EN BANC blames the truck.
We have given close attention to these highly debatable points, and having
[G.R. No. 34840. September 23, 1931.]
NARCISO GUTIERREZ, plaintiff-appellee, vs. BONIFACIO GUTIERREZ,
MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO
VELASCO, and SATURNINO CORTEZ, defendants-appellants.
L. D. Lockwood, for appellants Velasco and Cortez.
San Agustin & Roxas, for other appellants.
Ramon Diokno, for appellee.
SYLLABUS
1. DAMAGES; MASTER AND SERVANT; MOTOR VEHICLES; LIABILITY OF
HEAD OF HOUSE FOR ACTS OF DRIVER WHO IS HIS MINOR CHILD. — The head of a
house, the owner of an automobile, who maintains it for the general use of his family, is liable
for its negligent operation by one of his children, whom he designates or permits to run it, where
the car is occupied and being used at the time of the injury for the pleasure of other members
of the owner's family than the child driving it.
2. ID.; ID.; ID.; ID.; CASE AT BAR. — One G, a passenger in a truck, recovers
damages in the amount of P5,000 from the owner of a private automobile not in the car, the
machine being operated by a son 18 years of age, with other members of the family
accommodated therein, and from the chauffeur and owner of the truck which collided with the
private automobile on a bridge, causing physical injuries to G as a result of the automobile
accident.
DECISION
MALCOLM, J p:
This is an action brought by the plaintiff in the Court of First Instance of Manila
against the five defendants, to recover damages in the amount of P10,000, for physical
injuries suffered as a result of an automobile accident. On judgment being rendered as prayed
for by the plaintiff, both sets of defendants appealed.
On February 2, 1930, a passenger truck and an automobile of private ownership
collided while attempting to pass each other on the Talon bridge on the Manila South Road in
the municipality of Las Pinas, Province of Rizal. The truck was driven by the chauffeur
Abelardo Velasco, and was owned by Saturnino Cortez. The automobile was being operated
by Bonifacio Gutierrez, a lad 18 years of age, and was owned by Bonifacio's father and
mother, Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the father was not in the
car, but the mother, together with several other members of the Gutierrez family, seven in all,
were accommodated therein. A passenger in the autobus, by the name of Narciso Gutierrez,
was en route from San Pablo, Laguna, to Manila. The collision between the bus and the
automobile resulted in Narciso Gutierrez suffering a fractured right leg which required medical
attendance for a considerable period of time, and which even at the date of the trial appears
not to have healed properly.
It is conceded that the collision was caused by negligence pure and simple. The
difference between the parties is that, while the plaintiff blames both sets of defendants, the
owner of the passenger truck blames the automobile, and the owner of the automobile, in turn,
done so, a majority of the court are of the opinion that the findings of the trial judge on all
controversial questions of fact find sufficient support in the record, and so should be
maintained. With this general statement set down, we turn to consider the respective legal
obligations of the defendants.
In amplification of so much of the above pronouncement as concerns
the Gutierrez family, it may be explained that the youth Bonifacio was an incompetent
chauffeur, that he was driving at an excessive rate of speed, and that, on approaching the
bridge and the truck, he lost his head and so contributed by his negligence to the accident.
The guaranty given by the father at the time the son was granted a license to operate motor
vehicles made the father responsible for the acts of his son. Based on these facts, pursuant to
the provisions of article 1903 of the Civil Code, the father alone and not the minor or the
mother, would be liable for the damages caused by the minor.
We are here dealing with the civil law liability of parties for obligations which arise
from fault or negligence. At the same time, we believe that, as has been done in other cases,
we can take cognizance of the common law rule on the same subject. In the United States, it
is uniformly held that the head of a house, the owner of an automobile, who maintains it for the
general use of his family is liable for its negligent operation by one of his children, whom he
designates or permits to run it, where the car is occupied and being used at the time of the
injury for the pleasure of other members of the owner's family than the child driving it. The
theory of the law is that the running of the machine by a child to carry other members of the
family is within the scope of the owner's business, so that he is liable for the negligence of the
child because of the relationship of master and servant. (Huddy On Automobiles, 6th ed., sec.
660; Missell vs. Hayes [1914], 91 Alt., 322.)
The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur
Abelardo Velasco rests on a different basis, namely, that of contract which, we think, has been
sufficiently demonstrated by the allegations of the complaint, not controverted, and the
evidence. The reason for this conclusion reaches to the findings of the trial court concerning
the position of the truck on the bridge, the speed in operating the machine, and the lack of
care employed by the chauffeur. While these facts are not as clearly evidenced as are those
which convict the other defendant, we nevertheless hesitate to disregard the points
emphasized by the trial judge. In its broader aspects, the case is one of two drivers
approaching a narrow bridge from opposite directions, with neither being willing to slow up and
give the right of way to the other, with the inevitable result of a collision and an accident.
The defendants Velasco and Cortez further contend that there existed contributory
negligence on the part of the plaintiff, consisting principally of his keeping his foot outside the
truck, which occasioned his injury. In this connection, it is sufficient to state that, aside from
the fact that the defense of contributory negligence was not pleaded, the evidence bearing out
this theory of the case is contradictory in the extreme and leads us far afield into speculative
matters.
The last subject for consideration relates to the amount of the award. The appellee
suggests that the amount could justly be raised to P16,517, but naturally is not serious in
asking for this sum, since no appeal was taken by him from the judgment. The other parties
unit in challenging the award of P10,000, as excessive. All facts considered, including actual
expenditures and damages for the injury to the leg of the plaintiff, which may cause him
permanent lameness, in connection with other adjudications of this court, lead us to conclude
that a total sum for the plaintiff of P5,000 would be fair and reasonable. The difficulty in
approximating the damages by monetary compensation is well elucidated by the divergence of
opinion among the members of the court, three of whom have inclined to the view that P3,000
 would be amply sufficient, while a fourth member has argued that P7,500 would be none too
much.
In consonance with the foregoing rulings, the judgment appealed from will be
modified, and the plaintiff will have judgment in his favor against the defendants
Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and severally, for the sum
of P5,000, and the costs of both instances.
Avancena, C.J., Johnson, Street, Villamor, Ostrand, Romualdez and Imperial,
JJ., concur.
Villa-Real, J., I vote for an indemnity of P7,500.
||| (Gutierrez v. Gutierrez, G.R. No. 34840, [September 23, 1931], 56 PHIL 177-181)
FIRST DIVISION
[G.R. No. 48930. February 23, 1944.]
ANTONIO VAZQUEZ, petitioner, vs. FRANCISCO
DE BORJA, respondent.
[G.R. No. 48931. February 23, 1944.]
FRANCISCO DE BORJA, petitioner, vs.
ANTONIO VAZQUEZ, respondent.
SYLLABUS
OZAETA, J p:
1. CORPORATIONS; OFFICERS' PERSONAL LIABILITY ON CONTRACTS. — It is
well known that a corporation is an artificial being invested by law with a personality of its own,
separate and distinct from that of its stockholders and from that of its officers who manage and
run its affairs. The mere fact that its personality is owing to a legal fiction and that it necessarily
has to act thru its agents, does not make the latter personally liable on a contract duly entered
into, or for an act lawfully performed, by them for and in its behalf. The legal fiction by which the
personality of a corporation is created is a practical reality and necessity. Without it no corporate
entities may exist and no corporate business may be transacted. Such legal fiction may be
disregarded only when an attempt is made to use it as a cloak to hide an unlawful or fraudulent
purpose. No such thing has been alleged or proven in this case. It has not been alleged nor
even intimated thatVazquez personally benefited by the contract of sale in question and that he
is merely invoking the legal fiction to avoid personal liability. Neither is it contended that he
entered into said contract for the corporation in bad faith and with intent to defraud the plaintiff.
We find no legal and factual basis upon which to hold him liable on the contract either principally
or subsidiarily.
2. ID.; ID.; NEGLIGENCE. — The trial court found him guilty of negligence in the
performance of the contract and held him personally liable on that account. On the other hand,
the Court of Appeals found that he "no solamente obro con negligencia, sino interviniendo culpa
de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser
responsable subsidiariamente del pago de la cantidad objeto de la demanda." We think both
the trial court and the Court of Appeals erred in law in so holding. They have manifestly failed
to distinguish a contractual from an extracontractual obligation, or an obligation arising from
contract from an obligation arising from culpa aquiliana. The fault and negligence referred to in
articles 1101-1104 of the Civil Code are those incidental to the fulfillment or nonfulfillment of a
contractual obligation; while the fault or negligence referred to in article 1902 is the culpa
aquiliana of the civil law, homologous but not identical to tort of the common law, which gives
rise to an obligation independently of any contract. (Cf. Manila R. R. Co. vs. Cia. Trasatlantica,
38 Phil., 875, 887-890; Cangco vs. Manila R. R. Co., 38 Phil., 768.) The fact that the corporation,
acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract,
did not make Vazquez principally or even subsidiarily liable for such negligence. Since it was
the corporation's contract, its nonfulfillment, whether due to negligence or fault or to any other
cause, made the corporation and not its agent liable.
