approximately P200,000.00 was forfeited. In this connection,
it must be made of record that although the Burmese authorities had
set August 4, 1952, as the deadline for the remittance of the required
letter of credit, the cancellation of the allocation and the confiscation
of the 5% deposit were not effected until August 20, 1952, or, a full
half month after the expiration of the deadline. And yet, even with the
15-day grace, appellant corporation was unable to make good its
commitment to open the disputed letter of credit.
The appellee endeavored, but failed, to restore the cancelled
Burmese rice allocation. When the futility of reinstating the same
became apparent, she offered to substitute Thailand rice instead to
the defendant NARIC, communicating at the same time that the offer
was "a solution which should be beneficial to the NARIC and to us at
the same time." (Exh. X-Pe., Exh. 25—Def., p. 38, Folder of
Exhibits). This offer for substitution, however, was rejected by the
appellant in a resolution dated November 15, 1952.
On the foregoing, the appellee sent a letter to the appellant,
demanding compensation for the damages caused her in the sum of
$286,000.00, U.S. currency, representing unrealized profit. The
demand having been rejected she instituted this case now on appeal.
At the instance of the NARIC, a counterclaim was filed and the
Manila Underwriters Insurance Company was brought to the suit as a
third party defendant to hold it liable on the performance bond it
executed in favor of the plaintiff-appellee.
We find for the appellee.
It is clear upon the records that the sole and principal reason for the
cancellation of the allocation contracted by the appellee herein in
Rangoon, Burma, was the failure of the letter of credit to be opened
with the contemplated period. This failure must, therefore, be taken
as the immediate cause for the consequent damage which resulted.
As it is then, the disposition of this case depends on a determination
of who was responsible for such failure. Stated differently, the issue
is whether appellant's failure to open immediately the letter of credit
in dispute amounted to a breach of the contract of July 1, 1952 for
which it may be held liable in damages.
Appellant corporation disclaims responsibility for the delay in the
opening of the letter of credit. On the contrary, it insists that the fault
lies with the appellee. Appellant contends that the disputed
negotiable instrument was not promptly secured because the
appellee , failed to seasonably furnish data necessary and required
for opening the same, namely, "(1) the amount of the letter of credit,
(2) the person, company or corporation in whose favor it is to be
opened, and (3) the place and bank where it may be negotiated."
Appellant would have this Court believe, therefore, that had these
informations been forthwith furnished it, there would have been no
delay in securing the instrument.
Appellant's explanation has neither force nor merit. In the first place,
the explanation reaches into an area of the proceedings into which
We are not at liberty to encroach. The explanation refers to a
question of fact. Nothing in the record suggests any arbitrary or
abusive conduct on the part of the trial judge in the formulation of the
ruling. His conclusion on the matter is sufficiently borne out by the
evidence presented. We are denied, therefore, the prerogative to
disturb that finding, consonant to the time-honored tradition of this
Tribunal to hold trial judges better situated to make conclusions on
questions of fact. For the record, We quote hereunder the lower
court's ruling on the point:
The defense that the delay, if any in opening the letter of
credit was due to the failure of plaintiff to name the supplier,
the amount and the bank is not tenable. Plaintiff stated in
Court that these facts were known to defendant even before
the contract was executed because these facts were
necessarily revealed to the defendant before she could
qualify as a bidder. She stated too that she had given the
necessary data immediately after the execution of Exh. "A"
(the contract of July 1, 1952) to Mr. GABRIEL BELMONTE,
General Manager of the NARIC, both orally and in writing
and that she also pressed for the opening of the letter of
credit on these occasions. These statements have not been
controverted and defendant NARIC, notwithstanding its
previous intention to do so, failed to present Mr. Belmonte to
testify or refute this. ...
Secondly, from the correspondence and communications which form
part of the record of this case, it is clear that what singularly delayed
the opening of the stipulated letter of credit and which, in turn,
caused the cancellation of the allocation in Burma, was the inability
of the appellant corporation to meet the condition importation by the
Bank for granting the same. We do not think the appellant
corporation can refute the fact that had it been able to put up the
50% marginal cash deposit demanded by the bank, then the letter of
credit would have been approved, opened and released as early as
August 4, 1952. The letter of the Philippine National Bank to the
NARIC was plain and explicit that as of the said date, appellant's
"application for a letter of credit ... has been approved by the Board
of Directors with the condition that 50% marginal cash deposit be
paid and that drafts are to be paid upon presentment." (Emphasis
supplied)
The liability of the appellant, however, stems not alone from this
failure or inability to satisfy the requirements of the bank. Its
culpability arises from its willful and deliberate assumption of
contractual obligations even as it was well aware of its financial
incapacity to undertake the prestation. We base this judgment upon
the letter which accompanied the application filed by the appellant
with the bank, a part of which letter was quoted earlier in this
decision. In the said accompanying correspondence, appellant
admitted and owned that it did "not have sufficient deposit with your
institution (the PNB) with which to cover the amount required to be
deposited as a condition for the opening of letters of credit. ... .
A number of logical inferences may be drawn from the
aforementioned admission. First, that the appellant knew the bank
requirements for opening letters of credit; second, that appellant also
knew it could not meet those requirement. When, therefore, despite
this awareness that was financially incompetent to open a letter of
credit immediately, appellant agreed in paragraph 8 of the contract to
pay immediately "by means of an irrevocable, confirm and
assignable letter of credit," it must be similarly held to have bound
itself to answer for all and every consequences that would result from
the representation. aptly observed by the trial court:
... Having called for bids for the importation of rice involving
millions, $4,260,000.00 to be exact, it should have a
certained its ability and capacity to comply with the inevitably
requirements in cash to pay for such importation. Having
announced the bid, it must be deemed to have impliedly
assured suppliers of its capacity and facility to finance the
importation within the required period, especially since it had
imposed the supplier the 90-day period within which the
shipment of the rice must be brought into the Philippines.
Having entered in the contract, it should have taken steps
immediately to arrange for the letter of credit for the large
amount involved and inquired into the possibility of its
issuance.
In relation to the aforequoted observation of the trial court, We would
like to make reference also to Article 11 of the Civil Code which
provides:
Those who in the performance of their obligation are guilty of
fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable in damages.
Under this provision, not only debtors guilty of fraud, negligence or
default in the performance of obligations a decreed liable; in general,
every debtor who fails in performance of his obligations is bound to
indemnify for the losses and damages caused thereby (De la Cruz
Seminary of Manila, 18 Phil. 330; Municipality of Moncada v.
Cajuigan, 21 Phil. 184; De la Cavada v. Diaz, 37 Phil. 982; Maluenda
& Co. v. Enriquez, 46 Phil. 916; Pasumil v. Chong, 49 Phil. 1003;
Pando v. Gimenez, 54 Phil. 459; Acme Films v. Theaters Supply, 63
Phil. 657). The phrase "any manner contravene the tenor" of the
obligation includes any illicit act which impairs the strict and faithful
fulfillment of the obligation or every kind or defective performance.
(IV Tolentino, Civil Code of the Philippines, citing authorities, p. 103.)
The NARIC would also have this Court hold that the subsequent offer
to substitute Thailand rice for the originally contracted Burmese rice
amounted to a waiver by the appellee of whatever rights she might
have derived from the breach of the contract. We disagree. Waivers
are not presumed, but must be clearly and convincingly shown,
either by express stipulation or acts admitting no other reasonable
explanation. (Ramirez v. Court of Appeals, 52 O.G. 779.) In the case
at bar, no such intent to waive has been established.
We have carefully examined and studied the oral and documentary
evidence presented in this case and upon which the lower court
based its award. Under the contract, the NARIC bound itself to buy
20,000 metric tons of Burmese rice at "$203.00 U.S. Dollars per
metric ton, all net shipped weight, and all in U.S. currency, C.I.F.
Manila ..." On the other hand, documentary and other evidence
establish with equal certainty that the plaintiff-appellee was able to
secure the contracted commodity at the cost price of $180.70 per
metric ton from her supplier in Burma. Considering freights,
insurance and charges incident to its shipment here and the
forfeiture of the 5% deposit, the award granted by the lower court is
fair and equitable. For a clearer view of the equity of the damages
awarded, We reproduce below the testimony of the appellee,
adequately supported by the evidence and record:
Q. Will you please tell the court, how much is the damage
you suffered?
A. Because the selling price of my rice is $203.00 per metric
ton, and the cost price of my rice is $180.00 We had to pay
also $6.25 for shipping and about $164 for insurance. So
adding the cost of the rice, the freight, the insurance, the
total would be about $187.99 that would be $15.01 gross
profit per metric ton, multiply by 20,000 equals $300,200,
that is my supposed profit if I went through the contract.
The above testimony of the plaintiff was a general approximation of
the actual figures involved in the transaction. A precise and more
exact demonstration of the equity of the award herein is provided by
Exhibit HH of the plaintiff and Exhibit 34 of the defendant, hereunder
quoted so far as germane.
It is equally of record now that as shown in her request dated
July 29, 1959, and other communications subsequent
thereto for the opening by your corporation of the required
letter of credit, Mrs. Arrieta was supposed to pay her supplier
in Burma at the rate of One Hundred Eighty Dollars and
Seventy Cents ($180.70) in U.S. Currency, per ton plus Eight
Dollars ($8.00) in the same currency per ton for shipping and
other handling expenses, so that she is already assured of a
net profit of Fourteen Dollars and Thirty Cents ($14.30),
U.S., Currency, per ton or a total of Two Hundred and Eighty
Six Thousand Dollars ($286,000.00), U.S. Currency, in the
aforesaid transaction. ...
Lastly, herein appellant filed a counterclaim asserting that it has
suffered, likewise by way of unrealized profit damages in the total
sum of $406,000.00 from the failure of the projected contract to
materialize. This counterclaim was supported by a cost study made
and submitted by the appellant itself and wherein it was illustrated
how indeed had the importation pushed thru, NARIC would have
realized in profit the amount asserted in the counterclaim. And yet,
the said amount of P406,000.00 was realizable by appellant despite
a number of expenses which the appellee under the contract, did not
have to incur. Thus, under the cost study submitted by the appellant,
banking and unloading charges were to be shouldered by it,
including an Import License Fee of 2% and superintendence fee of
$0.25 per metric ton. If the NARIC stood to profit over P400 000.00
from the disputed transaction inspite of the extra expenditures from
which the herein appellee was exempt, we are convicted of the
fairness of the judgment presently under appeal.
In the premises, however, a minor modification must be effected in
the dispositive portion of the decision appeal from insofar as it
expresses the amount of damages in U.S. currency and not in
Philippine Peso. Republic Act 529 specifically requires the discharge
of obligations only "in any coin or currency which at the time of
payment is legal tender for public and private debts." In view of that
law, therefore, the award should be converted into and expressed in
Philippine Peso.
This brings us to a consideration of what rate of exchange should
apply in the conversion here decreed. Should it be at the time of the
breach, at the time the obligation was incurred or at the rate of
exchange prevailing on the promulgation of this decision.
In the case of Engel v. Velasco & Co., 47 Phil. 115, We ruled that in
an action for recovery of damages for breach of contract, even if the
obligation assumed by the defendant was to pay the plaintiff a sum of
money expressed in American currency, the indemnity to be allowed
should be expressed in Philippine currency at the rate of exchange at
the time of the judgment rather than at the rate of exchange
prevailing on the date of defendant's breach. This ruling, however,
can neither be applied nor extended to the case at bar for the same
was laid down when there was no law against stipulating foreign
currencies in Philippine contracts. But now we have Republic Act No.
529 which expressly declares such stipulations as contrary to public
policy, void and of no effect. And, as We already pronounced in the
case of Eastboard Navigation, Ltd. v. Juan Ysmael & Co., Inc., G.R.
No. L-9090, September 10, 1957, if there is any agreement to pay an
obligation in a currency other than Philippine legal tender, the same
is null and void as contrary to public policy (Republic Act 529), and
the most that could be demanded is to pay said obligation in
Philippine currency "to be measured in the prevailing rate of
exchange at the time the obligation was incurred (Sec. 1, idem)."
UPON ALL THE FOREGOING, the decision appealed from is hereby
affirmed, with the sole modification that the award should be
converted into the Philippine peso at the rate of exchange prevailing
at the time the obligation was incurred or on July 1, 1952 when the
contract was executed. The appellee insurance company, in the light
of this judgment, is relieved of any liability under this suit. No
pronouncement as to costs.
EN BANC
[G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO
GONZALES, Defendant-Appellee.
Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.
Sulpicio E. Platon, for Defendant-Appellee.
SYLLABUS
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-
PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF
COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where
the time for compliance had expired and there was breach of
contract by non-performance, it was academic for the plaintiff to have
first petitioned the court to fix a period for the performance of the
contract before filing his complaint.
2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF
THE CIVIL CODE OF THE PHILIPPINES.— Where the defendant
virtually admitted non-performance of the contract by returning the
typewriter that he was obliged to repair in a non-working condition,
with essential parts missing, Article 1197 of the Civil Code of the
Philippines cannot be invoked. The fixing of a period would thus be a
mere formality and would serve no purpose than to delay.
3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.—
Where the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter but
returned it "in shambles,’’ he is liable for the cost of the labor or
service expended in the repair of the typewriter, which is in the
amount of P58.75, because the obligation or contract was to repair it.
In addition, he is likewise liable under Art. 1170 of the Code, for the
cost of the missing parts, in the amount of P31.10, for in his
obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received
it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES
NOT RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT
CASE.— Claims for damages and attorney’s fees must be pleaded,
and the existence of the actual basis thereof must be proved. As no
findings of fact were made on the claims for damages and attorney’s
fees, there is no factual basis upon which to make an award therefor.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST
INSTANCE TO SUPREME COURT; ONLY QUESTIONS OF LAW
REVIEWABLE.— Where the appellant directly appeals from the
decision of the trial court to the Supreme Court on questions of law,
he is bound by the judgment of the court a quo on its findings of fact.
DECISION
REYES, J.B.L., J.:
This is a direct appeal by the party who prevailed in a suit for breach
of oral contract and recovery of damages but was unsatisfied with
the decision rendered by the Court of First Instance of Manila, in its
Civil Case No. 65138, because it awarded him only P31.10 out of his
total claim of P690 00 for actual, temperate and moral damages and
attorney’s fees.
The appealed judgment, which is brief, is hereunder quoted in
full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the
defendant, who is a typewriter repairer, a portable typewriter for
routine cleaning and servicing. The defendant was not able to finish
the job after some time despite repeated reminders made by the
plaintiff. The defendant merely gave assurances, but failed to comply
with the same. In October, 1963, the defendant asked from the
plaintiff the sum of P6.00 for the purchase of spare parts, which
amount the plaintiff gave to the defendant. On October 26, 1963,
after getting exasperated with the delay of the repair of the
typewriter, the plaintiff went to the house of the defendant and asked parts of the typewriter, instead of the whole cost of labor and
for the return of the typewriter. The defendant delivered the materials that went into the repair of the machine, as provided for in
typewriter in a wrapped package. On reaching home, the plaintiff Article 1167 of the Civil Code, reading as
examined the typewriter returned to him by the defendant and found follows:jgc:chanrobles.com.ph
out that the same was in shambles, with the interior cover and some
parts and screws missing. On October 29, 1963. the plaintiff sent a "ART. 1167. If a person obliged to do something fails to do it, the
letter to the defendant formally demanding the return of the missing same shall be executed at his cost.
parts, the interior cover and the sum of P6.00 (Exhibit D). The
following day, the defendant returned to the plaintiff some of the This same rule shall be observed if he does it in contravention of the
missing parts, the interior cover and the P6.00. tenor of the obligation. Furthermore it may be decreed that what has
been poorly done he undone."cralaw virtua1aw library
"On August 29, 1964, the plaintiff had his typewriter repaired by
Freixas Business Machines, and the repair job cost him a total of On the other hand, the position of the defendant-appellee, Fructuoso
P89.85, including labor and materials (Exhibit C). Gonzales, is that he is not liable at all, not even for the sum of
P31.10, because his contract with plaintiff-appellant did not contain a
"On August 23, 1965, the plaintiff commenced this action before the period, so that plaintiff-appellant should have first filed a petition for
City Court of Manila, demanding from the defendant the payment of the court to fix the period, under Article 1197 of the Civil Code, within
P90.00 as actual and compensatory damages, P100.00 for which the defendant appellee was to comply with the contract before
temperate damages, P500.00 for moral damages, and P500.00 as said defendant-appellee could be held liable for breach of contract.
attorney’s fees.