3. ID.; ID.; ID. — On the other hand, independently of the contract Vazquez by his
fault or negligence caused damage to the plaintiff, he would be liable to the latter under article
1902 of the Civil Code. But then the plaintiff's cause of action should be based on culpa
aquiliana and not on the contract alleged in his complaint herein; and Vazquez' liability would
be principal and not merely subsidiary, as the Court of Appeals has erroneously held.
4. ID.; ID.; ID.; NO CAUSE OF ACTION BASED ON "CULPA AQUILIANA"
ALLEGED IN COMPLAINT OR LITIGATED IN TRIAL COURT; NO JURISDICTION OVER THE
ISSUE. — No such cause of action was alleged in the complaint or tried by express or implied
consent of the parties by virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction
over the issue and could not adjudicate upon it. (Reyes vs. Diaz, G. R. No. 48754.)
Consequently it was error for the Court of Appeals to remand the case to the trial court to try
and decide such issue.
DECISION
This action was commenced in the Court of First Instance of Manila by Francisco
de Borja against Antonio Vazquez and Fernando Busuego to recover from them jointly and
severally the total sum of P4,702.70 upon three alleged causes of action, to wit: First, that in
or about the month of January, 1932, the defendants jointly and severally obligated
themselves to sell to the plaintiff 4,000 cavans of palay at P2.10 per cavan, to be delivered
during the month of February, 1932, the said defendants having subsequently received from
the plaintiff in virtue of said agreement the sum of P8,400; that the defendants delivered to the
plaintiff during the months of February, March, and April, 1932, only 2,488 cavans of palay of
the value of P5,224.80 and refused to deliver the balance of 1,512 cavans of the value of
P3,175.20 notwithstanding repeated demands. Second, that because of defendants' refusal to
deliver to the plaintiff the said 1,512 cavans of palay within the period above mentioned, the
plaintiff suffered damages in the sum of P1,000. And, third, that on account of the agreement
above mentioned the plaintiff delivered to the defendants 4,000 empty sacks, of which they
returned to the plaintiff only 2,490 and refused to deliver to the plaintiff the balance of 1,510
sacks or to pay their value amounting to P377.50; and that on account of such refusal the
plaintiff suffered damages in the sum of P150.
The defendant Antonio Vazquez answered the complaint, denying having entered
into the contract mentioned in the first cause of action in his own individual and personal
capacity, either solely or together with his codefendant Fernando Busuego, and alleging that
the agreement for the purchase of 4,000 cavans of palay and the payment of the price of
P8,400 were made by the plaintiff with and to the Natividad-Vazquez Sabani Development
Co., Inc., a corporation organized and existing under the laws of the Philippines, of which the
defendant Antonio Vazquez was the acting manager at the time the transaction took place. By
way of counterclaim, the said defendant alleged that he suffered damages in the sum of
P1,000 on account of the filing of this action against him by the plaintiff with full knowledge
that the said defendant had nothing to do whatever with any and all of the transactions
mentioned in the complaint in his own individual and personal capacity.
The trial court rendered judgment ordering the defendant Antonio Vazquez to pay
to the plaintiff the sum of P3,175.20 plus the sum of P377.50, with legal interest on both sums,
and absolving the defendant Fernando Busuego (treasurer of the corporation) from the
complaint and the plaintiff from the defendant Antonio Vazquez' counterclaim. Upon appeal to
the Court of Appeals, the latter modified that judgment by reducing it to the total sum of
P3,314.78, with legal interest thereon and the costs. But by a subsequent resolution upon the
defendant's motion for reconsideration, the Court of Appeals set aside its judgment and
ordered that the case be remanded to the court of origin for further proceedings. The
defendant Vazquez, not being agreeable to that result, filed the present petition for certiorari
(G.R. No. 48930) to review and reverse the judgment of the Court of Appeals; and the plaintiff
Francisco de Borja, excepting to the resolution of the Court of Appeals whereby its original
judgment was set aside and the case was ordered remanded to the court of origin for further
proceedings, filed a cross-petition for certiorari (G.R. No. 48931) to maintain the original
judgment of the Court of Appeals.
The original decision of the Court of Appeals and its subsequent resolutions on
reconsideration read as follows:
"Es hecho no controvertido que el 25 de Febrero de 1932, el demandado-apelante
vendio al demandante 4,000 cavanes de palay al precio de P2.10 el cavan, de los cuales,
dicho demandante solamente recibio 2,583 cavanes; y que asimismo recibio para su envase
4,000 sacos vacios. Esta probado que de dichos 4,000 sacos vacios solamente se
entregaron, 2,583 quedando en poder del demandado el resto, y cuyo valor es el de P0.24
cada uno. Presentada la demanda contra los demandados Antonio Vazquez y Fernando
Busuego para el pago de la cantidad de P4,702.70, con sus intereses legales desde el 1.0 de
marzo de 1932 hasta su completeo pago y las costas, el Juzgado de Primera Instancia de
Manila fallo el asunto condenando a Antonio Vazquez a pagar al demandante la cantidad de
P3,175.20, mas la cantidad de P377.50, con sus intereses legales, absolviendo al
demandado Fernando Busuego de la demanda y al demandante de la reconvencion de los
demandados, sin especial pronunciamiento en cuanto a las costas. De dicha decision apelo el
demandado Antonio Vazquez, apuntando como principal error el de que el habia sido
condenado personalmente, y no la corporacion por el representada.
"Segun la preponderancia de las pruebas, la venta hecha por Antonio Vazquez a
favor de Francisco de Borja de los 4,000 cavanes de palay fue en su capacidad de Presidente
interino y Manager de la corporacion Natividad-Vazquez Sabani Development Co., Inc. Asi
resulta del Exh. 1, que es la copia al carbon del recibo otorgado por el demandado Vazquez,
y cuyo original lo habia perdido el demandante, segun el. Asi tambien consta en los libros de
la corporacion arriba mencionada, puesto que en los mismos se ha asentado tanto la entrada
de los P8,400, precio del palay, como su envio al gobierno en pago de los alquileres de la
Hacienda Sabani. Asi mismo lo admitio Francisco de Borja al abogado Sr. Jacinto Tomacruz,
posterior presidente de la corporacion sucesora en el arrendamiento de la Sabani Estate,
cuando el solicito sus buenos oficios para el cobro del precio del palay no entregado. Asi
igualmente lo declaro el que hizo entrega de parte del palay a Borja, Felipe Veneracion, cuyo
testimonio no ha sido refutado. Y asi se deduce de la misma demanda, cuando se incluyo en
ella a Fernando Busuego, tesorero de la Natividad-Vazquez Sabani Development Co., Inc.
"Siendo esto asi, la principal responsable debe ser la Natividad- Vazquez Sabani
Development Co., Inc., que quedo insolvente y dejo de existir. El Juez sentenciador declaro,
sin embargo, al demandado Vazquez responsable del pago de la cantidad reclamada por su
negligencia al vender los referidos 4,000 cavanes de palay sin averiguar antes si o no dicha
cantidad existia en las bodegas de la corporacion.
"Resulta del Exh. 8 que despues de la venta de los 4,000 cavanes de palay a
Francisco de Borja, el mismo demandado vendio a Kwong Ah Phoy 1,500 cavanes al precio
de P2.00 el cavan, y decimos 'despues' porque esta ultima venta aparece asentada despues
de la primera. Segun esto, el apelante no solamente obro con negligencia, sino interviniendo
culpa de su parte, por lo que de acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el
debe ser responsable subsidiariamente del pago de la cantidad objeto de la demanda.
"En meritos de todo lo expuesto, se confirma la decision apelada con la
modificacion de que el apelante debe pagar al apelado la suma de P2,975.70 como valor de
los 1,417 cavanes de palay que dejo de entregar al demandante, mas la suma de P339.08
como importe de los 1,417 sacos vacios, que dejo de devolver, a razon de P0.24 el saco, total
P3,314.78, con sus intereses legales desde la interposicion de la demanda y las costas de
ambas instancias."
"Vista la mocion de reconsideracion de nuestra decision de fecha 13 de Octubre de
1942, y alegandose en la misma que cuando el apelante vendio los 1,500 cavanes de palay a
Ah Phoy, la corporacion todavia tenia bastante existencia de dicho grano, y no estando dicho
extremo suficientemente discutido y probado, y pudiendo variar el resultado del asunto,
dejamos sin efecto nuestra citada decision, y ordenamos la devolucion de la causa al
Juzgado de origen para que reciba pruebas al efecto y dicte despues la decision
correspondiente."
"Upon consideration of the motion of the attorney for the plaintiff-appellee in case
CA-G.R. No. 8676, Francisco de Borja vs. Antonio Vazquez et al., praying, for the reasons
therein given, that the resolution of December 22, 1942, be reconsidered: Considering that
said resolution remanding the case to the lower court is for the benefit of the plaintiff-appellee
to afford him opportunity to refute the contention of the defendant-appellant Antonio Vazquez,
motion denied."