Because the plaintiff appealed directly to the Supreme Court and the
"In his answer as well as in his testimony given before this court, the appellee did not interpose any appeal, the facts, as found by the trial
defendant made no denials of the facts narrated above, except the court, are now conclusive and non-reviewable. 1
claim of the plaintiff that the typewriter was delivered to the
defendant through a certain Julio Bocalin, which the defendant The appealed judgment states that the "plaintiff delivered to the
denied allegedly because the typewriter was delivered to him defendant . . . a portable typewriter for routine cleaning and
personally by the plaintiff. servicing" ; that the defendant was not able to finish the job after
some time despite repeated reminders made by the plaintiff" ; that
"The repair done on the typewriter by Freixas Business Machines the "defendant merely gave assurances, but failed to comply with the
with the total cost of P89.85 should not, however, be fully chargeable same" ; and that "after getting exasperated with the delay of the
against the defendant. The repair invoice, Exhibit C, shows that the repair of the typewriter", the plaintiff went to the house of the
missing parts had a total value of only P31.10. defendant and asked for its return, which was done. The inferences
derivable from these findings of fact are that the appellant and the
"WHEREFORE, judgment is hereby rendered ordering the defendant appellee had a perfected contract for cleaning and servicing a
to pay the plaintiff the sum of P31.10, and the costs of suit. typewriter; that they intended that the defendant was to finish it at
some future time although such time was not specified; and that such
"SO ORDERED."cralaw virtua1aw library time had passed without the work having been accomplished, far the
defendant returned the typewriter cannibalized and unrepaired,
The error of the court a quo, according to the plaintiff-appellant, which in itself is a breach of his obligation, without demanding that he
Rosendo O. Chaves, is that it awarded only the value of the missing should be given more time to finish the job, or compensation for the
work he had already done. The time for compliance having evidently
expired, and there being a breach of contract by non-performance, it
was academic for the plaintiff to have first petitioned the court to fix a
period for the performance of the contract before filing his complaint
in this case. Defendant cannot invoke Article 1197 of the Civil Code
for he virtually admitted non-performance by returning the typewriter
that he was obliged to repair in a non-working condition, with
essential parts missing. The fixing of a period would thus be a mere
formality and would serve no purpose than to delay (cf. Tiglao. Et. Al.
V. Manila Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter but
returned it "in shambles", according to the appealed decision. For
such contravention, as appellant contends, he is liable under Article
1167 of the Civil Code. jam quot, for the cost of executing the
obligation in a proper manner. The cost of the execution of the
obligation in this case should be the cost of the labor or service
expended in the repair of the typewriter, which is in the amount of
P58.75. because the obligation or contract was to repair it.
In addition, the defendant-appellee is likewise liable, under Article
1170 of the Code, for the cost of the missing parts, in the amount of
P31.10, for in his obligation to repair the typewriter he was bound,
but failed or neglected, to return it in the same condition it was when
he received it.
Appellant’s claims for moral and temperate damages and attorney’s
fees were, however, correctly rejected by the trial court, for these
were not alleged in his complaint (Record on Appeal, pages 1-5).
Claims for damages and attorney’s fees must be pleaded, and the
existence of the actual basis thereof must be proved. 2 The appealed
judgment thus made no findings on these claims, nor on the fraud or
malice charged to the appellee. As no findings of fact were made on
the claims for damages and attorney’s fees, there is no factual basis
upon which to make an award therefor. Appellant is bound by such
judgment of the court, a quo, by reason of his having resorted
directly to the Supreme Court on questions of law.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment
is hereby modified, by ordering the defendant-appellee to pay, as he
is hereby ordered to pay, the plaintiff-appellant the sum of P89.85,
with interest at the legal rate from the filing of the complaint. Costs in
all instances against appellee Fructuoso Gonzales.
G.R. No. 117190 January 2, 1997
JACINTO TANGUILIG doing business under the name and style
J.M.T. ENGINEERING AND GENERAL
MERCHANDISING, Petitioner, v. COURT OF APPEALS and
VICENTE HERCE JR., Respondents.
BELLOSILLO, J.:
This case involves the proper interpretation of the contract entered
into between the parties.
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing
business under the name and style J.M.T. Engineering and General
Merchandising proposed to respondent Vicente Herce Jr. to
construct a windmill system for him. After some negotiations they
agreed on the construction of the windmill for a consideration of
P60,000.00 with a one-year guaranty from the date of completion
and acceptance by respondent Herce Jr. of the project. Pursuant to
the agreement respondent paid petitioner a down payment of
P30,000.00 and an installment payment of P15,000.00, leaving a
balance of P15,000.00.
On 14 March 1988, due to the refusal and failure of respondent to
pay the balance, petitioner filed a complaint to collect the amount. In
his Answer before the trial court respondent denied the claim saying
that he had already paid this amount to the San Pedro General
Merchandising Inc. (SPGMI) which constructed the deep well to
which the windmill system was to be connected. According to
respondent, since the deep well formed part of the system the
payment he tendered to SPGMI should be credited to his account by
petitioner. Moreover, assuming that he owed petitioner a balance of
P15,000.00, this should be offset by the defects in the windmill
system which caused the structure to collapse after a strong wind hit
their place. 1
Petitioner denied that the construction of a deep well was included in
the agreement to build the windmill system, for the contract price of
P60,000.00 was solely for the windmill assembly and its installation,
exclusive of other incidental materials needed for the project. He also
disowned any obligation to repair or reconstruct the system and
insisted that he delivered it in good and working condition to
respondent who accepted the same without protest. Besides, its
collapse was attributable to a typhoon, a force majeure, which
relieved him of any liability.
In finding for plaintiff, the trial court held that the construction of the
deep well was not part of the windmill project as evidenced clearly by
the letter proposals submitted by petitioner to respondent.  2 It noted
that "[i]f the intention of the parties is to include the construction of
the deep well in the project, the same should be stated in the
proposals. In the absence of such an agreement, it could be safely
concluded that the construction of the deep well is not a part of the
project undertaken by the plaintiff."  3 With respect to the repair of the
windmill, the trial court found that "there is no clear and convincing
proof that the windmill system fell down due to the defect of the
construction." 4
The Court of Appeals reversed the trial court. It ruled that the
construction of the deep well was included in the agreement of the
parties because the term "deep well" was mentioned in both
proposals. It also gave credence to the testimony of respondent's
witness Guillermo Pili, the proprietor of SPGMI which installed the
deep well, that petitioner Tanguilig told him that the cost of
constructing the deep well would be deducted from the contract price
of P60,000.00. Upon these premises the appellate court concluded
that respondent's payment of P15,000.00 to SPGMI should be
applied to his remaining balance with petitioner thus effectively
extinguishing his contractual obligation. However, it rejected
petitioner's claim of force majeure and ordered the latter to
reconstruct the windmill in accordance with the stipulated one-year
guaranty.
His motion for reconsideration having been denied by the Court of
Appeals, petitioner now seeks relief from this Court. He raises two
issues:  firstly, whether the agreement to construct the windmill
system included the installation of a deep well and, secondly,
whether petitioner is under obligation to reconstruct the windmill after
it collapsed.
We reverse the appellate court on the first issue but sustain it on the
second.
The preponderance of evidence supports the finding of the trial court
that the installation of a deep well was not included in the proposals
of petitioner to construct a windmill system for respondent. There
were in fact two (2) proposals: one dated 19 May 1987 which pegged
the contract price at P87,000.00 (Exh. "1"). This was rejected by
respondent. The other was submitted three days later, i.e., on 22
May 1987 which contained more specifications but proposed a lower
contract price of P60,000.00 (Exh. "A"). The latter proposal was
accepted by respondent and the construction immediately followed.
The pertinent portions of the first letter-proposal (Exh. "1") are
reproduced hereunder -
In connection with your Windmill System and Installation, we would
like to quote to you as follows:
One (1) Set - Windmill suitable for 2 inches diameter deepwell, 2 HP,
capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 feet
high, including mechanism which is not advisable to operate during
extra-intensity wind. Excluding cylinder pump.
UNIT CONTRACT PRICE P87,000.00
The second letter-proposal (Exh. "A") provides as follows:
In connection with your Windmill system, Supply of Labor Materials
and Installation, operated water pump, we would like to quote to you
as
follows -
One (1) set - Windmill assembly for 2 inches or 3 inches deep-well
pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet
Tower complete with standard appurtenances up to Cylinder pump,
shafting U.S. adjustable International Metal.
One (1) lot - Angle bar, G.I. pipe, Reducer Coupling, Elbow Gate
valve, cross Tee coupling.
One (1) lot - Float valve.
One (1) lot - Concreting materials foundation.
F. O. B. Laguna
Contract Price P60,000.00
Notably, nowhere in either proposal is the installation of a deep well
mentioned, even remotely. Neither is there an itemization or
description of the materials to be used in constructing the deep well.
There is absolutely no mention in the two (2) documents that a deep
well pump is a component of the proposed windmill system. The
contract prices fixed in both proposals cover only the features
specifically described therein and no other. While the words "deep
well" and "deep well pump" are mentioned in both, these do not
indicate that a deep well is part of the windmill system. They merely
describe the type of deep well pump for which the proposed windmill
would be suitable. As correctly pointed out by petitioner, the words
"deep well" preceded by the prepositions "for" and "suitable for" were
meant only to convey the idea that the proposed windmill would be
appropriate for a deep well pump with a diameter of 2 to 3 inches.
For if the real intent of petitioner was to include a deep well in the
agreement to construct a windmill, he would have used instead the
conjunctions "and" or "with." Since the terms of the instruments are
clear and leave no doubt as to their meaning they should not be
disturbed.
Moreover, it is a cardinal rule in the interpretation of contracts that
the intention of the parties shall be accorded primordial
consideration 5 and, in case
of doubt, their contemporaneous and subsequent acts shall be
principally considered. 6 An examination of such contemporaneous
and subsequent acts of respondent as well as the attendant
circumstances does not persuade us to uphold him.
Respondent insists that petitioner verbally agreed that the contract
price of P60,000.00 covered the installation of a deep well pump. He
contends that since petitioner did not have the capacity to install the
pump the latter agreed to have a third party do the work the cost of
which was to be deducted from the contract price. To prove his point,
he presented Guillermo Pili of SPGMI who declared that petitioner
Tanguilig approached him with a letter from respondent Herce Jr.
asking him to build a deep well pump as "part of the price/contract
which Engineer (Herce) had with Mr. Tanguilig." 7
We are disinclined to accept the version of respondent. The claim of
Pili that Herce Jr. wrote him a letter is unsubstantiated. The alleged
letter was never presented in court by private respondent for reasons
known only to him. But granting that this written communication
existed, it could not have simply contained a request for Pili to install
a deep well; it would have also mentioned the party who would pay
for the undertaking. It strains credulity that respondent would keep
silent on this matter and leave it all to petitioner Tanguilig to verbally
convey to Pili that the deep well was part of the windmill construction
and that its payment would come from the contract price of
P60,000.00.
We find it also unusual that Pili would readily consent to build a deep
well the payment for which would come supposedly from the windmill
contract price on the mere representation of petitioner, whom he had
never met before, without a written commitment at least from the
former. For if indeed the deep well were part of the windmill project,
the contract for its installation would have been strictly a matter
between petitioner and Pili himself with the former assuming the
obligation to pay the price. That it was respondent Herce Jr. himself
who paid for the deep well by handing over to Pili the amount of
P15,000.00 clearly indicates that the contract for the deep well was
not part of the windmill project but a separate agreement between
respondent and Pili. Besides, if the price of P60,000.00 included the
deep well, the obligation of respondent was to pay the entire amount
to petitioner without prejudice to any action that Guillermo Pili or
SPGMI may take, if any, against the latter. Significantly, when asked
why he tendered payment directly to Pili and not to petitioner,
respondent explained, rather lamely, that he did it "because he has
(sic) the money, so (he) just paid the money in his possession."  8
Can respondent claim that Pili accepted his payment on behalf of
petitioner? No. While the law is clear that "payment shall be made to
the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it,"  9 it does
not appear from the record that Pili and/or SPGMI was so authorized.
Respondent cannot claim the benefit of the law concerning
"payments made by a third person." 10 The Civil Code provisions do
not apply in the instant case because no creditor-debtor relationship
between petitioner and Guillermo Pili and/or SPGMI has been
established regarding the construction of the deep well. Specifically,
witness Pili did not testify that he entered into a contract with
petitioner for the construction of respondent's deep well. If SPGMI
was really commissioned by petitioner to construct the deep well, an
agreement particularly to this effect should have been entered into.
The contemporaneous and subsequent acts of the parties concerned
effectively belie respondent's assertions. These circumstances only
show that the construction of the well by SPGMI was for the sole
account of respondent and that petitioner merely supervised the
installation of the well because the windmill was to be connected to
it. There is no legal nor factual basis by which this Court can impose
upon petitioner an obligation he did not expressly assume nor ratify.
The second issue is not a novel one. In a long line of cases 11 this
Court has consistently held that in order for a party to claim
exemption from liability by reason of fortuitous event under Art. 1174
of the Civil Code the event should be the sole and proximate cause
of the loss or destruction of the object of the contract. In Nakpil
vs.  Court of Appeals, 12 four (4) requisites must concur: (a) the cause
of the breach of the obligation must be independent of the will of the
debtor; (b) the event must be either unforeseeable or unavoidable;
(c) the event must be such as to render it impossible for the debtor to
fulfill his obligation in a normal manner; and, (d) the debtor must be
free from any participation in or aggravation of the injury to the
creditor.
Petitioner failed to show that the collapse of the windmill was due
solely to a fortuitous event. Interestingly, the evidence does not
disclose that there was actually a typhoon on the day the windmill
collapsed. Petitioner merely stated that there was a "strong wind."
But a strong wind in this case cannot be fortuitous - unforeseeable
nor unavoidable. On the contrary, a strong wind should be present in
places where windmills are constructed, otherwise the windmills will
not turn.
The appellate court correctly observed that "given the newly-
constructed windmill system, the same would not have collapsed had
there been no inherent defect in it which could only be attributable to
the appellee." 13 It emphasized that respondent had in his favor the
presumption that "things have happened according to the ordinary
course of nature and the ordinary habits of life."  14 This presumption
has not been rebutted by petitioner.
Finally, petitioner's argument that private respondent was already in
default in the payment of his outstanding balance of P15,000.00 and
hence should bear his own loss, is untenable. In reciprocal
obligations, neither party incurs in delay if the other does not comply
or is not ready to comply in a proper manner with what is incumbent
upon him. 15 When the windmill failed to function properly it became
incumbent upon petitioner to institute the proper repairs in
accordance with the guaranty stated in the contract. Thus,
respondent cannot be said to have incurred in delay; instead, it is
petitioner who should bear the expenses for the reconstruction of the
windmill. Article 1167 of the Civil Code is explicit on this point that if a
person obliged to do something fails to do it, the same shall be
executed at his cost.
WHEREFORE, the appealed decision is MODIFIED. Respondent
VICENTE HERCE JR. is directed to pay petitioner JACINTO M.
TANGUILIG the balance of P15,000.00 with interest at the legal rate
from the date of the filing of the complaint. In return, petitioner is
ordered to "reconstruct subject defective windmill system, in
accordance with the one-year guaranty" 16 and to complete the same
within three (3) months from the finality of this decision.
SO ORDERED.
G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION
COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE BAR
ASSOCIATION, respondents.
G.R. No. L-47863 October 3, 1986
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents.
PARAS, J.:
These are petitions for review on certiorari of the November 28, 1977
decision of the Court of Appeals in CA-G.R. No. 51771-R modifying
the decision of the Court of First Instance of Manila, Branch V, in
Civil Case No. 74958 dated September 21, 1971 as modified by the
Order of the lower court dated December 8, 1971. The Court of
Appeals in modifying the decision of the lower court included an
award of an additional amount of P200,000.00 to the Philippine Bar
Association to be paid jointly and severally by the defendant United
Construction Co. and by the third-party defendants Juan F. Nakpil
and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower court
reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc.
and third-party defendants (except Roman Ozaeta)
to pay the plaintiff, jointly and severally, the sum of
P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the
complaint until full payment;
(b) Dismissing the complaint with respect to
defendant Juan J. Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendant's and third-party
defendants' counterclaims for lack of merit;
(e) Ordering defendant United Construction Co., Inc.
and third-party defendants (except Roman Ozaeta)
to pay the costs in equal shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L-
47851, p. 169).
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, the judgment appealed from is
modified to include an award of P200,000.00 in favor
of plaintiff-appellant Philippine Bar Association, with
interest at the legal rate from November 29, 1968
until full payment to be paid jointly and severally by
defendant United Construction Co., Inc. and third
 party defendants (except Roman Ozaeta). In all
other respects, the judgment dated September 21,
1971 as modified in the December 8, 1971 Order of
the lower court is hereby affirmed with COSTS to be
paid by the defendant and third party defendant
(except Roman Ozaeta) in equal shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United
Construction Co., Inc. and Juan J. Carlos in L-47863 seek the
reversal of the decision of the Court of Appeals, among other things,
for exoneration from liability while petitioner Philippine Bar
Association in L-47896 seeks the modification of aforesaid decision
to obtain an award of P1,830,000.00 for the loss of the PBA building
plus four (4) times such amount as damages resulting in increased
cost of the building, P100,000.00 as exemplary damages; and
P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of First
Instance of Manila were consolidated by this Court in the resolution
of May 10, 1978 requiring the respective respondents to comment.
(Rollo, L-47851, p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958;
Record on Appeal, pp. 269-348; pp. 520-521; Rollo, L-47851, p. 169)
and affirmed by the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit
association, incorporated under the Corporation Law, decided to
construct an office building on its 840 square meters lot located at
the comer of Aduana and Arzobispo Streets, Intramuros, Manila. The
construction was undertaken by the United Construction, Inc. on an
"administration" basis, on the suggestion of Juan J. Carlos, the
president and general manager of said corporation. The proposal
was approved by plaintiff's board of directors and signed by its
president Roman Ozaeta, a third-party defendant in this case. The
plans and specifications for the building were prepared by the other
third-party defendants Juan F. Nakpil & Sons. The building was
completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong
earthquake hit Manila and its environs and the building in question
sustained major damage. The front columns of the building buckled,
causing the building to tilt forward dangerously. The tenants vacated
the building in view of its precarious condition. As a temporary
remedial measure, the building was shored up by United
Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the
recovery of damages arising from the partial collapse of the building
against United Construction, Inc. and its President and General
Manager Juan J. Carlos as defendants. Plaintiff alleges that the
collapse of the building was accused by defects in the construction,
the failure of the contractors to follow plans and specifications and
violations by the defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the architects
who prepared the plans and specifications, alleging in essence that
the collapse of the building was due to the defects in the said plans
and specifications. Roman Ozaeta, the then president of the plaintiff
Bar Association was included as a third-party defendant for damages
for having included Juan J. Carlos, President of the United
Construction Co., Inc. as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F.
Nakpil & Sons and Juan F. Nakpil presented a written stipulation
which reads:
1. That in relation to defendants' answer with
counterclaims and third- party complaints and the
third-party defendants Nakpil & Sons' answer
thereto, the plaintiff need not amend its complaint by
including the said Juan F. Nakpil & Sons and Juan
F. Nakpil personally as parties defendant.
 2. That in the event (unexpected by the
undersigned) that the Court should find after the trial
that the above-named defendants Juan J. Carlos
and United Construction Co., Inc. are free from any
blame and liability for the collapse of the PBA
Building, and should further find that the collapse of
said building was due to defects and/or inadequacy
of the plans, designs, and specifications p by the
third-party defendants, or in the event that the Court
may find Juan F. Nakpil and Sons and/or Juan F.
Nakpil contributorily negligent or in any way jointly
and solidarily liable with the defendants, judgment
may be rendered in whole or in part. as the case
may be, against Juan F. Nakpil & Sons and/or Juan
F. Nakpil in favor of the plaintiff to all intents and
purposes as if plaintiff's complaint has been duly
amended by including the said Juan F. Nakpil &
Sons and Juan F. Nakpil as parties defendant and
by alleging causes of action against them including,
among others, the defects or inadequacy of the
plans, designs, and specifications prepared by them
and/or failure in the performance of their contract
with plaintiff.
3. Both parties hereby jointly petition this Honorable
Court to approve this stipulation. (Record on Appeal,
pp. 274-275; Rollo, L-47851,p.169).
Upon the issues being joined, a pre-trial was conducted on March 7,
1969, during which among others, the parties agreed to refer the
technical issues involved in the case to a Commissioner. Mr. Andres
O. Hizon, who was ultimately appointed by the trial court, assumed
his office as Commissioner, charged with the duty to try the following
issues:
1. Whether the damage sustained by the PBA
building during the August 2, 1968 earthquake had
been caused, directly or indirectly, by:
(a) The inadequacies or defects in the plans and
specifications prepared by third-party defendants;
(b) The deviations, if any, made by the defendants
from said plans and specifications and how said
deviations contributed to the damage sustained;
(c) The alleged failure of defendants to observe the
requisite quality of materials and workmanship in the
construction of the building;
(d) The alleged failure to exercise the requisite
degree of supervision expected of the architect, the
contractor and/or the owner of the building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the
building arose from a combination of the above-
enumerated factors, the degree or proportion in
which each individual factor contributed to the
damage sustained;
3. Whether the building is now a total loss and
should be completely demolished or whether it may
still be repaired and restored to a tenantable
condition. In the latter case, the determination of the
cost of such restoration or repair, and the value of
any remaining construction, such as the foundation,
which may still be utilized or availed of (Record on
Appeal, pp. 275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues and
non-technical issues. As aforestated the technical issues were
referred to the Commissioner. The non-technical issues were tried by
the Court.
Meanwhile, plaintiff moved twice for the demolition of the building on
the ground that it may topple down in case of a strong earthquake.
The motions were opposed by the defendants and the matter was
referred to the Commissioner. Finally, on April 30, 1979 the building
was authorized to be demolished at the expense of the plaintiff, but
not another earthquake of high intensity on April 7, 1970 followed by
other strong earthquakes on April 9, and 12, 1970, caused further
damage to the property. The actual demolition was undertaken by
the buyer of the damaged building. (Record on Appeal, pp. 278-
280; Ibid.)
After the protracted hearings, the Commissioner eventually
submitted his report on September 25, 1970 with the findings that
while the damage sustained by the PBA building was caused directly
by the August 2, 1968 earthquake whose magnitude was estimated
at 7.3 they were also caused by the defects in the plans and
specifications prepared by the third-party defendants' architects,
deviations from said plans and specifications by the defendant
contractors and failure of the latter to observe the requisite
workmanship in the construction of the building and of the
contractors, architects and even the owners to exercise the requisite
degree of supervision in the construction of subject building.
All the parties registered their objections to aforesaid findings which
in turn were answered by the Commissioner.
The trial court agreed with the findings of the Commissioner except
as to the holding that the owner is charged with full nine supervision
of the construction. The Court sees no legal or contractual basis for
such conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed
decision which was modified by the Intermediate Appellate Court on
November 28, 1977.
All the parties herein appealed from the decision of the Intermediate
Appellate Court. Hence, these petitions.
On May 11, 1978, the United Architects of the Philippines, the
Association of Civil Engineers, and the Philippine Institute of
Architects filed with the Court a motion to intervene as amicus
curiae.  They proposed to present a position paper on the liability of
architects when a building collapses and to submit likewise a critical
analysis with computations on the divergent views on the design and
plans as submitted by the experts procured by the parties. The
motion having been granted, the amicus curiae were granted a
period of 60 days within which to submit their position.
After the parties had all filed their comments, We gave due course to
the petitions in Our Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on November
24, 1978) were duly noted.
The amicus curiae gave the opinion that the plans and specifications
of the Nakpils were not defective. But the Commissioner, when
asked by Us to comment, reiterated his conclusion that the defects in
the plans and specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as
the Manila Code (Ord. No. 4131) and the 1966 Asep Code, the
Commissioner added that even if it can be proved that the defects in
the construction alone (and not in the plans and design) caused the
damage to the building, still the deficiency in the original design and
jack of specific provisions against torsion in the original plans and the
overload on the ground floor columns (found by an the experts
including the original designer) certainly contributed to the damage
which occurred. (Ibid, p. 174).
In their respective briefs petitioners, among others, raised the
following assignments of errors: Philippine Bar Association claimed
that the measure of damages should not be limited to P1,100,000.00
as estimated cost of repairs or to the period of six (6) months for loss
of rentals while United Construction Co., Inc. and the Nakpils claimed
that it was an act of God that caused the failure of the building which
should exempt them from responsibility and not the defective
construction, poor workmanship, deviations from plans and
specifications and other imperfections in the case of United
Construction Co., Inc. or the deficiencies in the design, plans and
specifications prepared by petitioners in the case of the Nakpils. Both
UCCI and the Nakpils object to the payment of the additional amount
of P200,000.00 imposed by the Court of Appeals. UCCI also claimed
that it should be reimbursed the expenses of shoring the building in
the amount of P13,661.28 while the Nakpils opposed the payment of
damages jointly and solidarity with UCCI.
The pivotal issue in this case is whether or not an act of God-an
unusually strong earthquake-which caused the failure of the building,
exempts from liability, parties who are otherwise liable because of
their negligence.
The applicable law governing the rights and liabilities of the parties
herein is Article 1723 of the New Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the
plans and specifications for a building is liable for
damages if within fifteen years from the completion
of the structure the same should collapse by reason
of a defect in those plans and specifications, or due
to the defects in the ground. The contractor is
likewise responsible for the damage if the edifice
fags within the same period on account of defects in
the construction or the use of materials of inferior
quality furnished by him, or due to any violation of
the terms of the contract. If the engineer or architect
supervises the construction, he shall be solidarily
liable with the contractor.
Acceptance of the building, after completion, does
not imply waiver of any of the causes of action by
reason of any defect mentioned in the preceding
paragraph.
The action must be brought within ten years
following the collapse of the building.
On the other hand, the general rule is that no person shall be
responsible for events which could not be foreseen or which though
foreseen, were inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and
exclusively to natural causes without human intervention, which by
no amount of foresight, pains or care, reasonably to have been
expected, could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a
fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil
Code, for a breach of an obligation due to an "act of God," the
following must concur: (a) the cause of the breach of the obligation
must be independent of the will of the debtor; (b) the event must be
either unforseeable or unavoidable; (c) the event must be such as to
render it impossible for the debtor to fulfill his obligation in a normal
manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor. (Vasquez v. Court of
Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423;
Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v.
Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil.
657).
Thus, if upon the happening of a fortuitous event or an act of God,
there concurs a corresponding fraud, negligence, delay or violation
or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss or
damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires
that the act must be one occasioned exclusively by the violence of
nature and all human agencies are to be excluded from creating or
entering into the cause of the mischief. When the effect, the cause of
which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or neglect,
or failure to act, the whole occurrence is thereby humanized, as it
were, and removed from the rules applicable to the acts of God. (1
Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs
with an act of God in producing a loss, such person is not exempt
from liability by showing that the immediate cause of the damage
was the act of God. To be exempt from liability for loss because of an
act of God, he must be free from any previous negligence or
misconduct by which that loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker
v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco Steamship
Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants
petitioners was established beyond dispute both in the lower court
and in the Intermediate Appellate Court. Defendant United
Construction Co., Inc. was found to have made substantial deviations
from the plans and specifications. and to have failed to observe the
requisite workmanship in the construction as well as to exercise the
requisite degree of supervision; while the third-party defendants were
found to have inadequacies or defects in the plans and specifications
prepared by them. As correctly assessed by both courts, the defects
in the construction and in the plans and specifications were the
proximate causes that rendered the PBA building unable to withstand
the earthquake of August 2, 1968. For this reason the defendant and
third-party defendants cannot claim exemption from liability.
(Decision, Court of Appeals, pp. 30-31).
It is well settled that the findings of facts of the Court of Appeals are
conclusive on the parties and on this court (cases cited in Tolentino
vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17,
1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding
grounded entirely on speculation, surmise and conjectures; (2) the
inference made is manifestly mistaken; (3) there is grave abuse of
discretion; (4) the judgment is based on misapprehension of facts;
(5) the findings of fact are conflicting , (6) the Court of Appeals went
beyond the issues of the case and its findings are contrary to the
admissions of both appellant and appellees (Ramos vs. Pepsi-Cola
Bottling Co., February 8, 1967, 19 SCRA 289, 291-292; Roque vs.
Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the findings of facts of
the Court of Appeals are contrary to those of the trial court; (8) said
findings of facts are conclusions without citation of specific evidence
on which they are based; (9) the facts set forth in the petition as well
as in the petitioner's main and reply briefs are not disputed by the
respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-
Bett vs. Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10)
the finding of fact of the Court of Appeals is premised on the
supposed absence of evidence and is contradicted by evidence on
record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247;
Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10,
1986).
It is evident that the case at bar does not fall under any of the
exceptions above-mentioned. On the contrary, the records show that
the lower court spared no effort in arriving at the correct appreciation
of facts by the referral of technical issues to a Commissioner chosen
by the parties whose findings and conclusions remained convincingly
unrebutted by the intervenors/amicus curiae who were allowed to
intervene in the Supreme Court.
In any event, the relevant and logical observations of the trial court
as affirmed by the Court of Appeals that "while it is not possible to
state with certainty that the building would not have collapsed were
those defects not present, the fact remains that several buildings in
the same area withstood the earthquake to which the building of the
plaintiff was similarly subjected," cannot be ignored.
The next issue to be resolved is the amount of damages to be
awarded to the PBA for the partial collapse (and eventual complete
collapse) of its building.
The Court of Appeals affirmed the finding of the trial court based on
the report of the Commissioner that the total amount required to
repair the PBA building and to restore it to tenantable condition was
P900,000.00 inasmuch as it was not initially a total loss. However,
while the trial court awarded the PBA said amount as damages, plus
unrealized rental income for one-half year, the Court of Appeals
modified the amount by awarding in favor of PBA an additional sum
of P200,000.00 representing the damage suffered by the PBA
building as a result of another earthquake that occurred on April 7,
1970 (L-47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be
P1,830,000.00 representing the total value of the building (L-47896,
PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS
and UNITED question the additional award of P200,000.00 in favor
of the PBA (L- 47851, NAKPIL's Brief as Petitioner, p. 6, UNITED's
Brief as Petitioner, p. 25). The PBA further urges that the unrealized
rental income awarded to it should not be limited to a period of one-
half year but should be computed on a continuing basis at the rate of
P178,671.76 a year until the judgment for the principal amount shall
have been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p.
19).
The collapse of the PBA building as a result of the August 2, 1968
earthquake was only partial and it is undisputed that the building
could then still be repaired and restored to its tenantable condition.
The PBA, however, in view of its lack of needed funding, was unable,
thru no fault of its own, to have the building repaired. UNITED, on the
other hand, spent P13,661.28 to shore up the building after the
August 2, 1968 earthquake (L-47896, CA Decision, p. 46). Because
of the earthquake on April 7, 1970, the trial court after the needed
consultations, authorized the total demolition of the building (L-
47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are
liable for the damage resulting from the partial and eventual collapse
of the PBA building as a result of the earthquakes.
We quote with approval the following from the erudite decision
penned by Justice Hugo E. Gutierrez (now an Associate Justice of
the Supreme Court) while still an Associate Justice of the Court of
Appeals:
There is no question that an earthquake and other
forces of nature such as cyclones, drought, floods,
lightning, and perils of the sea are acts of God. It
does not necessarily follow, however, that specific
losses and suffering resulting from the occurrence of
these natural force are also acts of God. We are not
convinced on the basis of the evidence on record
that from the thousands of structures in Manila, God
singled out the blameless PBA building in Intramuros
and around six or seven other buildings in various
parts of the city for collapse or severe damage and
that God alone was responsible for the damages
and losses thus suffered.
The record is replete with evidence of defects and
deficiencies in the designs and plans, defective
construction, poor workmanship, deviation from
plans and specifications and other imperfections.
These deficiencies are attributable to negligent men
and not to a perfect God.