The action is on a contract, and the only issue pleaded and tried is whether the
plaintiff entered into the contract with the defendant Antonio Vazquez in his personal capacity
or as manager of the Natividad-Vazquez Sabani Development Co., Inc. The Court of Appeals
found that according to the preponderance of the evidence "the sale made by
Antonio Vazquez in favor of Francisco de Borja of 4,000 cavans of palay was in his capacity
as acting president and manager of the corporation Natividad-Vazquez Sabani Development
Co., Inc." That finding of fact is final and, it resolving the only issue involved, should be
determinative of the result.
The Court of Appeals doubly erred in ordering that the cause be remanded to the
court of origin for further trial to determine whether the corporation had sufficient stock of palay
at the time appellant sold 1,500 cavans of palay to Kwong Ah Phoy. First, if that point was
material to the issue, it should have been proven during the trial; and the statement of the
court that it had not been sufficiently discussed and proven was no justification for ordering a
new trial, which, by the way, neither party had solicited but against which, on the contrary,
both parties now vehemently protest. Second, the point is, in any event, beside the issue, and
this we shall now discuss in connection with the original judgment of the Court of Appeals
which the plaintiff cross-petitioner seeks to maintain.
The action being on a contract, and it appearing from the preponderance of the
evidence that the party liable on the contract is the Natividad-Vazquez Sabani Development
Co., Inc., which is not a party herein, the complaint should have been dismissed. Counsel for
the plaintiff, in his brief as respondent, argues that altho by the preponderance of the evidence
the trial court and the Court of Appeals found that Vazquez celebrated the contract in his
capacity as acting president of the corporation and altho it was the latter, thru Vazquez, with
which the plaintiff had contracted and which, thru Vazquez, had received the sum of P8,400
from Borja, and altho that was true from the point of view of a legal fiction, "ello no impide que
tambien sea verdad lo alegado en la demanda de que la persona de Vazquez fue la que
contrato con Borja y que la misma persona de Vazquez fue quien recibio la suma de P8,400."
But such argument is invalid and insufficient to show that the president of the corporation is
personally liable on the contract duly and lawfully entered into by him in its behalf.
It is well known that a corporation is an artificial being invested by law with a
personality of its own, separate and distinct from that of its stockholders and from that of its
officers who manage and run its affairs. The mere fact that its personality is owing to a legal
fiction and that it necessarily has to act thru its agents, does not make the latter personally
liable on a contract duly entered into, or for an act lawfully performed, by them for and in its
behalf. The legal fiction by which the personality of a corporation is created is a practical
reality and necessity. Without it no corporate entities may exist and no corporate business
may be transacted. Such legal fiction may be disregarded only when an attempt is made to
use it as a cloak to hide an unlawful or fraudulent purpose. No such thing has been alleged or
proven in this case. It has not been alleged nor even intimated that Vazquez personally
benefited by the contract of sale in question and that he is merely invoking the legal fiction to
avoid personal liability. Neither is it contended that he entered into said contract for the
corporation in bad faith and with intent to defraud the plaintiff. We find no legal and factual
basis upon which to hold him liable on the contract either principally or subsidiarily.
The trial court found him guilty of negligence in the performance of the contract and
held him personally liable on that account. On the other hand, the Court of Appeals found that
he "no solamente obro con negligencia, sino interviniendo culpa de su parte, por lo que de
acuerdo con los arts. 1102, 1103 y 1902 del Codigo Civil, el debe ser responsable
subsidiariamente del pago de la cantidad objeto de la demanda." We think both the trial court
and the Court of Appeals erred in law in so holding. They have manifestly failed to distinguish
a contractual from an extracontractual obligation, or an obligation arising from contract from an
obligation arising from culpa aquiliana. The fault and negligence referred to in articles 1101-
1104 of the Civil Code are those incidental to the fulfillment or nonfulfillment of a contractual
obligation; while the fault or negligence referred to in article 1902 is the culpa aquiliana of the
civil law, homologous but not identical to tort of the common law, which gives rise to an
obligation independently of any contract. (Cf. Manila R. R. Co. vs. Cia. Trasatlantica, 38 Phil.,
875, 887-890; Cangco vs. Manila R. R. Co., 38 Phil., 768.) The fact that the corporation,
acting thru Vazquez as its manager, was guilty of negligence in the fulfillment of the contract,
did not make Vazquezprincipally or even subsidiarily liable for such negligence. Since it was
the corporation's contract, its nonfulfillment, whether due to negligence or fault or to any other
cause, made the corporation and not its agent liable.
On the other hand, if independently of the contract Vazquez by his fault or
negligence caused damage to the plaintiff, he would be liable to the latter under article 1902 of
the Civil Code. But then the plaintiff's cause of action should be based on culpa aquiliana and
not on the contract alleged in his complaint herein; andVazquez' liability would be principal
and not merely subsidiary, as the Court of Appeals has erroneously held. No such cause of
action was alleged in the complaint or tried by express or implied consent of the parties by
virtue of section 4 of Rule 17. Hence the trial court had no jurisdiction over the issue and could
not adjudicate upon it. (Reyes vs. Diaz, G. R. No. 48754.) Consequently it was error for the
Court of Appeals to remand the case to the trial court to try and decide such issue.
It only remains for us to consider petitioner's second assignment of error referring
to the lower courts' refusal to entertain his counterclaim for damages against the
respondent Borja arising from the bringing of this action. The lower courts having sustained
plaintiff's action, they naturally could not have entertained defendant's counterclaim for
damages on account of the bringing of the action. The finding of the Court of Appeals that
according to the preponderance of the evidence the defendant Vazquez celebrated the
contract not in his personal capacity but as acting president and manager of the corporation,
does not warrant his contention that the suit against him is malicious and tortious; and since
we have to decide defendant's counterclaim upon the facts found by the Court of Appeals, we
find no sufficient basis upon which to sustain said counterclaim. Indeed, we feel that as a
matter of moral justice we ought to state here that the indignant attitude adopted by the
defendant towards the plaintiff for having brought this action against him is in our estimation
not wholly right. Altho from the legal point of view he was not personally liable for the
fulfillment of the contract entered into by him on behalf of the corporation of which he was the
acting president and manager, we think it was his moral duty towards the party with whom he
contracted in said capacity to see to it that the corporation represented by him fulfilled the
contract by delivering the palay it had sold, the price of which it had already received.
Recreant to such duty as a moral person, he has no legitimate cause for indignation. We feel
that under the circumstances he not only has no cause of action against the plaintiff for
damages but is not even entitled to costs.
The judgment of the Court of Appeals is reversed, and the complaint is hereby
dismissed, without any finding as to costs.
Yulo, C.J., Moran, Horrilleno, and Bocobo, JJ., concur.
Separate Opinions
PARAS, J., dissenting:
Upon the facts of this case as expressly or impliedly admitted in the majority
opinion, the plaintiff is entitled to a judgment against the defendant. The latter, as acting
president and manager of Natividad-Vazquez Sabani Development Co., Inc., and with full
knowledge of the then insolvent status of his company, agreed to sell to the plaintiff 4,000
cavans of palay. Notwithstanding the receipt from the plaintiff of the full purchase price, the
defendant delivered only 2,488 cavans and failed and refused to deliver the remaining 1,512
cavans and a quantity of empty sacks, or their value. Such failure resulted, according to the
Court of First Instance of Manila and the Court of Appeals, from his fault or negligence.
It is true that the cause of action made out by the complaint is technically based on
a contract between the plaintiff and Natividad- Vazquez Sabani Development Co., Inc., which
is not a party to this case. Nevertheless, inasmuch as it was proven at the trial that the
defendant was guilty of fault in that he prevented the performance of the plaintiff's contract
and also of negligence bordering on fraud which caused damage to the plaintiff, the error of
procedure should not be a hindrance to the rendition of a decision in accordance with the
evidence actually introduced by the parties, especially when in such a situation we may order
the necessary amendment of the pleadings, or even consider them correspondingly amended.
As already stated, the corporation of which the defendant was acting president and
manager was, at the time he made the sale to the plaintiff, known to him to be insolvent. As a
matter of fact, said corporation was soon thereafter dissolved. There is admitted damage on
the part of the plaintiff, proven to have been inflicted by reason of the fault or negligence of the
defendant. In the interest of simple justice and to avoid multiplicity of suits I am therefore
impelled to consider the present action as one based on fault or negligence and to sentence
 the defendant accordingly. Otherwise, he would be allowed to profit by his own wrong under
the protective cover of the corporate existence of the company he represented. It cannot be
pretended that any advantage under the sale inured to the benefit of Natividad-
Vazquez Sabani Development Co., Inc., and not of the defendant personally, since the latter
undoubtedly owned a considerable part of its capital.
||| (Vazquez v. De Borja, G.R. No. 48930, 48931, [February 23, 1944], 74 PHIL 560-570)
THIRD DIVISION
[G.R. No. 194507. September 8, 2014.]