The act-of-God arguments of the defendants-
appellants and third party defendants-appellants
presented in their briefs are premised on legal
generalizations or speculations and on theological
fatalism both of which ignore the plain facts. The
lengthy discussion of United on ordinary
earthquakes and unusually strong earthquakes and
on ordinary fortuitous events and extraordinary
fortuitous events leads to its argument that the
August 2, 1968 earthquake was of such an
overwhelming and destructive character that by its
own force and independent of the particular
negligence alleged, the injury would have been
produced. If we follow this line of speculative
reasoning, we will be forced to conclude that under
such a situation scores of buildings in the vicinity
and in other parts of Manila would have toppled
down. Following the same line of reasoning, Nakpil
and Sons alleges that the designs were adequate in
accordance with pre-August 2, 1968 knowledge and
appear inadequate only in the light of engineering
information acquired after the earthquake. If this
were so, hundreds of ancient buildings which
survived the earthquake better than the two-year old
PBA building must have been designed and
constructed by architects and contractors whose
knowledge and foresight were unexplainably
auspicious and prophetic. Fortunately, the facts on
record allow a more down to earth explanation of the
collapse. The failure of the PBA building, as a
unique and distinct construction with no reference or
comparison to other buildings, to weather the severe
earthquake forces was traced to design deficiencies
and defective construction, factors which are neither
mysterious nor esoteric. The theological allusion of
appellant United that God acts in mysterious ways
His wonders to perform impresses us to be
inappropriate. The evidence reveals defects and
deficiencies in design and construction. There is no
mystery about these acts of negligence. The
collapse of the PBA building was no wonder
performed by God. It was a result of the
imperfections in the work of the architects and the
people in the construction company. More relevant
to our mind is the lesson from the parable of the
wise man in the Sermon on the Mount "which built
his house upon a rock; and the rain descended and
the floods came and the winds blew and beat upon
that house; and it fen not; for it was founded upon a
rock" and of the "foolish upon the sand. And the rain
descended and man which built his house the floods
came, and the winds blew, and beat upon that
house; and it fell and great was the fall of it. (St.
Matthew 7: 24-27)." The requirement that a building
should withstand rains, floods, winds, earthquakes,
and natural forces is precisely the reason why we
have professional experts like architects, and
engineers. Designs and constructions vary under
varying circumstances and conditions but the
requirement to design and build well does not
change.
The findings of the lower Court on the cause of the
collapse are more rational and accurate. Instead of
laying the blame solely on the motions and forces
generated by the earthquake, it also examined the
ability of the PBA building, as designed and
constructed, to withstand and successfully weather
those forces.
The evidence sufficiently supports a conclusion that
the negligence and fault of both United and Nakpil
and Sons, not a mysterious act of an inscrutable
God, were responsible for the damages. The Report
of the Commissioner, Plaintiff's Objections to the
Report, Third Party Defendants' Objections to the
Report, Defendants' Objections to the Report,
Commissioner's Answer to the various Objections,
Plaintiffs' Reply to the Commissioner's Answer,
Defendants' Reply to the Commissioner's Answer,
Counter-Reply to Defendants' Reply, and Third-Party
Defendants' Reply to the Commissioner's Report not
to mention the exhibits and the testimonies show
that the main arguments raised on appeal were
already raised during the trial and fully considered by
the lower Court. A reiteration of these same
arguments on appeal fails to convince us that we
should reverse or disturb the lower Court's factual
findings and its conclusions drawn from the facts,
among them:
The Commissioner also found merit in the
allegations of the defendants as to the physical
evidence before and after the earthquake showing
the inadequacy of design, to wit:
Physical evidence before the earthquake providing
(sic) inadequacy of design;
1. inadequate design was the cause of the failure of
the building.
2. Sun-baffles on the two sides and in front of the
building;
a. Increase the inertia forces that move the building
laterally toward the Manila Fire Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout
on all exterior columns reduces the cross-sectional
area of each of the columns and the strength
thereof.
4. Two front corners, A7 and D7 columns were very
much less reinforced.
Physical Evidence After the Earthquake, Proving
Inadequacy of design;
1. Column A7 suffered the severest fracture and
maximum sagging. Also D7.
2. There are more damages in the front part of the
building than towards the rear, not only in columns
but also in slabs.
3. Building leaned and sagged more on the front part
of the building.
4. Floors showed maximum sagging on the sides
and toward the front corner parts of the building.
5. There was a lateral displacement of the building of
about 8", Maximum sagging occurs at the column A7
where the floor is lower by 80 cm. than the highest
slab level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were
deficiencies or defects in the design, plans and
specifications of the PBA building which involved
appreciable risks with respect to the accidental
forces which may result from earthquake shocks. He
conceded, however, that the fact that those
deficiencies or defects may have arisen from an
obsolete or not too conservative code or even a
code that does not require a design for earthquake
forces mitigates in a large measure the responsibility
or liability of the architect and engineer designer.
The Third-party defendants, who are the most
concerned with this portion of the Commissioner's
report, voiced opposition to the same on the grounds
that (a) the finding is based on a basic erroneous
conception as to the design concept of the building,
to wit, that the design is essentially that of a heavy
rectangular box on stilts with shear wan at one end;
(b) the finding that there were defects and a
deficiency in the design of the building would at best
be based on an approximation and, therefore, rightly
belonged to the realm of speculation, rather than of
certainty and could very possibly be outright error;
(c) the Commissioner has failed to back up or
support his finding with extensive, complex and
highly specialized computations and analyzes which
he himself emphasizes are necessary in the
determination of such a highly technical question;
and (d) the Commissioner has analyzed the design
of the PBA building not in the light of existing and
available earthquake engineering knowledge at the
time of the preparation of the design, but in the light
of recent and current standards.
The Commissioner answered the said objections
alleging that third-party defendants' objections were
based on estimates or exhibits not presented during
the hearing that the resort to engineering references
posterior to the date of the preparation of the plans
was induced by the third-party defendants
themselves who submitted computations of the third-
party defendants are erroneous.
The issue presently considered is admittedly a
technical one of the highest degree. It involves
questions not within the ordinary competence of the
bench and the bar to resolve by themselves.
Counsel for the third-party defendants has aptly
remarked that "engineering, although dealing in
mathematics, is not an exact science and that the
present knowledge as to the nature of earthquakes
and the behaviour of forces generated by them still
leaves much to be desired; so much so "that the
experts of the different parties, who are all
engineers, cannot agree on what equation to use, as
to what earthquake co-efficients are, on the codes to
be used and even as to the type of structure that the
PBA building (is) was (p. 29, Memo, of third- party
defendants before the Commissioner).
The difficulty expected by the Court if tills technical
matter were to be tried and inquired into by the Court
itself, coupled with the intrinsic nature of the
questions involved therein, constituted the reason for
the reference of the said issues to a Commissioner
whose qualifications and experience have eminently
qualified him for the task, and whose competence
had not been questioned by the parties until he
submitted his report. Within the pardonable limit of
the Court's ability to comprehend the meaning of the
Commissioner's report on this issue, and the
objections voiced to the same, the Court sees no
compelling reasons to disturb the findings of the
Commissioner that there were defects and
deficiencies in the design, plans and specifications
prepared by third-party defendants, and that said
defects and deficiencies involved appreciable risks
with respect to the accidental forces which may
result from earthquake shocks.
(2) (a) The deviations, if any, made by the
defendants from the plans and specifications, and
how said deviations contributed to the damage
sustained by the building.
(b) The alleged failure of defendants to observe the
requisite quality of materials and workmanship in the
construction of the building.
These two issues, being interrelated with each other,
will be discussed together.
The findings of the Commissioner on these issues
were as follows:
We now turn to the construction of the PBA Building
and the alleged deficiencies or defects in the
construction and violations or deviations from the
plans and specifications. All these may be
summarized as follows:
a. Summary of alleged defects as reported by
Engineer Mario M. Bundalian.
(1) Wrongful and defective placing of reinforcing
bars.
(2) Absence of effective and desirable integration of
the 3 bars in the cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were
used. Specification requires no larger than 1 inch.
(4) Reinforcement assembly is not concentric with
the column, eccentricity being 3" off when on one
face the main bars are only 1 1/2' from the surface.
(5) Prevalence of honeycombs,
(6) Contraband construction joints,
(7) Absence, or omission, or over spacing of spiral
hoops,
(8) Deliberate severance of spirals into semi-circles
in noted on Col. A-5, ground floor,
(9) Defective construction joints in Columns A-3, C-
7, D-7 and D-4, ground floor,
(10) Undergraduate concrete is evident,
(11) Big cavity in core of Column 2A-4, second floor,
(12) Columns buckled at different planes. Columns
buckled worst where there are no spirals or where
spirals are cut. Columns suffered worst
displacement where the eccentricity of the columnar
reinforcement assembly is more acute.
b. Summary of alleged defects as reported by Engr.
Antonio Avecilla.
Columns are first (or ground) floor, unless otherwise
stated.
(1) Column D4 — Spacing of spiral is changed from
2" to 5" on centers,
(2) Column D5 — No spiral up to a height of 22"
from the ground floor,
(3) Column D6 — Spacing of spiral over 4 l/2,
(4) Column D7 — Lack of lateral ties,
(5) Column C7 — Absence of spiral to a height of
20" from the ground level, Spirals are at 2" from the
exterior column face and 6" from the inner column
face,
(6) Column B6 — Lack of spiral on 2 feet below the
floor beams,
(7) Column B5 — Lack of spirals at a distance of 26'
below the beam,
(8) Column B7 — Spirals not tied to vertical
reinforcing bars, Spirals are uneven 2" to 4",
(9) Column A3 — Lack of lateral ties,
(10) Column A4 — Spirals cut off and welded to two
separate clustered vertical bars,
(11) Column A4 — (second floor Column is
completely hollow to a height of 30"
(12) Column A5 — Spirals were cut from the floor
level to the bottom of the spandrel beam to a height
of 6 feet,
(13) Column A6 — No spirals up to a height of 30'
above the ground floor level,
(14) Column A7— Lack of lateralties or spirals,
c. Summary of alleged defects as reported by the
experts of the Third-Party defendants.
Ground floor columns.
(1) Column A4 — Spirals are cut,
(2) Column A5 — Spirals are cut,
(3) Column A6 — At lower 18" spirals are absent,
(4) Column A7 — Ties are too far apart,
(5) Column B5 — At upper fourth of column spirals
are either absent or improperly spliced,
(6) Column B6 — At upper 2 feet spirals are absent,
(7) Column B7 — At upper fourth of column spirals
missing or improperly spliced.
(8) Column C7— Spirals are absent at lowest 18"
(9) Column D5 — At lowest 2 feet spirals are absent,
(10) Column D6 — Spirals are too far apart and
apparently improperly spliced,
(11) Column D7 — Lateral ties are too far apart,
spaced 16" on centers.
There is merit in many of these allegations. The
explanations given by the engineering experts for
the defendants are either contrary to general
principles of engineering design for reinforced
concrete or not applicable to the requirements for
ductility and strength of reinforced concrete in
earthquake-resistant design and construction.
We shall first classify and consider defects which
may have appreciable bearing or relation to' the
earthquake-resistant property of the building.
As heretofore mentioned, details which insure
ductility at or near the connections between columns
and girders are desirable in earthquake resistant
design and construction. The omission of spirals and
ties or hoops at the bottom and/or tops of columns
contributed greatly to the loss of earthquake-
resistant strength. The plans and specifications
required that these spirals and ties be carried from
the floor level to the bottom reinforcement of the
deeper beam (p. 1, Specifications, p. 970, Reference
11). There were several clear evidences where this
was not done especially in some of the ground floor
columns which failed.
There were also unmistakable evidences that the
spacings of the spirals and ties in the columns were
in many cases greater than those called for in the
plans and specifications resulting again in loss of
earthquake-resistant strength. The assertion of the
engineering experts for the defendants that the
improper spacings and the cutting of the spirals did
not result in loss of strength in the column cannot be
maintained and is certainly contrary to the general
principles of column design and construction. And
even granting that there be no loss in strength at the
yield point (an assumption which is very doubtful)
the cutting or improper spacings of spirals will
certainly result in the loss of the plastic range or
ductility in the column and it is precisely this plastic
range or ductility which is desirable and needed for
earthquake-resistant strength.
There is no excuse for the cavity or hollow portion in
the column A4, second floor, and although this
column did not fail, this is certainly an evidence on
the part of the contractor of poor construction.
The effect of eccentricities in the columns which
were measured at about 2 1/2 inches maximum may
be approximated in relation to column loads and
column and beam moments. The main effect of
eccentricity is to change the beam or girder span.
The effect on the measured eccentricity of 2 inches,
therefore, is to increase or diminish the column load
by a maximum of about 1% and to increase or
diminish the column or beam movements by about a
maximum of 2%. While these can certainly be
absorbed within the factor of safety, they
nevertheless diminish said factor of safety.
The cutting of the spirals in column A5, ground floor
is the subject of great contention between the parties
and deserves special consideration.
The proper placing of the main reinforcements and
spirals in column A5, ground floor, is the
responsibility of the general contractor which is the
UCCI. The burden of proof, therefore, that this
cutting was done by others is upon the defendants.
Other than a strong allegation and assertion that it is
the plumber or his men who may have done the
cutting (and this was flatly denied by the plumber) no
conclusive proof was presented. The engineering
experts for the defendants asserted that they could
have no motivation for cutting the bar because they
can simply replace the spirals by wrapping around a
new set of spirals. This is not quite correct. There is
evidence to show that the pouring of concrete for
columns was sometimes done through the beam
and girder reinforcements which were already in
place as in the case of column A4 second floor. If
the reinforcement for the girder and column is to
subsequently wrap around the spirals, this would not
do for the elasticity of steel would prevent the
making of tight column spirals and loose or improper
spirals would result. The proper way is to produce
correct spirals down from the top of the main column
bars, a procedure which can not be done if either the
beam or girder reinforcement is already in place.
The engineering experts for the defendants strongly
assert and apparently believe that the cutting of the
spirals did not materially diminish the strength of the
column. This belief together with the difficulty of
slipping the spirals on the top of the column once the
beam reinforcement is in place may be a sufficient
motivation for the cutting of the spirals themselves.
The defendants, therefore, should be held
responsible for the consequences arising from the
loss of strength or ductility in column A5 which may
have contributed to the damages sustained by the
building.
The lack of proper length of splicing of spirals was
also proven in the visible spirals of the columns
where spalling of the concrete cover had taken
place. This lack of proper splicing contributed in a
small measure to the loss of strength.
The effects of all the other proven and visible defects
although nor can certainly be accumulated so that
they can contribute to an appreciable loss in
earthquake-resistant strength. The engineering
experts for the defendants submitted an estimate on
some of these defects in the amount of a few
percent. If accumulated, therefore, including the
effect of eccentricity in the column the loss in
strength due to these minor defects may run to as
much as ten percent.
To recapitulate: the omission or lack of spirals and
ties at the bottom and/or at the top of some of the
ground floor columns contributed greatly to the
collapse of the PBA building since it is at these
points where the greater part of the failure occurred.
The liability for the cutting of the spirals in column
A5, ground floor, in the considered opinion of the
Commissioner rests on the shoulders of the
defendants and the loss of strength in this column
contributed to the damage which occurred.
 It is reasonable to conclude, therefore, that the
proven defects, deficiencies and violations of the
plans and specifications of the PBA building
contributed to the damages which resulted during
the earthquake of August 2, 1968 and the vice of
these defects and deficiencies is that they not only
increase but also aggravate the weakness
mentioned in the design of the structure. In other
words, these defects and deficiencies not only tend
to add but also to multiply the effects of the
shortcomings in the design of the building. We may
say, therefore, that the defects and deficiencies in
the construction contributed greatly to the damage
which occurred.
Since the execution and supervision of the
construction work in the hands of the contractor is
direct and positive, the presence of existence of all
the major defects and deficiencies noted and proven
manifests an element of negligence which may
amount to imprudence in the construction work. (pp.
42-49, Commissioners Report).
As the parties most directly concerned with this portion of the
Commissioner's report, the defendants voiced their objections to the
same on the grounds that the Commissioner should have specified
the defects found by him to be "meritorious"; that the Commissioner
failed to indicate the number of cases where the spirals and ties were
not carried from the floor level to the bottom reinforcement of the
deeper beam, or where the spacing of the spirals and ties in the
columns were greater than that called for in the specifications; that
the hollow in column A4, second floor, the eccentricities in the
columns, the lack of proper length of splicing of spirals, and the cut in
the spirals in column A5, ground floor, did not aggravate or contribute
to the damage suffered by the building; that the defects in the
construction were within the tolerable margin of safety; and that the
cutting of the spirals in column A5, ground floor, was done by the
plumber or his men, and not by the defendants.
Answering the said objections, the Commissioner stated that, since
many of the defects were minor only the totality of the defects was
considered. As regards the objection as to failure to state the number
of cases where the spirals and ties were not carried from the floor
level to the bottom reinforcement, the Commissioner specified
groundfloor columns B-6 and C-5 the first one without spirals for 03
inches at the top, and in the latter, there were no spirals for 10 inches
at the bottom. The Commissioner likewise specified the first storey
columns where the spacings were greater than that called for in the
specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7.
The objection to the failure of the Commissioner to specify the
number of columns where there was lack of proper length of splicing
of spirals, the Commissioner mentioned groundfloor columns B-6
and B-5 where all the splices were less than 1-1/2 turns and were not
welded, resulting in some loss of strength which could be critical near
the ends of the columns. He answered the supposition of the
defendants that the spirals and the ties must have been looted, by
calling attention to the fact that the missing spirals and ties were only
in two out of the 25 columns, which rendered said supposition to be
improbable.
The Commissioner conceded that the hollow in column A-4, second
floor, did not aggravate or contribute to the damage, but averred that
it is "evidence of poor construction." On the claim that the eccentricity
could be absorbed within the factor of safety, the Commissioner
answered that, while the same may be true, it also contributed to or
aggravated the damage suffered by the building.
The objection regarding the cutting of the spirals in Column A-5,
groundfloor, was answered by the Commissioner by reiterating the
observation in his report that irrespective of who did the cutting of the
spirals, the defendants should be held liable for the same as the
general contractor of the building. The Commissioner further stated
that the loss of strength of the cut spirals and inelastic deflections of
the supposed lattice work defeated the purpose of the spiral
containment in the column and resulted in the loss of strength, as
evidenced by the actual failure of this column.
Again, the Court concurs in the findings of the Commissioner on
these issues and fails to find any sufficient cause to disregard or
modify the same. As found by the Commissioner, the "deviations
made by the defendants from the plans and specifications caused
indirectly the damage sustained and that those deviations not only
added but also aggravated the damage caused by the defects in the
plans and specifications prepared by third-party defendants. (Rollo,
Vol. I, pp. 128-142)
The afore-mentioned facts clearly indicate the wanton negligence of
both the defendant and the third-party defendants in effecting the
plans, designs, specifications, and construction of the PBA building
and We hold such negligence as equivalent to bad faith in the
performance of their respective tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v.
Milan (49 O.G. 4379, 4380) which may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape
liability for the natural and probable consequences thereof, although
the act of a third person, or an act of God for which he is not
responsible, intervenes to precipitate the loss.
As already discussed, the destruction was not purely an act of God.
Truth to tell hundreds of ancient buildings in the vicinity were hardly
affected by the earthquake. Only one thing spells out the fatal
difference; gross negligence and evident bad faith, without which the
damage would not have occurred.
WHEREFORE, the decision appealed from is hereby MODIFIED and
considering the special and environmental circumstances of this
case, We deem it reasonable to render a decision imposing, as We
do hereby impose, upon the defendant and the third-party
defendants (with the exception of Roman Ozaeta) a solidary (Art.
1723, Civil Code, Supra,  p. 10) indemnity in favor of the Philippine
Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all
damages (with the exception of attorney's fees) occasioned by the
loss of the building (including interest charges and lost rentals) and
an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as
and for attorney's fees, the total sum being payable upon the finality
of this decision. Upon failure to pay on such finality, twelve (12%) per
cent interest per annum shall be imposed upon afore-mentioned
amounts from finality until paid. Solidary costs against the defendant
and third-party defendants (except Roman Ozaeta).
SO ORDERED.
G.R. No. L-25906 May 28, 1970
PEDRO D. DIOQUINO, plaintiff-appellee,
vs.
FEDERICO LAUREANO, AIDA DE LAUREANO and JUANITO
LAUREANO, defendants-appellants.
Pedro D. Dioquino in his own behalf.
Arturo E. Valdomero, Jose L. Almario and Rolando S. Relova for
defendants-appellants.
 
FERNANDO, J.:
The present lawsuit had its origin in a relationship, if it could be
called such, the use of a car owned by plaintiff Pedro D. Dioquino by
defendant Federico Laureano, clearly of a character casual and
temporary but unfortunately married by an occurrence resulting in its
windshield being damaged. A stone thrown by a boy who, with his
other companions, was thus engaged in what undoubtedly for them
must have been mistakenly thought to be a none too harmful prank
did not miss its mark. Plaintiff would hold defendant Federico
Laureano accountable for the loss thus sustained, including in the
action filed the wife, Aida de Laureano, and the father, Juanito
Laureano. Plaintiff prevail in the lower court, the judgment however
going only against the principal defendant, his spouse and his father
being absolved of any responsibility. Nonetheless, all three of them
appealed directly to us, raising two questions of law, the first being
the failure of the lower court to dismiss such a suit as no liability
could have been incurred as a result of a fortuitous event and the
other being its failure to award damages against plaintiff for the
unwarranted inclusion of the wife and the father in this litigation. We
agree that the lower court ought to have dismissed the suit, but it
does not follow that thereby damages for the inclusion of the above
two other parties in the complaint should have been awarded
appellants.
The facts as found by the lower court follow: "Attorney Pedro
Dioquino, a practicing lawyer of Masbate, is the owner of a car. On
March 31, 1964, he went to the office of the MVO, Masbate, to
register the same. He met the defendant Federico Laureano, a patrol
officer of said MVO office, who was waiting for a jeepney to take him
to the office of the Provincial Commander, PC, Masbate. Attorney
Dioquino requested the defendant Federico Laureano to introduce
him to one of the clerks in the MVO Office, who could facilitate the
registration of his car and the request was graciously attended to.
Defendant Laureano rode on the car of Atty. Dioquino on his way to
the P.C. Barracks at Masbate. While about to reach their destination,
the car driven by plaintiff's driver and with defendant Federico
Laureano as the sole passenger was stoned by some 'mischievous
boys,' and its windshield was broken. Defendant Federico Laureano
chased the boys and he was able to catch one of them. The boy was
taken to Atty. Dioquino [and] admitted having thrown the stone that
broke the car's windshield. The plaintiff and the defendant Federico
Laureano with the boy returned to the P.C. barracks and the father of
the boy was called, but no satisfactory arrangements [were] made
about the damage to the
windshield."1
It was likewise noted in the decision now on appeal: "The defendant
Federico Laureano refused to file any charges against the boy and
his parents because he thought that the stone-throwing was merely
accidental and that it was due to  force majeure. So he did not want
to take any action and after delaying the settlement, after perhaps
consulting a lawyer, the defendant Federico Laureano refused to pay
the windshield himself and challenged that the case be brought to
court for judicial adjudication. There is no question that the plaintiff
tried to convince the defendant Federico Laureano just to pay the
value of the windshield and he even came to the extent of asking the
wife to convince her husband to settle the matter amicably but the
defendant Federico Laureano refused to make any settlement,
clinging [to] the belief that he could not be held liable because a
minor child threw a stone accidentally on the windshield and
therefore, the same was due to  force majeure."2
1. The law being what it is, such a belief on the part of defendant
Federico Laureano was justified. The express language of Art. 1174
of the present Civil Code which is a restatement of Art. 1105 of the
Old Civil Code, except for the addition of the nature of an obligation
requiring the assumption of risk, compels such a conclusion. It reads
thus: "Except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which could not be, foreseen, or which,
though foreseen were inevitable." Even under the old Civil Code
then, as stressed by us in the first decision dating back to 1908, in an
opinion by Justice Mapa, the rule was well-settled that in the
absence of a legal provision or an express covenant, "no one should
be held to account for fortuitous cases." 3 Its basis, as Justice
Moreland stressed, is the Roman law principle major casus est, cui
humana infirmitas resistere non potest.4 Authorities of repute are in
agreement, more specifically concerning an obligation arising from
contract "that some extraordinary circumstance independent of the
will of the obligor, or of his employees, is an essential element of
a caso fortuito."5 If it could be shown that such indeed was the case,
liability is ruled out. There is no requirement of "diligence beyond
what human care and foresight can provide." 6
The error committed by the lower court in holding defendant Federico
Laureano liable appears to be thus obvious. Its own findings of fact
repel the motion that he should be made to respond in damages to
the plaintiff for the broken windshield. What happened was clearly
unforeseen. It was a fortuitous event resulting in a loss which must
be borne by the owner of the car. An element of reasonableness in
the law would be manifestly lacking if, on the circumstances as thus
disclosed, legal responsibility could be imputed to an individual in the
situation of defendant Laureano. Art. 1174 of the Civil Code guards
against the possibility of its being visited with such a reproach.
Unfortunately, the lower court was of a different mind and thus failed
to heed its command.
It was misled, apparently, by the inclusion of the exemption from the
operation of such a provision of a party assuming the risk,
considering the nature of the obligation undertaken. A more careful
analysis would have led the lower court to a different and correct
interpretation. The very wording of the law dispels any doubt that
what is therein contemplated is the resulting liability even if caused
by a fortuitous event where the party charged may be considered as
having assumed the risk incident in the nature of the obligation to be
performed. It would be an affront, not only to the logic but to the
realities of the situation, if in the light of what transpired, as found by
the lower court, defendant Federico Laureano could be held as
bound to assume a risk of this nature. There was no such obligation
on his part.
Reference to the leading case of Republic v. Luzon Stevedoring
Corp.7 will illustrate when the nature of the obligation is such that the
risk could be considered as having been assumed. As noted in the
opinion of Justice J.B.L. Reyes, speaking for the Court: "The
appellant strongly stresses the precautions taken by it on the day in
question: that it assigned two of its most powerful tugboats to tow
down river its barge L-1892; that it assigned to the task the more
competent and experienced among its patrons, had the towlines,
engines and equipment double-checked and inspected; that it
instructed its patrons to take extra-precautions; and concludes that it
had done all it was called to do, and that the accident, therefore,
should be held due to force majeure or fortuitous event." Its next
paragraph explained clearly why the defense of caso
fortuito or  force majeure  does not lie. Thus: "These very
precautions, however, completely destroy the appellant's defense.
For caso fortuito or  force majeure  (which in law are identical in so far
as they exempt an obligor from liability) by definition, are
extraordinary events not foreseeable or avoidable, 'events that could
not be foreseen, or which, though foreseen, were inevitable' (Art.
1174, Civil Code of the Philippines). It is, therefore, not enough that
the event should not have been foreseen or participated, as is
commonly believed, but it must be one impossible to foresee or to
avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same: un hecho no constituye caso
fortuito por la sola circunstancia de que su existencia haga mas dificil
o mas onerosa la accion diligente del presente ofensor' (Peirano
Facio, Responsibilidad Extra-contractual, p. 465; Mazeaud, Traite de
la Responsibilite Civile, Vol. 2, sec. 1569). The very measures
adopted by appellant prove that the possibility of danger was not only
foreseeable, but actually foreseen, and was not caso fortuito."
In that case then, the risk was quite evident and the nature of the
obligation such that a party could rightfully be deemed as having
assumed it. It is not so in the case before us. It is anything but that. If
the lower court, therefore, were duly mindful of what this particular
legal provision contemplates, it could not have reached the
conclusion that defendant Federico Laureano could be held liable. To
repeat, that was clear error on its part.
2. Appellants do not stop there. It does not suffice for them that
defendant Federico Laureano would be freed from liability. They
would go farther. They would take plaintiff to task for his complaint
having joined the wife, Aida de Laureano, and the father, Juanita
Laureano. They were far from satisfied with the lower court's
absolving these two from any financial responsibility. Appellants
would have plaintiff pay damages for their inclusion in this litigation.
We are not disposed to view the matter thus.
It is to be admitted, of course, that plaintiff, who is a member of the
bar, ought to have exercised greater care in selecting the parties
against whom he would proceed. It may be said that his view of the
law that would consider defendant Federico Laureano liable on the
facts as thus disclosed, while erroneous, is not bereft of plausibility.
Even the lower court, mistakenly of course, entertained similar view.
For plaintiff, however, to have included the wife and the father would
seem to indicate that his understanding of the law is not all that it
ought to have been.
Plaintiff apparently was not entirely unaware that the inclusion in the
suit filed by him was characterized by unorthodoxy. He did attempt to
lend some color of justification by explicitly setting forth that the
father was joined as party defendant in the case as he was the
administrator of the inheritance of an undivided property to which
defendant Federico Laureano could lay claim and that the wife was
likewise proceeded against because the conjugal partnership would
be made to respond for whatever liability would be adjudicated
against the husband.
It cannot be said that such an attempt at justification is impressed
with a high persuasive quality. Far from it. Nonetheless, mistaken as
plaintiff apparently was, it cannot be concluded that he was prompted
solely by the desire to inflict needless and unjustified vexation on
them. Considering the equities of the situation, plaintiff having
suffered a pecuniary loss which, while resulting from a fortuitous
event, perhaps would not have occurred at all had not defendant
Federico Laureano borrowed his car, we, feel that he is not to be
penalized further by his mistaken view of the law in including them in
his complaint. Well-worth paraphrasing is the thought expressed in a
United States Supreme Court decision as to the existence of an
abiding and fundamental principle that the expenses and annoyance
of litigation form part of the social burden of living in a society which
seeks to attain social control through law.8
WHEREFORE, the decision of the lower court of November 2, 1965
insofar as it orders defendant Federico Laureano to pay plaintiff the
amount of P30,000.00 as damages plus the payment of costs, is
hereby reversed. It is affirmed insofar as it dismissed the case
against the other two defendants, Juanita Laureano and Aida de
Laureano, and declared that no moral damages should be awarded
the parties. Without pronouncement as to costs.
G.R. No. L-29640 June 10, 1971
GUILLERMO AUSTRIA, petitioner,
vs.
THE COURT OF APPEALS (Second Division), PACIFICO ABAD
and MARIA G. ABAD, respondents.
Antonio Enrile Inton for petitioner.
Jose A. Buendia for respondents.
REYES, J.B.L., J.:
Guillermo Austria petitions for the review of the decision rendered by
the Court of Appeal (in CA-G.R. No. 33572-R), on the sole issue of
whether in a contract of agency (consignment of goods for sale) it is
necessary that there be prior conviction for robbery before the loss of
the article shall exempt the consignee from liability for such loss.
In a receipt dated 30 January 1961, Maria G. Abad acknowledged
having received from Guillermo Austria one (1) pendant with
diamonds valued at P4,500.00, to be sold on commission basis or to
be returned on demand. On 1 February 1961, however, while
walking home to her residence in Mandaluyong, Rizal, Abad was
said to have been accosted by two men, one of whom hit her on the
face, while the other snatched her purse containing jewelry and cash,
and ran away. Among the pieces of jewelry allegedly taken by the
robbers was the consigned pendant. The incident became the
subject of a criminal case filed in the Court of First Instance of Rizal
against certain persons (Criminal Case No. 10649, People vs. Rene
Garcia, et al.).
As Abad failed to return the jewelry or pay for its value
notwithstanding demands, Austria brought in the Court of First
Instance of Manila an action against her and her husband for
recovery of the pendant or of its value, and damages. Answering the
allegations of the complaint, defendants spouses set up the defense
that the alleged robbery had extinguished their obligation.
After due hearing, the trial court rendered judgment for the plaintiff,
and ordered defendants spouses, jointly and severally, to pay to the
former the sum of P4,500.00, with legal interest thereon, plus the
amount of P450.00 as reasonable attorneys' fees, and the costs. It
was held that defendants failed to prove the fact of robbery, or, if
indeed it was committed, that defendant Maria Abad was guilty of
negligence when she went home without any companion, although it
was already getting dark and she was carrying a large amount of
cash and valuables on the day in question, and such negligence did
not free her from liability for damages for the loss of the jewelry.
Not satisfied with his decision, the defendants went to the Court of
Appeals, and there secured a reversal of the judgment. The
appellate court overruling the finding of the trial court on the lack of
credibility of the two defense witnesses who testified on the
occurrence of the robbery, and holding that the facts of robbery and
defendant Maria Abad's possesion of the pendant on that
unfortunate day have been duly published, declared respondents not
responsible for the loss of the jewelry on account of a fortuitous
event, and relieved them from liability for damages to the owner.
Plaintiff thereupon instituted the present proceeding.
It is now contended by herein petitioner that the Court of Appeals
erred in finding that there was robbery in the case, although nobody
has been found guilty of the supposed crime. It is petitioner's theory
that for robbery to fall under the category of a fortuitous event and
relieve the obligor from his obligation under a contract, pursuant to
Article 1174 of the new Civil Code, there ought to be prior finding on
the guilt of the persons responsible therefor. In short, that the
occurrence of the robbery should be proved by a final judgment of
conviction in the criminal case. To adopt a different view, petitioner
argues, would be to encourage persons accountable for goods or
properties received in trust or consignment to connive with others,
who would be willing to be accused in court for the robbery, in order
to be absolved from civil liability for the loss or disappearance of the
entrusted articles.