FEDERAL BUILDERS, INC., petitioner, vs. FOUNDATION SPECIALISTS,
INC., respondent,
[G.R. No. 194621. September 8, 2014.]
FOUNDATION SPECIALISTS, INC., petitioner, vs. FEDERAL BUILDERS,
INC., respondent.
DECISION
PERALTA, J p:
Before the Court are two consolidated cases, namely: (1) Petition for review
on certiorari under Rule 45 of the Rules of Court, docketed as G.R. No. 194507, filed
byFederal Builders, Inc., assailing the Decision 1 and Resolution, 2 dated July 15, 2010 and
November 23, 2010, respectively, of the Court of Appeals (CA) in CA-G.R. CV No. 70849, which
affirmed with modification the Decision 3 dated May 3, 2001 of the Regional Trial Court (RTC) in Civil
Case No. 92-075; and (2) Petition for review oncertiorari under Rule 45 of the Rules of Court,
docketed as G.R. No. 194621, filed by Foundation Specialists, Inc., assailing the same
Decision 4 and Resolution, 5 dated July 15, 2010 and November 23, 2010, respectively, of the CA in
CA-G.R. CV No. 70849, which affirmed with modification the Decision 6 dated May 3, 2001 of the
RTC in Civil Case No. 92-075.
The antecedent facts are as follows:
On August 20, 1990, Federal Builders, Inc. (FBI) entered into an agreement
with Foundation Specialists, Inc. (FSI) whereby the latter, as sub-contractor, undertook the
construction of the diaphragm wall, capping beam, and guide walls of the Trafalgar Plaza located at
Salcedo Village, Makati City (the Project), for a total contract price of Seven Million Four Hundred
Thousand Pesos (P7,400,000.00). 7 Under the agreement, 8 FBI was to pay a downpayment
equivalent to twenty percent (20%) of the contract price and the balance, through a progress billing
every fifteen (15) days, payable not later than one (1) week from presentation of the billing.
On January 9, 1992, FSI filed a complaint for Sum of Money against FBI before the RTC
of Makati City seeking to collect the amount of One Million Six Hundred Thirty-Five Thousand Two
Hundred Seventy-Eight Pesos and Ninety-One Centavos (P1,635,278.91), representing Billings No.
3 and 4, with accrued interest from August 1, 1991 plus moral and exemplary damages with attorney's
fees. 9 In its complaint, FSI alleged that FBI refused to pay said amount despite demand and its
completion of ninety-seven percent (97%) of the contracted works.
In its Answer with Counterclaim, FBI claimed that FSI completed only eighty-five percent
(85%) of the contracted works, failing to finish the diaphragm wall and component works in
accordance with the plans and specifications and abandoning the jobsite. FBI maintains that because
of FSI's inadequacy, its schedule in finishing the Project has been delayed resulting in the Project
owner's deferment of its own progress billings. 10 It further interposed counterclaims for amounts it
spent for the remedial works on the alleged defects in FSI's work. caCSDT
On May 3, 2001, after evaluating the evidence of both parties, the RTC ruled in favor of
FSI, the dispositive portion of its Decision reads:
WHEREFORE, on the basis of the foregoing, judgment is
rendered ordering defendant to pay plaintiff the following:
1. The sum of P1,024,600.00 representing billings 3 and 4, less
the amount of P33,354.40 plus 12% legal interest from
August 30, 1991;
2. The sum of P279,585.00 representing the cost of undelivered
cement;
3. The sum of P200,000.00 as attorney's fees; and
4. The cost of suit.
Defendant's counterclaim is denied for lack of factual and legal
basis.
SO ORDERED. 11
On appeal, the CA affirmed the Decision of the lower court, but deleted the sum of
P279,585.00 representing the cost of undelivered cement and reduced the award of attorney's fees
to P50,000.00. In its Decision 12 dated July 15, 2010, the CA explained that FSI failed to substantiate
how and in what manner it incurred the cost of cement by stressing that its claim was not supported
by actual receipts. Also, it found that while the trial court did not err in awarding attorney's fees, the
same should be reduced for being unconscionable and excessive.
On FBI's rejection of the 12% annual interest rate on the amount of Billings 3 and 4, the
CA ruled that the lower court did not err in imposing the same in the following wise:
. . . The rule is well-settled that when an obligation is breached, and it
consists in the payment of a sum of money, the interest due shall itself
earn legal interest from the time it is judicially demanded (BPI Family
Savings Bank, Inc. vs. First Metro Investment Corporation, 429 SCRA
30). When there is no rate of interest stipulated, such as in the present
case, the legal rate of interest shall be imposed, pursuant to Article 2209
of the New Civil Code. In the absence of a stipulated interest rate on a
loan due, the legal rate of interest shall be 12% per annum. 13
Both parties filed separate Motions for Reconsideration assailing different portions of the
CA Decision, but to no avail. 14 Undaunted, they subsequently elevated their claims with this Court
via petitions for review on certiorari.
On the one hand, FSI asserted that the CA should not have deleted the sum of
P279,585.00 representing the cost of undelivered cement and reduced the award of attorney's fees
to P50,000.00, since it was an undisputed fact that FBI failed to deliver the agreed quantity of cement.
On the other hand, FBI faulted the CA for affirming the decision of the lower court insofar as the award
of the sum representing Billings 3 and 4, the interest imposed thereon, and the rejection of his
counterclaim were concerned. In a Resolution 15 dated February 21, 2011, however, this Court
denied, with finality, the petition filed by FSI in G.R. No. 194621 for having been filed late.
Hence, the present petition filed by FBI in G.R. No. 194507 invoking the following
arguments:
I.
THE COURT OF APPEALS COMMITTED A CLEAR, REVERSABLE
ERROR WHEN IT AFFIRMED THE TRIAL COURT'S JUDGMENT
THAT FEDERAL BUILDERS, INC. WAS LIABLE TO PAY THE
BALANCE OF P1,024,600.00 LESS THE AMOUNT OF P33,354.40
NOTWITHSTANDING THAT THE DIAPHRAGM WALL CONSTRUCTED
BY FOUNDATIONSPECIALIST, INC. WAS CONCEDEDLY DEFECTIVE
AND OUT-OF-SPECIFICATIONS AND THAT PETITIONER HAD TO
REDO IT AT ITS OWN EXPENSE. SHDAEC
II.
THE COURT OF APPEALS COMMITTED SERIOUS, REVERSABLE
ERROR WHEN IT IMPOSED THE 12% LEGAL INTEREST FROM
AUGUST 30, 1991 ON THE DISPUTED CLAIM OF P1,024,000.00 LESS
THE AMOUNT OF P33,354.40 DESPITE THE FACT THAT THERE WAS
NO STIPULATION 1N THE AGREEMENT OF THE PARTIES WITH
REGARD TO INTEREST AND DESPITE THE FACT THAT THEIR
AGREEMENT WAS NOT A "LOAN OR FORBEARANCE OF MONEY."
III.
THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS
REVERSABLE ERROR WHEN IT DISMISSED THE COUNTERCLAIM
OF PETITIONER NOTWITHSTANDING OVERWHELMING EVIDENCE
SUPPORTING ITS CLAIM OF P8,582,756.29 AS ACTUAL DAMAGES.
The petition is partly meritorious.
We agree with the courts below and reject FBI's first and third arguments. Well-entrenched
in jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respect and considered conclusive between the
parties, save for the following exceptional and meritorious circumstances: (1) when the factual
findings of the appellate court and the trial court are contradictory; (2) when the findings of the trial
court are grounded entirely on speculation, surmises or conjectures; (3) when the lower court's
inference from its factual findings is manifestly mistaken, absurd or impossible; (4) when there is
grave abuse of discretion in the appreciation of facts; (5) when the findings of the appellate court go
beyond the issues of the case, or fail to notice certain relevant facts which, if properly considered, will
justify a different conclusion; (6) when there is a misappreciation of facts; (7) when the findings of fact
are themselves conflicting; and (8) when the findings of fact are conclusions without mention of the
specific evidence on which they are based, are premised on the absence of evidence, or are
contradicted by evidence on record. 16
None of the aforementioned exceptions are present herein. In the assailed Decision, the
RTC meticulously discussed the obligations of each party, the degree of their compliance therewith,
as well as their respective shortcomings, all of which were properly substantiated with the
corresponding documentary and testimonial evidence.
Under the construction agreement, FBI's scope of work consisted in (1) the construction
of the guide walls, diaphragm walls, and capping beam; and (2) the installation of steel props. 17 As
the lower courts aptly observed from the records at hand, FSI had, indeed, completed ninety-seven
percent (97%) of its contracted works and the non-completion of the remaining three percent (3%),
as well as the alleged defects in the said works, are actually attributable to FBI's own fault such as,
but not limited to, the failure to deliver the needed cement as agreed upon in the contract, to wit:
On March 8, 1991, plaintiff had finished the construction of the
guide wall and diaphragm wall (Exh. "R") but had not yet constructed the
capping beam as of April 22, 1991 for defendant's failure to deliver the
needed cement in accordance with their agreement (Exhibit "I"). The
diaphragm wall had likewise been concrete tested and was found to have
conformed with the required design strength (Exh. "R").
Subsequently, plaintiff was paid the aggregate amount of
P5,814,000.00. But as of May 30, 1991, plaintiff's billings numbers 3 and 4
had remained unpaid (Exhs. "L", "M", and "M-1").
xxx xxx xxx
On the misaligned diaphragm wall from top to bottom and in-
between panels, plaintiff explained that in the excavation of the soil where
the rebar cages are lowered and later poured with concrete cement, the
characteristics of the soil is not the same or homogenous all
throughout. Because of this property of the soil, in the process of
excavation, it may erode in some places that may cause spaces that
the cement may fill or occupy which would naturally cause bulges,
protrusions and misalignment in the concrete cast into the excavated
ground (tsn., June 1, 2000, pp 14-18). This, in fact was anticipated when
the agreement was executed and included as provision 6.4
thereof. DISEaC
The construction of the diaphragm wall panel by panel caused
misalignment and the chipping off of the portions misaligned is considered a
matter of course.Defendant, as the main contractor of the project, has
the responsibility of chopping or chipping off of bulges (tsn., ibid., pp.
20-21).
Wrong location of rebar dowels was anticipated by both
contractor and subcontractor as the latter submitted a plan called
"Detail of Sheer Connectors" (Exh "T") which was approved. The plan
provided two alternatives by which the wrong location of rebar dowels may
be remedied. Hence, defendant, aware of the possibility of inaccurate
location of these bars, cannot therefore ascribe the same to the plaintiff
as defective work.
Construction of the capping beam required the use of cement.
Records, however, show that from September 14, 1990 up to May 30, 1991
 (Exhs. "B" to "L"),plaintiff had repeatedly requested defendant to deliver
cement. Finally, on April 22, 1991, plaintiff notified defendant of its
inability to construct the capping beam for the latter's failure to deliver
the cement as provided in their agreement (Exh. "I"). Although records
show that there was mention of revision of design, there was no evidence
presented to show such revision required less amount of cement than what
was agreed on by plaintiff and defendant.
The seventh phase of the construction of the diaphragm wall
is the construction of the steel props which could be installed only after
the soil has been excavated by the main contractor. When defendant
directed plaintiff to install the props, the latter requested for a site
inspection to determine if the excavation of the soil was finished up to
the 4th level basement. Plaintiff, however, did not receive any
response. It later learned that defendant had contracted out that portion of
work to another sub-contractor (Exhs. "O" and "P"). Nevertheless, plaintiff
informed defendant of its willingness to execute that portion of its work.18
It is clear from the foregoing that contrary to the allegations of FBI, FSI had indeed
completed its assigned obligations, with the exception of certain assigned tasks, which was due to
the failure of FBI to fulfil its end of the bargain.
It can similarly be deduced that the defects FBI complained of, such as the misaligned
diaphragm wall and the erroneous location of the rebar dowels, were not only anticipated by the
parties, having stipulated alternative plans to remedy the same, but more importantly, are also
attributable to the very actions of FBI. Accordingly, considering that the alleged defects in FBI's
contracted works were not so much due to the fault or negligence of the FSI, but were satisfactorily
proven to be caused by FBI's own acts, FBI's claim of P8,582,756.29 representing the cost of the
measures it undertook to rectify the alleged defects must necessarily fail. In fact, as the lower court
noted, at the time when FBI had evaluated FSI's works, it did not categorically pose any objection
thereto, viz.:
Defendant admitted that it had paid P6 million based on its
evaluation of plaintiff s accomplishments (tsn., Sept. 28, 2000, p. 17)
and its payment was made without objection on plaintiff's works, the
majority of which were for the accomplishments in the construction of
the diaphragm wall (tsn., ibid., p. 70).
xxx xxx xxx
While there is no evidence to show the scope of work for these
billings, it is safe to assume that these were also works in the construction
of the diaphragm wall considering that as of May 16, 1991, plaintiff had only
the installation of the steel props and welding works to complete (Exh. "H"). If
defendant was able to evaluate the work finished by plaintiff the
majority of which was the construction of the diaphragm wall and paid
it about P6 million as accomplishment, there was no reason why it
could not evaluate plaintiff's works covered by billings 3 and 4. In other
words, defendants did not have to excavate in order to determine and
evaluate plaintiff's works. Hence, defendant's refusal to pay was not
justified and the alleged defects of the diaphragm wall (tsn, Sept. 28,
2000, p. 17) which it claims to have discovered only after January 1992
were mere afterthoughts. 19 SDIaCT
Thus, in the absence of any record to otherwise prove FSI's neglect in the fulfilment of its
obligations under the contract, this Court shall refrain from reversing the findings of the courts below,
which are fully supported by and deducible from, the evidence on record. Indeed, FBI failed to present
any evidence to justify its refusal to pay FSI for the works it was contracted to perform. As such, We
do not see any reason to deviate from the assailed rulings.
Anent FBI's second assignment of error, however, We find merit in the argument that the
12% interest rate is inapplicable, since this case does not involve a loan or forbearance of money. In
the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, 20 We laid down the following
guidelines in computing legal interest:
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists
in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be
that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or
until the demand can be established with
reasonable certainty. Accordingly, where the
demand is established with reasonable certainty,
the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil
Code) but when such certainty cannot be so
reasonably established at the time the demand is
made, the interest shall begin to run only from the
date the judgment of the court is made (at which
time the quantification of damages may be deemed
to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum
of money becomes final and executory, the rate of
legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12%
per annum from such finality until its satisfaction,
 this interim period being deemed to be by then an
equivalent to a forbearance of credit. 21
In line, however, with the recent circular of the Monetary Board of the Bangko Sentral ng
Pilipinas (BSP-MB) No. 799, we have modified the guidelines in Nacar v. Gallery Frames, 22 as
follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable
damages. HSAcaE
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
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
under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or
until the demand can be established with
reasonable certainty. Accordingly, where the
demand is established with reasonable certainty,
the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil
Code), but when such certainty cannot be so
reasonably established at the time the demand is
made, the interest shall begin to run only from the
date the judgment of the court is made (at which
time the quantification of damages may be deemed
to have been reasonably ascertained). The actual
base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum
of money becomes final and executory, the rate of
legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 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.
And, in addition to the above, judgments that have become final
and executory prior to July 1, 2013, shall not be disturbed and shall continue
to be implemented applying the rate of interest fixed therein. 23
It should be noted, however, that the new rate could only be applied prospectively and not
retroactively. Consequently, 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. Thus, the need to determine whether the obligation involved herein
is a loan and forbearance of money nonetheless exists.
In S. C. Megaworld Construction and Development Corporation v. Engr. Parada, 24 We
clarified the meaning of obligations constituting loans or forbearance of money in the following wise:
As further clarified in the case of Sunga-Chan v. CA, a loan or
forbearance of money, goods or credit describes a contractual
obligation whereby a lender or creditor has refrained during a given
period from requiring the borrower or debtor to repay the loan or debt
then due and payable. Thus:
In Reformina v. Tomol, Jr., the Court held that the legal interest
at 12% per annum under Central Bank (CB) Circular No. 416 shall be
adjudged only in cases involving the loan or forbearance of money. And for
transactions involving payment of indemnities in the concept of
damages arising from default in the performance of obligations in
general and/or for money judgment not involving a loan or forbearance
of money, goods, or credit, the governing provision is Art. 2209 of
the Civil Code prescribing a yearly 6% interest. Art. 2209 pertinently
provides: EHCcIT
Art. 2209. If the obligation consists in the payment of
a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.
The term "forbearance," within the context of usury law, has been
described as a contractual obligation of a lender or creditor to refrain, during
a given period of time, from requiring the borrower or debtor to repay the
loan or debt then due and payable. 25
Forbearance of money, goods or credits, therefore, refers to arrangements other than loan
agreements, where a person acquiesces to the temporary use of his money, goods or credits pending
the happening of certain events or fulfilment of certain conditions. 26 Consequently, if those
conditions are breached, said person is entitled not only to the return of the principal amount paid,
but also to compensation for the use of his money which would be the same rate of legal interest
applicable to a loan since the use or deprivation of funds therein is similar to a loan. 27
 This case, however, does not involve an acquiescence to the temporary use of a party's
money but a performance of a particular service, specifically the construction of the diaphragm wall,
capping beam, and guide walls of the Trafalgar Plaza.
A review of similar jurisprudence would tell us that this Court had repeatedly recognized
this distinction and awarded interest at a rate of 6% on actual or compensatory damages arising from
a breach not only of construction contracts, 28 such as the one subject of this case, but also of
contracts wherein one of the parties reneged on its obligation to perform messengerial
services, 29 deliver certain quantities of molasses, 30 undertake the reforestation of a denuded forest
land, 31 as well as breaches of contracts of carriage, 32 and trucking agreements. 33 We have
explained therein that the reason behind such is that said contracts do not partake of loans or
forbearance of money but are more in the nature of contracts of service.