We find no merit in the contention of petitioner.
It is recognized in this jurisdiction that to constitute a caso
fortuito that would exempt a person from responsibility, it is
necessary that (1) the event must be independent of the human will
(or rather, of the debtor's or obligor's); (2) the occurrence must
render it impossible for the debtor to fulfill the obligation in a normal
manner; and that (3) the obligor must be free of participation in or
aggravation of the injury to the creditor. 1 A fortuitous event, therefore,
can be produced by nature, e.g., earthquakes, storms, floods, etc., or
by the act of man, such as war, attack by bandits, robbery, 2 etc.,
provided that the event has all the characteristics enumerated above.
It is not here disputed that if respondent Maria Abad were indeed the
victim of robbery, and if it were really true that the pendant, which
she was obliged either to sell on commission or to return to
petitioner, were taken during the robbery, then the occurrence of that
fortuitous event would have extinguished her liability. The point at
issue in this proceeding is how the fact of robbery is to be
established in order that a person may avail of the exempting
provision of Article 1174 of the new Civil Code, which reads as
follows:
ART. 1174. Except in cases expressly specified by
law, or when it is otherwise declared by stipulation,
or when the nature of the obligation requires the
assumption of risk, no person shall be responsible
for those events which could not be foreseen, or
which, though foreseen, were inevitable.
It may be noted the reform that the emphasis of the provision is on
the events, not on the agents or factors responsible for them. To
avail of the exemption granted in the law, it is not necessary that the
persons responsible for the occurrence should be found or punished;
it would only be sufficient to established that the enforceable event,
the robbery in this case did take place without any concurrent fault
on the debtor's part, and this can be done by preponderant evidence.
To require in the present action for recovery the prior conviction of
the culprits in the criminal case, in order to establish the robbery as a
fact, would be to demand proof beyond reasonable doubt to prove a
fact in a civil case.
It is undeniable that in order to completely exonerate the debtor for
reason of a fortutious event, such debtor must, in addition to the
cams itself, be free of any concurrent or contributory fault or
negligence.3 This is apparent from Article 1170 of the Civil Code of
the Philippines, providing that:
 ART. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor
thereof, are liable for damages.
It is clear that under the circumstances prevailing at present in the
City of Manila and its suburbs, with their high incidence of crimes
against persons and property that renders travel after nightfall a
matter to be sedulously avoided without suitable precaution and
protection, the conduct of respondent Maria G. Abad, in returning
alone to her house in the evening, carrying jewelry of considerable
value would be negligent per se and would not exempt her from
responsibility in the case of a robbery. We are not persuaded,
however, that the same rule should obtain ten years previously, in
1961, when the robbery in question did take place, for at that time
criminality had not by far reached the levels attained in the present
day.
There is likewise no merit in petitioner's argument that to allow the
fact of robbery to be recognized in the civil case before conviction is
secured in the criminal action, would prejudice the latter case, or
would result in inconsistency should the accused obtain an acquittal
or should the criminal case be dismissed. It must be realized that a
court finding that a robbery has happened would not necessarily
mean that those accused in the criminal action should be found guilty
of the crime; nor would a ruling that those actually accused did not
commit the robbery be inconsistent with a finding that a robbery did
take place. The evidence to establish these facts would not
necessarily be the same.
WHEREFORE, finding no error in the decision of the Court of
Appeals under review, the petition in this case is hereby dismissed
with costs against the petitioner.
G.R. No. 147324             May 25, 2004
PHILIPPINE COMMUNICATIONS SATELLITE
CORPORATION, petitioner,
vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio
Corporation), respondents.
x-----------------------------x
GLOBE TELECOM, INC., petitioner,
vs.
PHILIPPINE COMMUNICATION SATELLITE
CORPORATION, respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing
the Decision of the Court of Appeals, dated 27 February 2001, in CA-
G.R. CV No. 63619.1
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and Radio
Corporation, now Globe Telecom, Inc. (Globe), had been engaged in
the coordination of the provision of various communication facilities
for the military bases of the United States of America (US) in Clark
Air Base, Angeles, Pampanga and Subic Naval Base in Cubi Point,
Zambales. The said communication facilities were installed and
configured for the exclusive use of the US Defense Communications
Agency (USDCA), and for security reasons, were operated only by
its personnel or those of American companies contracted by it to
operate said facilities. The USDCA contracted with said American
companies, and the latter, in turn, contracted with Globe for the use
of the communication facilities. Globe, on the other hand, contracted
with local service providers such as the Philippine Communications
Satellite Corporation (Philcomsat) for the provision of the
communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an Agreement
whereby Philcomsat obligated itself to establish, operate and provide
an IBS Standard B earth station (earth station) within Cubi Point for
the exclusive use of the USDCA.2 The term of the contract was for 60
months, or five (5) years.3 In turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved.4
At the time of the execution of the Agreement, both parties knew that
the Military Bases Agreement between the Republic of the
Philippines and the US (RP-US Military Bases Agreement), which
was the basis for the occupancy of the Clark Air Base and Subic
Naval Base in Cubi Point, was to expire in 1991. Under Section 25,
Article XVIII of the 1987 Constitution, foreign military bases, troops or
facilities, which include those located at the US Naval Facility in Cubi
Point, shall not be allowed in the Philippines unless a new treaty is
duly concurred in by the Senate and ratified by a majority of the
votes cast by the people in a national referendum when the
Congress so requires, and such new treaty is recognized as such by
the US Government.
Subsequently, Philcomsat installed and established the earth station
at Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted Senate
Resolution No. 141, expressing its decision not to concur in the
ratification of the Treaty of Friendship, Cooperation and Security and
its Supplementary Agreements that was supposed to extend the term
of the use by the US of Subic Naval Base, among others. 5 The last
two paragraphs of the Resolution state:
FINDING that the Treaty constitutes a defective framework
for the continuing relationship between the two countries in
the spirit of friendship, cooperation and sovereign equality:
Now, therefore, be it Resolved by the Senate, as it is hereby
resolved, To express its decision not to concur in the
ratification of the Treaty of Friendship, Cooperation and
Security and its Supplementary Agreements, at the same
time reaffirming its desire to continue friendly relations with
the government and people of the United States of America. 6
On 31 December 1991, the Philippine Government sent a Note
Verbale to the US Government through the US Embassy, notifying it
of the Philippines’ termination of the RP-US Military Bases
Agreement. The Note Verbale stated that since the RP-US Military
Bases Agreement, as amended, shall terminate on 31 December
1992, the withdrawal of all US military forces from Subic Naval Base
should be completed by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat of its
intention to discontinue the use of the earth station effective 08
November 1992 in view of the withdrawal of US military personnel
from Subic Naval Base after the termination of the RP-US Military
Bases Agreement. Globe invoked as basis for the letter of
termination Section 8 (Default) of the Agreement, which provides:
Neither party shall be held liable or deemed to be in default
for any failure to perform its obligation under this Agreement
if such failure results directly or indirectly from force majeure
or fortuitous event. Either party is thus precluded from
performing its obligation until such force majeure or
fortuitous event shall terminate. For the purpose of this
paragraph, force majeure shall mean circumstances beyond
the control of the party involved including, but not limited to,
any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor
difficulties, insurrection riots, national emergencies, war, acts
of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating
that "we expect [Globe] to know its commitment to pay the stipulated
rentals for the remaining terms of the Agreement even after [Globe]
shall have discontinue[d] the use of the earth station after November
08, 1992."7 Philcomsat referred to Section 7 of the Agreement,
stating as follows:
7. DISCONTINUANCE OF SERVICE
 Should [Globe] decide to discontinue with the use of the
earth station after it has been put into operation, a written
notice shall be served to PHILCOMSAT at least sixty (60)
days prior to the expected date of termination.
Notwithstanding the non-use of the earth station, [Globe]
shall continue to pay PHILCOMSAT for the rental of the
actual number of T1 circuits in use, but in no case shall be
less than the first two (2) T1 circuits, for the remaining life of
the agreement. However, should PHILCOMSAT make use or
sell the earth station subject to this agreement, the obligation
of [Globe] to pay the rental for the remaining life of the
agreement shall be at such monthly rate as may be agreed
upon by the parties.8
After the US military forces left Subic Naval Base, Philcomsat sent
Globe a letter dated 24 November 1993 demanding payment of its
outstanding obligations under the Agreement amounting to
US$4,910,136.00 plus interest and attorney’s fees. However, Globe
refused to heed Philcomsat’s demand.
On 27 January 1995, Philcomsat filed with the Regional Trial Court of
Makati a Complaint against Globe, praying that the latter be ordered
to pay liquidated damages under the Agreement, with legal interest,
exemplary damages, attorney’s fees and costs of suit. The case was
raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was
constrained to end the Agreement due to the termination of the RP-
US Military Bases Agreement and the non-ratification by the Senate
of the Treaty of Friendship and Cooperation, which events
constituted force majeure under the Agreement. Globe explained that
the occurrence of said events exempted it from paying rentals for the
remaining period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the
dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. Ordering the defendant to pay the plaintiff the
amount of Ninety Two Thousand Two Hundred
Thirty Eight US Dollars (US$92,238.00) or its
equivalent in Philippine Currency (computed at the
exchange rate prevailing at the time of compliance
or payment) representing rentals for the month of
December 1992 with interest thereon at the legal
rate of twelve percent (12%) per annum starting
December 1992 until the amount is fully paid;
2. Ordering the defendant to pay the plaintiff the
amount of Three Hundred Thousand (P300,000.00)
Pesos as and for attorney’s fees;
3. Ordering the DISMISSAL of defendant’s
counterclaim for lack of merit; and
4. With costs against the defendant.
SO ORDERED.9
Both parties appealed the trial court’s Decision  to the Court of
Appeals.
Philcomsat claimed that the trial court erred in ruling that: (1) the
non-ratification by the Senate of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements
constitutes force majeure which exempts Globe from complying with
its obligations under the Agreement; (2) Globe is not liable to pay the
rentals for the remainder of the term of the Agreement; and (3) Globe
is not liable to Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in holding it
liable for payment of rent of the earth station for December 1992 and
of attorney’s fees. It explained that it terminated Philcomsat’s
services on 08 November 1992; hence, it had no reason to pay for
rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated
its Decision dismissing Philcomsat’s appeal for lack of merit and
affirming the trial court’s finding that certain events constituting force
majeure under Section 8 the Agreement occurred and justified the
non-payment by Globe of rentals for the remainder of the term of the
Agreement.
The appellate court ruled that the non-ratification by the Senate of
the Treaty of Friendship, Cooperation and Security, and its
Supplementary Agreements, and the termination by the Philippine
Government of the RP-US Military Bases Agreement effective 31
December 1991 as stated in the Philippine Government’s Note
Verbale to the US Government, are acts, directions, or requests of
the Government of the Philippines which constitute force majeure. In
addition, there were circumstances beyond the control of the parties,
such as the issuance of a formal order by Cdr. Walter Corliss of the
US Navy, the issuance of the letter notification from ATT and the
complete withdrawal of all US military forces and personnel from
Cubi Point, which prevented further use of the earth station under the
Agreement.
However, the Court of Appeals ruled that although Globe sought to
terminate Philcomsat’s services by 08 November 1992, it is still liable
to pay rentals for the December 1992, amounting to US$92,238.00
plus interest, considering that the US military forces and personnel
completely withdrew from Cubi Point only on 31 December 1992. 10
Both parties filed their respective Petitions for Review assailing
the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the following
assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED IN
ADOPTING A DEFINITION OF FORCE
MAJEURE DIFFERENT FROM WHAT ITS LEGAL
DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL
CODE, PROVIDES, SO AS TO EXEMPT GLOBE
TELECOM FROM COMPLYING WITH ITS OBLIGATIONS
UNDER THE SUBJECT AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR RENTALS FOR THE REMAINING
TERM OF THE AGREEMENT, DESPITE THE CLEAR
TENOR OF SECTION 7 OF THE AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED IN
DELETING THE TRIAL COURT’S AWARD OF
ATTORNEY’S FEES IN FAVOR OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED IN
RULING THAT GLOBE TELECOM IS NOT LIABLE TO
PHILCOMSAT FOR EXEMPLARY DAMAGES.12
Philcomsat argues that the termination of the RP-US Military Bases
Agreement cannot be considered a fortuitous event because the
happening thereof was foreseeable. Although the Agreement was
freely entered into by both parties, Section 8 should be deemed
ineffective because it is contrary to Article 1174 of the Civil Code.
Philcomsat posits the view that the validity of the parties’ definition
of force majeure in Section 8 of the Agreement as "circumstances
beyond the control of the party involved including, but not limited to,
any law, order, regulation, direction or request of the Government of
the Philippines, strikes or other labor difficulties, insurrection riots,
national emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God," should be deemed
subject to Article 1174 which defines fortuitous events as events
which could not be foreseen, or which, though foreseen, were
inevitable.13
Philcomsat further claims that the Court of Appeals erred in holding
that Globe is not liable to pay for the rental of the earth station for the
entire term of the Agreement because it runs counter to what was
plainly stipulated by the parties in Section 7 thereof. Moreover, said
ruling is inconsistent with the appellate court’s pronouncement that
Globe is liable to pay rentals for December 1992 even though it
terminated Philcomsat’s services effective 08 November 1992,
because the US military and personnel completely withdrew from
Cubi Point only in December 1992. Philcomsat points out that it was
Globe which proposed the five-year term of the Agreement, and that
the other provisions of the Agreement, such as Section 4.1 14 thereof,
evince the intent of Globe to be bound to pay rentals for the entire
five-year term.15
Philcomsat also maintains that contrary to the appellate court’s
findings, it is entitled to attorney’s fees and exemplary damages. 16
In its Comment to Philcomsat’s Petition,  Globe asserts that Section 8
of the Agreement is not contrary to Article 1174 of the Civil Code
because said provision does not prohibit parties to a contract from
providing for other instances when they would be exempt from
fulfilling their contractual obligations. Globe also claims that the
termination of the RP-US Military Bases Agreement constitutes force
majeure and exempts it from complying with its obligations under the
Agreement.17 On the issue of the propriety of awarding attorney’s
fees and exemplary damages to Philcomsat, Globe maintains that
Philcomsat is not entitled thereto because in refusing to pay rentals
for the remainder of the term of the Agreement, Globe only acted in
accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the
Court of Appeals erred in finding it liable for the amount of
US$92,238.00, representing rentals for December 1992, since
Philcomsat’s services were actually terminated on 08 November
1992.20
In its Comment, Philcomsat claims that Globe’s petition should be
dismissed as it raises a factual issue which is not cognizable by the
Court in a petition for review on certiorari.21
On 15 August 2001, the Court issued a Resolution giving due course
to Philcomsat’s Petition in G.R. No.
147324 and required the parties to submit their respective
memoranda.22
Similarly, on 20 August 2001, the Court issued a Resolution giving
due course to the Petition  filed by Globe in G.R. No. 147334  and
required both parties to submit their memoranda.23
Philcomsat and Globe thereafter filed their respective Consolidated
Memoranda in the two cases, reiterating their arguments in their
respective petitions.
The Court is tasked to resolve the following issues: (1) whether the
termination of the RP-US Military Bases Agreement, the non-
ratification of the Treaty of Friendship, Cooperation and Security, and
the consequent withdrawal of US military forces and personnel from
Cubi Point constitute force majeure which would exempt Globe from
complying with its obligation to pay rentals under its Agreement with
Philcomsat; (2) whether Globe is liable to pay rentals under the
Agreement for the month of December 1992; and (3) whether
Philcomsat is entitled to attorney’s fees and exemplary damages.
No reversible error was committed by the Court of Appeals in issuing
the assailed Decision; hence the petitions are denied.
There is no merit is Philcomsat’s argument that Section 8 of the
Agreement cannot be given effect because the enumeration of
events constituting force majeure therein unduly expands the
concept of a fortuitous event under Article 1174 of the Civil Code and
is therefore invalid.