Thus, in the absence of any stipulation as to interest in the agreement between the parties
herein, the matter of interest award arising from the dispute in this case would actually fall under the
second paragraph of the above-quoted guidelines in the landmark case of Eastern Shipping Lines,
which necessitates the imposition of interest at the rate of 6%, instead of the 12% imposed by the
courts below.
The 6% interest rate shall further be imposed from the finality of the judgment herein until
satisfaction thereof, in light of our recent ruling in Nacar v. Gallery Frames. 34
Note, however, that contrary to FBI's assertion, We find no error in the RTC's ruling that
the interest shall begin to run from August 30, 1991 as this is the date when FSI extrajudicially made
its claim against FBI through a letter demanding payment for its services. 35
In view of the foregoing, therefore, We find no compelling reason to disturb the factual
findings of the RTC and the CA, which are fully supported by and deducible from, the evidence on
record, insofar as the sum representing Billings 3 and 4 is concerned. As to the rate of interest due
thereon, however, We note that the same should be reduced to 6% per annum considering the fact
that the obligation involved herein does not partake of a loan or forbearance of money.
WHEREFORE, premises considered, the instant petition is DENIED. The Decision and
Resolution, dated July 15, 2010 and November 23, 2010, respectively, of the Court of Appeals in CA-
G.R. CV No. 70849 are hereby AFFIRMED with MODIFICATION. Federal Builders, Inc. is
ORDERED to pay Foundation Specialists, Inc. the sum of P1,024,600.00 representing billings 3 and
4, less the amount of P33,354.40, plus interest at six percent (6%) per annum reckoned from August
30, 1991 until full payment thereof. ECaTDc
SO ORDERED.
Villarama, Jr., Reyes, Leonen * and Jardeleza, JJ., concur.
||| (Federal Builders, Inc. v. Foundation Specialists, Inc., G.R. Nos. 194507 & G.R. No. 194621,
[September 8, 2014])
THIRD DIVISION
[G.R. Nos. 103442-45. May 21, 1993.]
NATIONAL POWER CORPORATION, ET
AL., petitioners, vs. THE COURT OF APPEALS, GAUDENCIO C. RAYO,
ET AL., respondents.
The Solicitor General for petitioner.
Ponciano G. Hernandez for private respondents.
SYLLABUS
CIVIL LAW; OBLIGATION AND CONTRACTS; FORCE MAJEURE (ACT OF GOD); RULES
APPLICABLE; PETITIONERS CANNOT ESCAPE LIABILITY BY INVOKING FORCE
MAJEUREBECAUSE OF THEIR NEGLIGENCE. — We reiterate here Our pronouncement in the
latter case that Juan F. Nakpil & Sons vs. Court of Appeals is still good law as far as the concurrent
liability of an obligor in the case of force majeure is concerned. In the Nakpil case, We held: "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 ofthe 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. (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.
DECISION
DAVIDE, JR., J p:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court urging
this Court to set aside the 19 August 1991 consolidated Decision of the Courtof Appeals in CA-G.R.
CV Nos. 27290-93 1 which reversed the Decision of Branch 5 of the then Court of First Instance
(now Regional Trial Court) of Bulacan, and held petitioners National Power Corporation (NPC) and
Benjamin Chavez jointly and severally liable to the private respondents for actual and moral
damages, litigation expenses and attorney's fees.
This present controversy traces its beginnings to four (4) separate complaints 2 for damages filed
against the NPC and Benjamin Chavez before the trial court. The plaintiffs therein, now private
respondents, sought to recover actual and other damages for the loss of lives and the destruction to A. Actual damages, to wit:
property caused by the inundation ofthe town of Norzagaray, Bulacan on 26-27 October 1978. The
flooding was purportedly caused by the negligent release by the defendants of water through the 1) Gaudencio C. Rayo, Two Hundred
spillways of the Angat Dam (Hydroelectric Plant). In said complaints, the plaintiffs alleged, inter alia, Thirty One Thousand Two Hundred Sixty Pesos
that: 1) defendant NPC operated and maintained a multi-purpose hydroelectric plant in the Angat (P231,260.00);
River at Hilltop, Norzagaray, Bulacan; 2) defendant Benjamin Chavez was the plant supervisor at
the time of the incident in question; 3) despite the defendants' knowledge, as early as 24 October 2) Bienvenido P. Pascual, Two Hundred
1978, of the impending entry of typhoon "Kading," they failed to exercise due diligence in monitoring Four Thousand Five Hundred Pesos (P204,500.00);
the water level at the dam; 4) when the said water level went beyond the maximum allowable limit
at the height of the typhoon, the defendants suddenly, negligently and recklessly opened three 3) Tomas Manuel, One Hundred Fifty Five
(3) of the dam's spillways, thereby releasing a large amount of water which inundated the Thousand Pesos (P155,000.00);
banks of the Angat River; and 5) as a consequence, members of the household of the plaintiffs,
4) Pedro C. Bartolome, One Hundred
together with their animals, drowned, and their properties were washed away in the evening of 26
Forty Seven Thousand Pesos (P147,000.00);
October and the early hours of 27 October 1978. 3
5) Bernardino Cruz, One Hundred Forty
In their Answers, the defendants, now petitioners, alleged that: 1) the NPC exercised due care,
Three Thousand Five Hundred Fifty Two Pesos and
diligence and prudence in the operation and maintenance of the hydroelectric plant; 2) the NPC
Fifty Centavos (P143,552.50);
exercised the diligence of a good father in the selection of its employees; 3) written notices were
sent to the different municipalities ofBulacan warning the residents therein about the impending 6) Jose Palad, Fifty Seven Thousand Five
release of a large volume of water with the onset of typhoon "Kading" and advising them to take the Hundred Pesos (P57,500.);
necessary precautions; 4) the water released during the typhoon was needed to prevent the
collapse of the dam and avoid greater damage to people and property; 5) in spite of the precautions 7) Mariano S. Cruz, Forty Thousand
undertaken and the diligence exercised, they could still not contain or control the flood that resulted Pesos (P40,000.00);
and; 6) the damages incurred by the private respondents were caused by a fortuitous event or force
majeure and are in the nature and character of damnum absque injuria. By way of a special 8) Lucio Fajardo, Twenty Nine thousand
affirmative defense, the defendants averred that the NPC cannot be sued because it performs a Eighty Pesos (P29,080.00); and
purely governmental function. 4
B. Litigation expenses of Ten Thousand Pesos (P10,000.00);
Upon motion of the defendants, a preliminary hearing on the special defense was conducted. As a
result thereof, the trial court dismissed the complaints as against the NPC on the ground that the 2. In Civil Case No. SM-951, ordering defendants-appellees to pay jointly
provision of its charter allowing it to sue and be sued does not contemplate actions based on tort. and severally, plaintiff-defendant, with legal interest from the date when this
The parties do not, however, dispute the fact that this Court overruled the trial court and ordered the decision shall have become final and executory, the following:
reinstatement of the complaints as against the NPC. 5
A. Actual damages of Five Hundred Twenty
Being closely interrelated, the cases were consolidated and trial thereafter ensued. LibLex Thousand Pesos (P520,000.00);

The lower court rendered its decision on 30 April 1990 dismissing the complaints "for B. Moral Damages of Five Hundred Thousand Pesos
lack of sufficient and credible evidence." 6 Consequently, the private respondents seasonably (P500,000.00); and
appealed therefrom to the respondent Court which then docketed the cases as CA-G.R. CV Nos.
27290-93. C. Litigation expenses of Ten Thousand Pesos
(P10,000.00);
In its joint decision promulgated on 19 August 1991, the Court of Appeals reversed the appealed
decision and awarded damages in favor of the private respondents. The dispositive portion of the 3. In Civil Case No. SM-953, ordering defendants-appellees to pay, jointly
decision reads: and severally, with legal interest from the date when this decision shall
have become final and executory;
"CONFORMABLY TO THE FOREGOING, the joint decision appealed from
is hereby REVERSED and SET ASIDE, and a new one is hereby rendered: A. Plaintiff-appellant Angel C. Torres:
1) Actual damages of One Hundred Ninety
1. In Civil Case No. SM-950, ordering defendants- Nine Thousand One Hundred Twenty Pesos
appellees to pay, jointly and severally, plaintiffs-defendants, with (P199,120.00);
legal interest from the date when this decision shall become 2) Moral Damages of One Hundred Fifty
final and executory, the following: Thousand Pesos (P150,000.00);
B. Plaintiff-defendant Norberto Torres:
 1) Actual damages of Fifty Thousand
Pesos (P50,000.00);
2) Moral damages of Fifty Thousand
Pesos (P50,000.00);
C. Plaintiff-appellant Rodelio Joaquin:
1) Actual damages of One Hundred
Thousand Pesos (P100,000.00);
2) Moral damages of One Hundred
Thousand Pesos (P100,000.00); and
D. Plaintiffs-appellants litigation expenses of Ten
Thousand Pesos (P10,000.00);
4. In Civil Case No. SM-1247, ordering defendants-appellees to pay, jointly
and severally, with legal interest from the date when this decision shall
have become final and executory:
A. Plaintiffs-appellants Presentacion Lorenzo and
Clodualdo Lorenzo:
1) Actual damages of Two Hundred Fifty
Six Thousand Six Hundred Pesos (P256,600.00);
2) Moral damages of Fifty Thousand
Pesos (P50,000.00);
B. Plaintiff-appellant Consolacion Guzman:
1) Actual damages of One Hundred Forty
Hundred Pesos (P140,000.00);
2) Moral damages of Fifty Thousand
Pesos (P50,000.00);
C. Plaintiff-appellant Virginia Guzman:
1) Actual damages of Two Hundred Five
Thousand Five Hundred Twenty Pesos
(P205,520.00); and
2) Moral damages of Fifty Thousand
Pesos (P50,000.00); and
D. Plaintiffs-appellants litigation expenses of Ten
Thousand Pesos (P10,000.00).
In addition, in all the four (4) instant cases, ordering defendants-appellees
to pay, jointly and severally, plaintiffs-appellants, attorneys fees in an
amount equivalent to 15% of the total amount awarded.
No pronouncement as to costs." 7
The foregoing judgment is based on the public respondent's conclusion that the petitioners were
guilty of:
". . . a patent gross and evident lack of foresight, imprudence and
negligence . . . in the management and operation of Angat Dam. The
unholiness of the hour, the extent of the opening of the spillways, and the
magnitude of the water released, are all but products of defendants-
appellees' headlessness, slovenliness, and carelessness. The resulting
flash flood and inundation of even areas (sic) one (1) kilometer away from
the Angat River bank would have been avoided had defendants-appellees
prepared the Angat Dam by maintaining in the first place, a water elevation
which would allow room for the expected torrential rains." 8
This conclusion, in turn, is anchored on its findings of fact, to wit:
"As early as October 21, 1978, defendants-appellees knew of the
impending onslaught of and imminent danger posed by typhoon 'Kading.'
For as alleged by defendants-appellees themselves, the coming of said
super typhoon was bannered by Bulletin Today, a
newspaper of national circulation, on October 25, 1978, as 'Super Howler
to hit R.P.' The next day, October 26, 1978, said typhoon once again
merited a headline in said newspaper as 'Kading's Big Blow expected this
afternoon' (Appellee's Brief, p. 6). Apart from the newspapers, defendants-
appellees learned of typhoon 'Kading' through radio announcements (Civil
Case No. SM-950, TSN, Benjamin Chavez, December 4, 1984, pp. 7-9).
Defendants-appellees doubly knew that the Angat Dam can safely hold a
normal maximum headwater elevation of 217 meters (Appellees' Brief, p.
12; Civil Case No. SM-951, Exhibit "I-6"; Civil Case No. SM-953, Exhibit "J-
6"; Civil Case No. SM-1247, Exhibit "G-6"). LLpr
Yet, despite such knowledge, defendants-appellees maintained a reservoir
water elevation even beyond its maximum and safe level, thereby giving no
sufficient allowance for the reservoir to contain the rain water that will
inevitably be brought by the coming typhoon.
On October 24, 1978, before typhoon 'Kading' entered the Philippines
area of responsibility, water elevation ranged from 217.61 to 217.53, with
very little opening ofthe spillways, ranging from 1/2 to 1 meter. On October
25, 1978, when typhoon 'Kading' entered the Philippine
area of responsibility, and public storm signal number one was hoisted over
Bulacan at 10:45 a.m., later raised to number two at 4:45 p.m., and then to
number three at 10:45 p.m., water elevation ranged from 217.47 to 217.57,
with very little opening of the spillways, ranging from 1/2 to 1 meter. On
October 26, 1978, when public storm signal number three remained
hoisted over Bulacan, the water elevation still remained at its maximum
level of 217.00 to 218.00 with very little opening of the spillways ranging
from 1/2 to 2 meters, until at or about midnight, the spillways were
suddenly opened at 5 meters, then increasing swiftly to 8, 10, 12, 12.5, 13,
13.5, 14, 14.5 in the early morning hours of October 27, 1978, releasing
water at the rate of 4,500 cubic meters per second, more or less. On
October 27, 1978, water elevation remained at a range of 218.30 to 217.05
(Civil Case No. SM-950, Exhibits "D" and series, "L", "M", "N", and "O" and
Exhibits "3" and "4"; Civil Case No. SM-951, Exhibits "H" and "H-1"; Civil
Case No. SM-953, Exhibits "I" and "I-1"; Civil Case No. SM-1247, Exhibits
"F" and "F-1").
xxx xxx xxx
From the mass of evidence extant in the record, We are convinced, and so
hold that the flash flood on October 27, 1978, was caused not by rain
waters (sic), but by stored waters (sic) suddenly and simultaneously
released from the Angat Dam by defendants-appellees, particularly from
 midnight of October 26, 1978 up to the morning hours of October 27,
1978." 9
The appellate court rejected the petitioners' defense that they had sent "early warning written
notices" to the towns of Norzagaray, Angat, Bustos, Plaridel, Baliwag and Calumpit dated 24
October 1978 and which read:
"TO ALL CONCERN (sic):
'Please be informed that at the present our reservoir (dam) is full and that
we have been releasing water intermittently for the past several days.
'With the coming of typhoon 'Rita' (Kading) we expect to release greater
(sic) volume of water, if it pass (sic) over our place.
'In view of this kindly advise people residing along Angat River to keep alert
and stay in safe places.
'BENJAMIN L.
CHAVEZ
'Power Plant
Superintendent" 10
because:
"Said notice was delivered to the 'towns of Bulacan' on October 26, 1978
by defendants-appellees' driver, Leonardo Nepomuceno (Civil Case No.
SM-950, TSN, Benjamin Chavez, December 4, 1984, pp. 7-11 and TSN,
Leonardo Nepomuceno, March 7, 1985, pp. 10-12).
Said notice is ineffectual, insufficient and inadequate for purposes of the
opening of the spillway gates at midnight of October 26, 1978 and on
October 27, 1978. It did not prepare or warn the persons so served, for the
volume of water to be released, which turned out to be of such magnitude,
that residents near or along the Angat River, even those one (1) kilometer
away, should have been advised to evacuate. Said notice, addressed `TO
ALL CONCERN (sic),' was delivered to a policeman (Civil Case No. SM-
950, TSN, Leonardo Nepomuceno, March 7, 1985, pp. 10-12 and Exhibit
"2-A") for the municipality of Norzagaray. Said notice was not thus
addressed and delivered to the proper and responsible municipal officials
who could have disseminated the warning to the residents directly affected.
As for the municipality of Sta. Maria, where plaintiffs-defendants in Civil
Case No. SM-1246 reside, said notice does not appear to have been
served." 11
Relying on Juan F. Nakpil & Sons vs. Court of Appeals, 12 public respondent rejected the
petitioners' plea that the incident in question was caused by force majeure and that they are,
therefore, not liable to the private respondents for any kind of damage — such damage being in the
nature of damnum absque injuria. cdrep
The motion for reconsideration filed by the petitioners, as well as the motion to modify judgment
filed by the private respondents, 13 were denied by the public respondent in its Resolution of 27
December 1991. 14
Petitioners thus filed the instant petition on 21 February 1992.
After the Comment to the petition was filed by the private respondents and the Reply thereto was
filed by the petitioners, We gave due course to the petition on 17 June 1992 and directed the
parties to submit their respective Memoranda, 15 which they subsequently complied with.
The petitioners raise the following errors allegedly committed by the respondent Court:
"I. THE COURT OF APPEALS ERRED IN APPLYING THE
RULING OF NAKPIL & SONS V. COURT OF APPEALS AND HOLDING
THAT PETITIONERS WERE GUILTY OFNEGLIGENCE.
II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE WRITTEN
NOTICES OF WARNING ISSUED BY PETITIONERS WERE
INSUFFICIENT.
III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE
DAMAGE SUFFERED BY PRIVATE RESPONDENTS WAS
NOT DAMNUM ABSQUE INJURIA.