In support of its position, Philcomsat contends that under Article
1174 of the Civil Code, an event must be unforeseen in order to
exempt a party to a contract from complying with its obligations
therein. It insists that since the expiration of the RP-US Military
Bases Agreement, the non-ratification of the Treaty of Friendship,
Cooperation and Security and the withdrawal of US military forces
and personnel from Cubi Point were not unforeseeable, but were
possibilities known to it and Globe at the time they entered into the
Agreement, such events cannot exempt Globe from performing its
obligation of paying rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from liability on
account of fortuitous events or force majeure, refers not only to
events that are unforeseeable, but also to those which are
foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which, could not be foreseen, or
which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an "act of God,"
or natural occurrences such as floods or typhoons,24 or an "act of
man," such as riots, strikes or wars.25
Philcomsat and Globe agreed in Section 8 of the Agreement that the
following events shall be deemed events constituting force majeure:
1. Any law, order, regulation, direction or request of the
Philippine Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other catastrophies or acts of
God;
9. Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or foreseeable but
beyond the control of the parties. There is nothing in the enumeration
that runs contrary to, or expands, the concept of a fortuitous event
under Article 1174.
Furthermore, under Article 130626 of the Civil Code, parties to a
contract may establish such stipulations, clauses, terms and
conditions as they may deem fit, as long as the same do not run
counter to the law, morals, good customs, public order or public
policy.27
Article 1159 of the Civil Code also provides that "[o]bligations arising
from contracts have the force of law between the contracting parties
and should be complied with in good faith."28 Courts cannot stipulate
for the parties nor amend their agreement where the same does not
contravene law, morals, good customs, public order or public policy,
for to do so would be to alter the real intent of the parties, and would
run contrary to the function of the courts to give force and effect
thereto.29
Not being contrary to law, morals, good customs, public order, or
public policy, Section 8 of the Agreement which Philcomsat and
Globe freely agreed upon has the force of law between them. 30
In order that Globe may be exempt from non-compliance with its
obligation to pay rentals under Section 8, the concurrence of the
following elements must be established: (1) the event must be
independent of the human will; (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner;
and (3) the obligor must be free of participation in, or aggravation of,
the injury to the creditor.31
The Court agrees with the Court of Appeals and the trial court that
the abovementioned requisites are present in the instant case.
Philcomsat and Globe had no control over the non-renewal of the
term of the RP-US Military Bases Agreement when the same expired
in 1991, because the prerogative to ratify the treaty extending the life
thereof belonged to the Senate. Neither did the parties have control
over the subsequent withdrawal of the US military forces and
personnel from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US
Military Bases Agreement (and its Supplemental
Agreements) under its Resolution No. 141. (Exhibit "2") on
September 16, 1991 is beyond the control of the parties.
This resolution was followed by the sending on December
31, 1991 o[f] a "Note Verbale" (Exhibit "3") by the Philippine
Government to the US Government notifying the latter of the
former’s termination of the RP-US Military Bases Agreement
(as amended) on 31 December 1992 and that accordingly,
the withdrawal of all U.S. military forces from Subic Naval
Base should be completed by said date. Subsequently,
defendant [Globe] received a formal order from Cdr. Walter
F. Corliss II Commander USN dated July 31, 1992 and a
notification from ATT dated July 29, 1992 to terminate the
provision of T1s services (via an IBS Standard B Earth
Station) effective November 08, 1992. Plaintiff [Philcomsat]
was furnished with copies of the said order and letter by the
defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note
Verbale of the Philippine Government to the US Government
are acts, direction or request of the Government of the
Philippines and circumstances beyond the control of the
defendant. The formal order from Cdr. Walter Corliss of the
USN, the letter notification from ATT and the complete
withdrawal of all the military forces and personnel from Cubi
Point in the year-end 1992 are also acts and circumstances
beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that
the afore-narrated circumstances constitute "force majeure
or fortuitous event(s) as defined under paragraph 8 of the
Agreement.
… mutuality between them based essentially on their equality
From the foregoing, the Court finds that the defendant is
exempted from paying the rentals for the facility for the
remaining term of the contract.
As a consequence of the termination of the RP-US Military
Bases Agreement (as amended) the continued stay of all US
Military forces and personnel from Subic Naval Base would
no longer be allowed, hence, plaintiff would no longer be in
any position to render the service it was obligated under the
Agreement. To put it blantly (sic), since the US military
forces and personnel left or withdrew from Cubi Point in the
year end December 1992, there was no longer any necessity
for the plaintiff to continue maintaining the IBS
facility…. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation of the
Agreement until the end of its five-year term without fault on the part
of either party. The Court of Appeals was thus correct in ruling that
the happening of such fortuitous events rendered Globe exempt from
payment of rentals for the remainder of the term of the Agreement.
Moreover, it would be unjust to require Globe to continue paying
rentals even though Philcomsat cannot be compelled to perform its
corresponding obligation under the Agreement. As noted by the
appellate court:
We also point out the sheer inequity of PHILCOMSAT’s
position. PHILCOMSAT would like to charge GLOBE rentals
for the balance of the lease term without there being any
corresponding telecommunications service subject of the
lease. It will be grossly unfair and iniquitous to hold GLOBE
liable for lease charges for a service that was not and could
not have been rendered due to an act of the government
which was clearly beyond GLOBE’s control. The binding
effect of a contract on both parties is based on the principle
that the obligations arising from contracts have the force of
law between the contracting parties, and there must be
under which it is repugnant to have one party bound by the
 contract while leaving the other party free therefrom (Allied
Banking Corporation v. Court of Appeals, 284 SCRA 357)
….33
With respect to the issue of whether Globe is liable for payment of
rentals for the month of December 1992, the Court likewise affirms
the appellate court’s ruling that Globe should pay the same.
Although Globe alleged that it terminated the Agreement with
Philcomsat effective 08 November 1992 pursuant to the formal order
issued by Cdr. Corliss of the US Navy, the date when they actually
ceased using the earth station subject of the Agreement was not
established during the trial.34 However, the trial court found that the
US military forces and personnel completely withdrew from Cubi
Point only on 31 December 1992.35 Thus, until that date, the USDCA
had control over the earth station and had the option of using the
same. Furthermore, Philcomsat could not have removed or rendered
ineffective said communication facility until after 31 December 1992
because Cubi Point was accessible only to US naval personnel up to
that time. Hence, the Court of Appeals did not err when it affirmed
the trial court’s ruling that Globe is liable for payment of rentals until
December 1992.
Neither did the appellate court commit any error in holding that
Philcomsat is not entitled to attorney’s fees and exemplary damages.
The award of attorney’s fees is the exception rather than the rule,
and must be supported by factual, legal and equitable
justifications.36 In previously decided cases, the Court awarded
attorney’s fees where a party acted in gross and evident bad faith in
refusing to satisfy the other party’s claims and compelled the former
to litigate to protect his rights;37 when the action filed is clearly
unfounded,38 or where moral or exemplary damages are
awarded.39 However, in cases where both parties have legitimate
claims against each other and no party actually prevailed, such as in
the present case where the claims of both parties were sustained in
part, an award of attorney’s fees would not be warranted. 40
Exemplary damages may be awarded in cases involving contracts or
quasi-contracts, if the erring party acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner.41 In the present case, it
was not shown that Globe acted wantonly or oppressively in not
heeding Philcomsat’s demands for payment of rentals. It was
established during the trial of the case before the trial court that
Globe had valid grounds for refusing to comply with its contractual
obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit. The
assailed Decision of the Court of Appeals in CA-G.R. CV No. 63619
is AFFIRMED.
SO ORDERED.
G.R. No. 119466 November 25, 1999
SALVADOR ADORABLE and LIGAYA ADORABLE, petitioners,
vs.
COURT OF APPEALS, HON. JOSE O. RAMOS, FRANCISCO
BARENG and SATURNINO BARENG, respondents.
MENDOZA, J.:
This is a petition for review under Rule 45 of the decision 1 of the
Court of Appeals, dated January 6, 1995, sustaining the dismissal by
Branch 24 of the Regional Trial Court, Echague, Isabela, of the
complaint filed by petitioners, spouses Salvador and Ligaya
Adorable, for lack of cause of action.
The facts are as follows:
Private respondent Saturnino Bareng was the registered owner of
two parcels of land, one identified as Lot No. 661-D-5-A, with an area
of 20,000 sq. m., covered by TCT No. T-162837, and the other
known as Lot No. 661-E, with an area of 4.0628 hectares, covered
by TCT No. T-60814, both of which are in San Fabian, Echague,
Isabela. Petitioners were lessees of a 200 sq. m. portion of Lot No.
661-D-5-A.
On April 29, 1985, Saturnino Bareng and his son, private respondent
Francisco Bareng, obtained a loan from petitioners amounting to
twenty six thousand pesos (P26,000), in consideration of which they
promised to transfer the possession and enjoyment of the fruits of
Lot No. 661-E.
On August 3, 1986, Saturnino sold to his son Francisco 18,500 sq.
m. of Lot No. 661-D-5-A. The conveyance was annotated on the
back of TCT No.
T-162873. In turn, Francisco sold on August 27, 1986 to private
respondent Jose Ramos 3,000 sq. m. of the lot. The portion of land
being rented to petitioners was included in the portion sold to Jose
Ramos. The deeds of sale evidencing the conveyances were not
registered in the office of the register of deeds.
As the Barengs failed to pay their loan, petitioners complained to
Police Captain Rodolfo Saet of the Integrated National Police (INP)
of Echague through whose mediation a Compromise Agreement was
executed between Francisco Bareng and the Adorables whereby the
former acknowledged his indebtedness of P56,385.00 which he
promised to pay on or before July 15, 1987. When the maturity date
arrived, however, Francisco Bareng failed to pay. A demand letter
was sent to Francisco Bareng, but he refused to pay.
Petitioners, learning of the sale made by Francisco Bareng to Jose
Ramos, then filed a complaint with the Regional Trial Court, Branch
24, Echague, Isabela for the annulment or rescission of the sale on
the ground that the sale was fraudulently prepared and executed.
During trial, petitioners presented as witness Jose Ramos. After his
testimony; the next hearing was set on August 4 and 5, 1990. On
said hearing dates, however, petitioners were absent. The trial court
therefore ordered the presentation of evidence for petitioners
terminated and allowed private respondents to present their
evidence ex parte. On February 15, 1991, the trial court rendered
judgment dismissing the complaint for lack of cause of action,
declaring the contract of sale between Francisco Bareng and Jose
Ramos valid and ordering Francisco Bareng to pay the amount he
owed petitioners.
On appeal, the Court of Appeals affirmed the decision of the
Regional Trial Court, with modification as to the amount of Francisco
Bareng's debt to petitioners.
Hence, this petition for review, raising the following issues: (1)
whether the Court of Appeals erred in dismissing the complaint for
lack of cause of action; (2) whether petitioners enjoyed legal
preference to purchase the lots they lease; and (3) whether the Court
of Appeals erred in sustaining the lower court's order terminating
petitioners' presentation of evidence and allowing private
respondents to present their evidence ex parte.
In sustaining the decision of the trial court dismissing the complaint
for lack of cause of action, the Court of Appeals premised its decision
on Rule 3, §2 of the former Rules of Court which provided:
Parties in interest. — Every action must be
prosecuted and defended in the name of the real
party in interest. All persons having an interest in the
subject of the action and in obtaining the relief
demanded shall be joined as plaintiffs. All persons
who claim an interest in the controversy or who are
necessary to a complete determination or settlement
of the questions involved therein shall be joined as
defendants.
A real party in interest is one who would be benefited or injured by
the judgment, or who is entitled to the avails of the suit. "Interest,"
within the meaning of this rule, should be material, directly in issue
and to be affected by the decree, as distinguished from a mere
incidental interest or in the question involved. 2 Otherwise put, an
action shall be prosecuted in the name of the party who, by the
substantive law, has the right sought to be enforced. 3
Petitioners anchor their interest on their right as creditors of
Francisco Bareng, as well as on their claim of preference over the
sale of the contested
lot. 4 They contend that the sale between Francisco Bareng and Jose
Ramos prejudiced their interests over the property as creditors of
Francisco Bareng. Moreover, they claim that, under Commonwealth
Act No. 539, they have a preferential right, as tenants or lessees, to
purchase the land in question.
The petition has no merit.
First. We hold that, as creditors, petitioners do not have such
material interest as to allow them to sue for rescission of the contract
of sale. At the outset, petitioners' right against private respondents is
only a personal right to receive payment for the loan; it is not a real
right over the lot subject of the deed of sale.
A personal right is the power of one person to demand of another, as
a definite passive subject, the fulfillment of a prestation to give, to do,
or not to do. On the other hand, a real right is the power belonging to
a person over a specific thing, without a passive subject individually
determined, against whom such right may be personally
exercised. 5 In this case, while petitioners have an interest in
securing payment of the loan they extended, their right to seek
payment does not in any manner attach to a particular portion of the
patrimony of their debtor, Francisco Bareng.
Nor can we sustain petitioners' claim that the sale was made in fraud
of creditors. Art. 1177 of the Civil Code provides:
The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may
exercise all the rights and bring all the actions of the
latter for the same purpose, save those which are
inherent in his person; they may also impugn the
actions which the debtor may have done to defraud
them. (Emphasis added)
Thus, the following successive measures must be taken by a creditor
before he may bring an action for rescission of an allegedly
fraudulent sale: (1) exhaust the properties of the debtor through
levying by attachment and execution upon all the property of the
debtor, except such as are exempt by law from execution; (2)
exercise all the rights and actions of the debtor, save those personal
to him (accion subrogatoria); and (3) seek rescission of the contracts
executed by the debtor in fraud of their rights (accion pauliana).
Without availing of the first and second remedies, i.e., exhausting the
properties of the debtor or subrogating themselves in Francisco
Bareng's transmissible rights and actions, petitioners simply
undertook the third measure and filed an action for annulment of the
sale. This cannot be done.
Indeed, an action for rescission is a subsidiary remedy; it cannot be
instituted except when the party suffering damage has no other legal
means to obtain reparation for the same. 6 Thus, Art. 1380 of the
Civil Code provides:
The following contracts are rescissible:
x x x           x x x          x x x
(3) Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the claims
due them;
Petitioners have not shown that they have no other means of
enforcing their credit. As the Court of Appeals pointed out in its
decision:
In this case, plaintiffs-appellants had not even
commenced an action against defendants-appellees
Bareng for the collection of the alleged
indebtedness. Plaintiffs-appellants had not even
tried to exhaust the property of defendants-appellees
Bareng. Plaintiffs-appellants, in seeking for the
rescission of the contracts of sale entered into
between defendants-appellees, failed to show and
 prove that defendants-appellees Bareng had no
other property, either at the time of the sale or at the
time this action was filed, out of which they could
have collected this (sic) debts.
Second. Nor do petitioners enjoy any preference to buy the
questioned property. In Aldecoa v. Hongkong and Shanghai Banking
Corporation, 7 it was held that in order that one who is not obligated
in a contract either principally or subsidiarily may maintain an action
for nullifying the same, his complaint must show the injury that would
positively result to him from the contract in which he has not
intervened, with regard at least to one of the contracting parties.
Petitioners attempt to establish such legal injury through a claim of
preference created under C.A. No. 539, the pertinent provision of
which provides:
Sec. 1. The President of the Philippines is
authorized to acquire private lands or any interest
therein, through purchase or expropriation, and to
subdivide the same into home lots or small farms for
resale at reasonable prices and under such
conditions as he may fix to their bona fide tenants or
occupants or to private individuals who will work the
lands themselves and who are qualified to acquire
and own lands in the Philippines.
This statute was passed to implement Art. XIII, §4 of the 1935
Constitution which provided that "The Congress may authorize, upon
payment of just compensation, the expropriation of lands to be
subdivided into small lots and conveyed at cost to individuals." It is
obvious that neither under this provision of the former Constitution
nor that of C.A. No. 539 can petitioners claim any right since the
grant of preference therein applies only to bona fide tenants, after the
expropriation or purchase by the government of the land they are
occupying. 8 Petitioners are not tenants of the land in question in this
case. Nor has the land been acquired by the government for their
benefit.
Third. Finally, we hold that no error was committed by the Court of
Appeals in affirming the order of the trial court terminating the
presentation of petitioners' evidence and allowing private
respondents to proceed with theirs because of petitioners' failure to
present further evidence at the scheduled dates of trial.
Petitioners contend that since their counsel holds office in Makati, the
latter's failure to appear at the trial in Isabela at the scheduled date of
hearing should have been treated by the court with a "sense of
fairness." 9
This is more a plea for compassion rather than explanation based on
reason. We cannot find grave abuse of discretion simply because a
court decides to proceed with the trial of a case rather than postpone
the hearing to another day, because of the absence of a party. That
the absence of a party during trial constitutes waiver of his right to
present evidence and cross-examine the opponent's witnesses is
firmly supported by jurisprudence. 10 To constitute grave abuse of
discretion amounting to lack or excess of jurisdiction, the refusal of
the court to postpone the hearing must be characterized by
arbitrariness or capriciousness. Here, as correctly noted by the Court
of Appeals, petitioners' counsel was duly notified through registered
mail of the scheduled trials. 11 His only excuse for his failure to
appear at the scheduled hearings is that he "comes from Makati."
This excuse might hold water if counsel was simply late in arriving in
the courtroom. But this was not the case. He did not appear at all.
WHEREFORE, the petition for review is DENIED, and the decision of
the Court of Appeals is AFFIRMED.
SO ORDERED.
G.R. No. 144169 March 28, 200
KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and
RAY STEVEN KHE, petitioners,
vs.
COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147,
MAKATI CITY and PHILAM INSURANCE CO., INC., respondents.
KAPUNAN, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45,
seeking to set aside the decision of the Court of Appeals dated April
10, 2000 and its resolution dated July 11, 2000 denying the motion
for reconsideration of the aforesaid decision. The original complaint
that is the subject matter of this case is an accion pauliana --  an
action filed by Philam Insurance Company, Inc. (respondent Philam)
to rescind or annul the donations made by petitioner Khe Hong
Cheng allegedly in fraud of creditors. The main issue for resolution is
whether or not the action to rescind the donations has already
prescribed. While the first paragraph of Article 1389 of the Civil Code
states: "The action to claim rescission must be commenced within
four years..." the question is, from which point or event does this
prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan
Shipping Lines. It appears that on or about October 4, 1985, the
Philippine Agricultural Trading Corporation shipped on board the
vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng,
3,400 bags of copra at Masbate, Masbate, for delivery to Dipolog
City, Zamboanga del Norte. The said shipment of copra was covered
by a marine insurance policy issued by American Home Insurance
Company (respondent Philam's assured). M/V PRINCE ERlC,
however, sank somewhere between Negros Island and Northeastern
Mindanao, resulting in the total loss of the shipment. Because of the
loss, the insurer, American Home, paid the amount of P354,000.00
(the value of the copra) to the consignee.1âwphi1.nêt
Having been subrogated into the rights of the consignee, American
Home instituted Civil Case No. 13357 in the Regional Trial Court
(RTC) of Makati , Branch 147 to recover the money paid to the
consignee, based on breach of contract of carriage. While the case
was still pending, or on December 20, 1989, petitioner Khe Hong
Cheng executed deeds of donations of parcels of land in favor of his
children, herein co-petitioners Sandra Joy and Ray Steven. The
parcel of land with an area of 1,000 square meters covered by
Transfer Certificate of Title (TCT) No. T-3816 was donated to Ray
Steven. Petitioner Khe Hong Cheng likewise donated in favor of
Sandra Joy two (2) parcels of land located in Butuan City, covered by
TCT No. RT-12838. On the basis of said deeds, TCT No. T-3816
was cancelled and in lieu thereof, TCT No. T-5072 was issued in
favor of Ray Steven and TCT No. RT-12838 was cancelled and in
lieu thereof, TCT No. RT-21054 was issued in the name of Sandra
Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng
in Civil Case No.13357 on December 29, 1993, four years after the
donations were made and the TCTs were registered in the donees'
names. The decretal portion of the aforesaid decision reads:
"Wherefore, in view of the foregoing, the Court hereby
renders judgment in favor of the plaintiff and against the
defendant, ordering the latter to pay the former:
1) the sum of P354,000.00 representing the amount paid by
the plaintiff to the Philippine Agricultural Trading Corporation
with legal interest at 12% from the time of the filing of the
complaint in this case;
2) the sum of P50,000.00 as attorney's fees;
3) the costs.1
After the said decision became final and executory, a writ of
execution was forthwith' issued on September 14, 1995. Said writ of
execution however, was not served. An alias writ of execution was,
thereafter, applied for and granted in October 1996. Despite earnest
efforts, the sheriff found no property under the name of Butuan
Shipping Lines and/or petitioner Khe Hong Cheng to levy or garnish
for the satisfaction of the trial court's decision. When the sheriff,
accompanied by counsel of respondent Philam, went to Butuan City
on January 17, 1997, to enforce the alias writ of execution, they
discovered that petitioner Khe Hong Cheng no longer had any
property and that he had conveyed the subject properties to his
children.
On February 25, 1997, respondent Philam filed a complaint with the
Regional Trial Court of Makati City, Branch 147, for the rescission of
the deeds of donation executed by petitioner Khe Hong Cheng in
favor of his children and for the nullification of their titles (Civil Case
No.97-415). Respondent Philam alleged, inter alia, that petitioner
Khe Hong Cheng executed the aforesaid deeds in fraud of his
creditors, including respondent Philam.2
Petitioners subsequently filed their answer to the complaint a
quo. They moved for its dismissal on the ground that the action had
already prescribed. They posited that the registration of the deeds of
donation on December 27, 1989 constituted constructive notice and
since the complaint a quo  was filed only on February 25, 1997, or
more than four (4) years after said registration, the action was
already barred by prescription.3
Acting thereon, the trial court denied the motion to dismiss. It held
that respondent Philam's complaint had not yet prescribed.
According to the trial court, the prescriptive period began to run only
from December 29, 1993, the date of the decision of the trial court in
Civil Case No. 13357.4
On appeal by petitioners, the CA affirmed the trial court's decision in
favor of respondent Philam. The CA declared that the action to
rescind the donations had not yet prescribed. Citing Articles 1381
and 1383 of the Civil Code, the CA basically ruled that the four year
period to institute the action for rescission began to run only in
January 1997, and not when the decision in the civil case became
final and executory on December 29, 1993. The CA reckoned the
accrual of respondent Philam's cause of action on January 1997, the
time when it first learned that the judgment award could not be
satisfied because the judgment creditor, petitioner Khe Hong Cheng,
had no more properties in his name. Prior thereto, respondent
Philam had not yet exhausted all legal means for the satisfaction of
the decision in its favor, as prescribed under Article 1383 of the Civil
Code.5
The Court of Appeals thus denied the petition for certiorari filed
before it, and held that the trial court did not commit any error in
denying petitioners' motion to dismiss. Their motion for
reconsideration was likewise dismissed in the appellate court's
resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the
CA alleging that:
I
PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN
GRAVE ABUSE OF DISCRETION WHEN IT DENIED THE
PETITION TO DISMISS THE CASE BASED ON THE
GROUND OF PRESCRIPTION.
II
PUBLIC RESPONDENT COURT OF APPEALS GRAVELY
ERRED IN HOLDING THAT PRESCRIPTION BEGINS TO
RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO
BUTUAN CITY IN SEARCH OF PROPERTIES OF
PETITIONER FELIX KHE CHENG TO SATISFY THE
JUDGMENT IN CIVIL CASE NO.13357 AND FOUND OUT
THAT AS EARLY AS DEC. 20, 1989, PETITIONERS KHE
CHENG EXECUTED THE DEEDS OF DONATIONS IN
FAVOR OF HIS CO-PETITIONERS THAT THE ACTION
FOR RESCISSION ACCRUED BECAUSE PRESCRIPTION
BEGAN TO RUN WHEN THESE DONATIONS WERE
REGISTERED WITH THE REGISTER OF DEEDS IN
DECEMBER 1989, AND WHEN THE COMPLAINT WAS
FILED ONLY IN FEBRUARY 1997, MORE THAN FOUR
YEARS HAVE ALREADY LAPSED AND THEREFORE, IT
HAS ALREADY PRESCRIBED.6
Essentially, the issue for resolution posed by petitioners is
this: When did the four (4) year prescriptive period as provided for in
Article 1389 of the Civil Code for respondent Philam to file its action
for rescission of the subject deeds of donation commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, "The action to
claim rescission must be commenced within four years." Since this
provision of law is silent as to when the prescriptive period would
commence, the general rule, i.e., from the moment the cause of
action accrues, therefore, applies. Article 1150 of the Civil Code is
particularly instructive:
Art. 1150. The time for prescription for all kinds of actions,
when there is no special provision which ordains otherwise,
shall be counted from the day they may be brought.
Indeed, this Court enunciated the principle that it is the legal
possibility of bringing the action which determines the starting point
for the computation of the prescriptive period for the action. 7 Article
1383 of the Civil Code provides as follows:
Art. 1383. An action for rescission is subsidiary; it cannot be
instituted except when the party suffering damage has no
other legal means to obtain reparation for the same.
It is thus apparent that an action to rescind or an accion
pauliana  must be of last resort, availed of only after all other legal
remedies have been exhausted and have been proven futile. For
an accion pauliana  to accrue, the following requisites must concur:
1) That the plaintiff asking for rescission has a credit prior to,
the alienation, although demandable later; 2) That the debtor
has made a subsequent contract conveying a patrimonial
benefit to a third person; 3) That the creditor has no other
legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the third person; 4) That the
act being impugned is fraudulent; 5) That the third person
who received the property conveyed, if by onerous title, has
been an accomplice in the fraud.8 (Emphasis ours)
We quote with approval the following disquisition of the CA on the
matter:
An accion pauliana accrues only when the creditor discovers
that he has no other legal remedy for the satisfaction of his
claim against the debtor other than an accion
pauliana.  The accion pauliana  is an action of a last resort.
For as long as the creditor still has a remedy at law for the
enforcement of his claim against the debtor, the creditor will
not have any cause of action against the creditor for
rescission of the contracts entered into by and between the
debtor and another person or persons. Indeed, an accion
pauliana  presupposes a judgment and the issuance by the
trial court of a writ of execution for the satisfaction of the
judgment and the failure of the Sheriff to enforce and satisfy
the judgment of the court. It presupposes that the creditor
has exhausted the property of the debtor. The date of the
decision of the trial court against the debtor is immaterial.
What is important is that the credit of the plaintiff antedates
that of the fraudulent alienation by the debtor of his property.
After all, the decision of the trial court against the debtor will
retroact to the time when the debtor became indebted to the
creditor.9
Petitioners, however, maintain that the cause of action of respondent
Philam against them for the rescission of the deeds of donation
accrued as early as December 27, 1989, when petitioner Khe Hong
Cheng registered the subject conveyances with the Register of
Deeds. Respondent Philam allegedly had constructive knowledge of
the execution of said deeds under Section 52 of Presidential Decree
No. 1529, quoted infra, as follows:
Section 52. Constructive knowledge upon registration. -
Every conveyance, mortgage, lease, lien, attachment, order,
judgment, instrument or entry affecting registered land shall,
if registered, filed or entered in the Office of the Register of
Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the
time of such registering, filing, or entering.
Petitioners argument that the Civil Code must yield to the Mortgage
and Registration Laws is misplaced, for in no way does this imply
that the specific provisions of the former may be all together ignored.
To count the four year prescriptive period to rescind an allegedly
fraudulent contract from the date of registration of the conveyance
with the Register of Deeds, as alleged by the petitioners, would run
counter to Article 1383 of the Civil Code as well as settled
jurisprudence. It would likewise violate the third requisite to file an
action for rescission of an allegedly fraudulent conveyance of
property, i.e., the creditor has no other legal remedy to satisfy his
claim.
An accion pauliana thus presupposes the following: 1) A judgment;
2) the issuance by the trial court of a writ of execution for the
satisfaction of the judgment, and 3) the failure of the sheriff to
enforce and satisfy the judgment of the court. It requires that the
creditor has exhausted the property of the debtor: The date of the
decision of the trial court is immaterial. What is important is that the
credit of the plaintiff antedates that of the fraudulent alienation by the
debtor of his property. After all, the decision of the trial court against
the debtor will retroact to the time when the debtor became indebted
to the creditor.
Tolentino, a noted civilist, explained:
"xxx[T]herefore, credits with suspensive term or condition are
excluded, because the accion pauliana presupposes a
judgment and unsatisfied execution, which cannot exist
when the debt is not yet demandable at the time the
rescissory action is brought. Rescission is a subsidiary
action, which presupposes that the creditor has exhausted
the property of the debtor which is impossible in credits
which cannot be enforced because of a suspensive term or
condition.
While it is necessary that the credit of the plaintiff in
the accion pauliana  must be prior to the fraudulent
alienation, the date of the judgment enforcing it is immaterial.
Even if the judgment be subsequent to the alienation, it is
merely declaratory with retroactive effect to the date when
the credit was constituted."10
These principles were reiterated by the Court when it explained the
requisites of an accion pauliana  in greater detail, to wit:
"The following successive measures must be taken by a
creditor before he may bring an action for rescission of an
allegedly fraudulent sale: (1) exhaust the properties of the
debtor through levying by attachment and execution upon all
the property of the debtor, except such as are exempt from
execution; (2) exercise all the rights and actions of the
debtor, save those personal to him (accion subrogatoria);
and (3) seek rescission of the contracts executed by the
debtor in fraud of their rights (accion pauliana). Without
availing of the first and second remedies, i.e.. exhausting the
properties of the debtor or subrogating themselves in
Francisco Bareg's transmissible rights and actions.
petitioners simply: undertook the third measure and filed an
action for annulment of sale. This cannot be
done."11 (Emphasis ours)
In the same case, the Court also quoted the rationale of the CA when
it upheld the dismissal of the accion pauliana on the basis of lack of
cause of action:
"In this case, plaintiffs appellants had not even commenced
an action against defendants-appellees Bareng for the
collection of the alleged indebtedness, Plaintiffs-appellants
had not even tried to exhaust the property of defendants-
appellees Bareng, Plaintiffs-appellants, in seeking the
rescission of the contracts of sale entered into between
defendants-appellees, failed to show and prove that
defendants-appellees Bareng had no other property,  either
at the time of the sale or at the time this action was filed, out
of which they could have collected this (sic) debts."
(Emphasis ours)
Even if respondent Philam was aware, as of December 27, 1989,
that petitioner Khe Hong Cheng had executed the deeds of donation
in favor of his children, the complaint against Butuan Shipping Lines
and/or petitioner Khe Hong Cheng was still pending before the trial
court. Respondent Philam had no inkling, at the time, that the trial
court’s judgment would be in its favor and further, that such judgment
would not be satisfied due to the deeds of donation executed by
petitioner Khe Hong Cheng during the pendency of the case. Had
respondent Philam filed his complaint on December 27, 1989, such
complaint would have been dismissed for being premature. Not only
were all other legal remedies for the enforcement of respondent
Philam's claims not yet exhausted at the time the needs of donation
were executed and registered. Respondent Philam would also not
have been able to prove then that petitioner Khe Hong Cheng had no
more property other than those covered by the subject deeds to
satisfy a favorable judgment by the trial court.
It bears stressing that petitioner Khe Hong Cheng even expressly
declared and represented that he had reserved to himself property
sufficient to answer for his debts contracted prior to this date:
"That the DONOR further states, for the same purpose as
expressed in the next preceding paragraph, that this
donation is not made with the object of defrauding his
creditors having reserved to himself property sufficient to
answer his debts contracted prior to this date". 12
A final point. Petitioners now belatedly raise on appeal the defense of
improper venue claiming that respondent Philam's complaint is a real
action and should have been filed with the RTC of Butuan City since
the property subject matter or the donations are located therein.
Suffice it to say that petitioners are already deemed to have waived
their right to question the venue of the instant case. Improper venue
should be objected to as follows 1) in a motion to dismiss filed within
the time but before the filing of the answer;13 or 2) in the answer as
an affirmative defense over which, in the discretion of the court, a
preliminary hearing may be held as if a motion to dismiss had been
filed.14 Having failed to either file a motion to dismiss on the ground
of improper of venue or include the same as an affirmative defense
in their answer, petitioners are deemed to have their right to object to
improper venue.
WHEREFORE, premises considered, the petition is
hereby DENIED for lack of merit.
SO ORDERED.

As mentioned earlier, respondent Philam only learned about the

unlawful conveyances made by petitioner Khe Hong Cheng in
January 1997 when its counsel accompanied the sheriff to Butuan
City to attach the properties of petitioner Khe Hong Cheng. There
they found that he no longer had any properties in his name. It was
only then that respondent Philam's action for rescission of the deeds
of donation accrued because then it could be said that respondent
Philam had exhausted all legal means to satisfy the trial court's
judgment in its favor. Since respondent Philam filed its complaint
for accion pauliana against petitioners on February 25, 1997, barely
a month from its discovery that petitioner Khe Hong Cheng had no
other property to satisfy the judgment award against him, its action
for rescission of the subject deeds clearly had not yet
prescribed.1âwphi1.nêt