IV. THE COURT OF APPEALS ERRED IN NOT AWARDING THE
COUNTERCLAIM OF PETITIONERS FOR ATTORNEY'S FEES AND
EXPENSES OF LITIGATION." 16
These same errors were raised by herein petitioners in G.R. No. 96410,
entitled National Power Corporation, et al. vs. Court of Appeals, et al., 17 which this Courtdecided
on 3 July 1992. The said case involved the very same incident subject of the instant petition. In no
uncertain terms, We declared therein that the proximate cause of the loss and damage sustained
by the plaintiffs therein — who were similarly situated as the private respondents herein — was the
negligence of the petitioners, and that the 24 October 1978 "early warning notice" supposedly sent
to the affected municipalities, the same notice involved in the case at bar, was insufficient. We thus
cannot now rule otherwise not only because such a decision binds this Court with respect to the
cause of the inundation of the town ofNorzagaray, Bulacan on 26-27 October 1978 which resulted
in the loss of lives and the destruction to property in both cases, but also because of the fact that on
the basis of its meticulous analysis and evaluation of the evidence adduced by the parties in the
cases subject of CA-G.R. CV Nos. 27290-93, public respondent found as conclusively established
that indeed, the petitioners were guilty of "patent gross and evident lack of foresight, imprudence
and negligence in the management and operation of Angat Dam," and that "the extent of the
opening of the spillways, and the magnitude of the water released, are all but
products of defendants-appellees' headlessness, slovenliness, and carelessness." 18 Its findings
and conclusions are binding upon Us, there being no showing of the existence of any of the
exceptions to the general rule that findings of fact of the Court of Appeals are conclusive upon
this Court. 19 Elsewise stated, the challenged decision can stand on its own merits
independently of Our decision in G.R. No. 96410. In any event, We reiterate here Our
pronouncement in the latter case that Juan F. Nakpil & Sons vs. Court of Appeals 20is still good law
as far as the concurrent liability of an obligor in the case of force majeure is concerned. In
the Nakpil case, We held:
"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 ofthe 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.
(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 mannerof 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). Cdpr
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 & Sonsv. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657)." 21
Accordingly, petitioners cannot be heard to invoke the act of God or force majeure to escape liability
for the loss or damage sustained by the private respondents since they, the petitioners, were
guilty of negligence. The event then was not occasioned exclusively by an act of God or force
majeure; a human factor — negligence or imprudence — had intervened. The effect
then of the force majeure in question may be deemed to have, even if only partly, resulted from the
participation of man. Thus, the whole occurrence was thereby humanized, as it were, and removed
from the rules applicable to acts of God.
WHEREFORE, for want of merit, the instant petition is hereby DISMISSED and the Consolidated
Decision of the Court of Appeals in CA-G.R. CV Nos. 27290-93 is AFFIRMED, with costs against
the petitioners.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ ., concur.
||| (National Power Corp. v. Court of Appeals, G.R. Nos. 103442-45, [May 21, 1993])
SECOND DIVISION
[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.
SYLLABUS
1. CIVIL LAW; ACT OF GOD; DEFINED. — 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).
2. ID.; ID.; GENERAL RULE; REQUISITES TO EXEMPT OBLIGOR FROM LIABILITY. — 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). To exempt the obligor from liability
under this Article, 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 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. (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). The
principle embodied in the actof 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.
3. ID.; ID.; INSTANCES WHEN THE RULE DOES NOT APPLY. — 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, 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. It has also 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)
4. ID.; QUASI-DELICTS; NEGLIGENCE EQUIVALENT TO BAD FAITH; — 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 anact of God for
which he is not responsible, intervenes to precipitate the loss."
5. REMEDIAL LAW; COURT OF APPEALS; FINDINGS OF FACTS CONCLUSIVE ON THE
PARTIES AND ON THE SUPREME COURT; EXCEPTIONS. — 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 ofAppeals 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).
DECISION
PARAS, J p:
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 ofAppeals 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: cdll
"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 ofP989,335.68 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 awardof 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. cdrep
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 Appealsare 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
corner 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 ofdirectors 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. LLjur
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 prepared 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. prcd
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 ofsupervision 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 time supervision of the construction. The Courtsees 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. LLpr
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 lack of specific provisions against torsion in
the original plans and the overload on the ground floor columns (found by all 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 solidarily with
UCCI. cdll
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
falls 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 ofthe 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 mannerof 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 & Sonsv. Yangco Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657). LLjur
The negligence of the defendant and the third-party defendants petitioners was established beyond
dispute both in the lower court and in the Intermediate AppellateCourt. 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; Cesarvs. 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). LLphil
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 ofthe 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 "The Commissioner also found merit in the
than the two-year old PBA building must have been designed and allegations of the defendants as to the physical evidence before
constructed by architects and contractors whose knowledge and foresight and after the earthquake showing the inadequacy of design, to
were unexplainably auspicious and prophetic. Fortunately, the facts on wit:
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 "Physical evidence before the
reference or comparison to other buildings, to weather the severe earthquake, providing (sic)
earthquake forces was traced to design deficiencies and defective inadequacy of design;
construction, factors which are neither mysterious nor esoteric. The
1. Inadequate design was the
theological allusion of appellant United that God acts in mysterious ways
cause of the failure of the building.
His wonders to perform impresses us to be inappropriate. The evidence
reveals defects and deficiencies in design and construction. There is no 2. Sub-baffles on the two sides
mystery about these acts ofnegligence. The collapse of the PBA building and in front of the 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. a. Increase the inertia
More relevant to our mind is the lesson from the parable of the wise man in forces that move the building
the Sermon on the Mount, "which built his house upon a rock; and the rain laterally toward the Manila Fire
descended and the floods came and the winds blew and beat upon that Department.
house: and it fell not; for it was founded upon a rock" and of the "foolish b. Create another
man which built his house upon the sand. And the rain descended and the stiffness-imbalance.
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 3. The embedded 4" diameter
building should withstand rains, floods, winds, earthquakes, and natural cast iron downspout on all exterior columns
forces is precisely the reason why we have professional experts like reduces the cross-sectional
architects, and engineers. Designs and constructions vary under varying area of each of the columns and the strength
circumstances and conditions but the requirement to design and build well thereof.
does not change. 4. Two front corners, A7 and D7
columns were very much less reinforced.
Physical Evidence After the
The findings of the lower Court on the cause of the collapse are more Earthquake, Proving Inadequacy of design;
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 1. Column A7 suffered the
PBA building, as designed and constructed, to withstand and successfully severest fracture and maximum sagging Also
weather those forces. D7.
2. There are more damages in the
The evidence sufficiently supports a conclusion that the negligence and
front part of the building than towards the
fault of both United and Nakpil and Sons, not a mysterious act of an
rear, not only in columns but also in slabs.
inscrutable God, were responsible for the damages. The Report of the
Commissioner, Plaintiff's Objections to the Report, Third Party Defendants' 3. Building leaned and sagged
Objections to the Report, Defendants' Objections to the Report, more on the front part of the building.
Commissioner's Answer to the various Objections, Plaintiffs' Reply to the
Commissioner's Answer, Defendants' Reply to the Commissioner's 4. Floors showed maximum
Answer, Counter-Reply to Defendants' Reply, and Third-Party Defendants' sagging on the sides and toward the front
Reply to the Commissioner's Report not to mention the exhibits and the corner parts of the building.
testimonies show that the main arguments raised on appeal were already 5. There was a lateral
raised during the trial and fully considered by the lower Court. A displacement of the building of about 8",
reiteration of these same arguments on appeal fails to convince us that we Maximum sagging occurs at the column A7
should reverse or disturb the lower Court's factual findings and its where the floor is lower by 80 cm. than the
conclusions drawn from the facts, among them: 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
liabilityof 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 wall 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 behavior of forces generated by them
still leaves much to be desired; so much so "that the expertsof 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 this 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. A5, ground
floor,
 (9) Defective construction joints in
Columns A3, C7, D7 and D4, 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 1/2,(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 lateral
ties 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
principlesof 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 ofcolumn 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. Cdpr
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 1/2 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 ofstrength 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 minor 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, Commissioner's 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 A-4, second floor, the
eccentricities in the columns, the lack of proper length of splicing of spirals,
and the cut in the spirals in column A-5, 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 A-5, ground floor, was done by the lumber
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
Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.
||| (Nakpil & Sons v. Court of Appeals, G.R. No. L-47851, L-47863, L-47896, [October 3, 1986], 228
PHIL 564-594)
SECOND DIVISION
[G.R. No. 185798. January 13, 2014.]
FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK,
INC., petitioners, vs. SPOUSES CONRADO AND MARIA VICTORIA
RONQUILLO, respondents.
DECISION
PEREZ, J p:
Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure assailing the Decision 1 of the Court of Appeals in CA-G.R. SP No. 100450 which
affirmed the Decision of the Office of the President in O.P. Case No. 06-F-216.
As culled from the records, the facts are as follow:
Petitioner Fil-Estate Properties, Inc. is the owner and developer of the Central Park Place
Tower while co-petitioner Fil-Estate Network, Inc. is its authorized marketing agent. Respondent
Spouses Conrado and Maria Victoria Ronquillo purchased from petitioners an 82-square meter
condominium unit at Central Park Place Tower in Mandaluyong City for a pre-selling contract price of
FIVE MILLION ONE HUNDRED SEVENTY-FOUR THOUSAND ONLY (P5,174,000.00). On 29
August 1997, respondents executed and signed a Reservation Application Agreement wherein they
deposited P200,000.00 as reservation fee. As agreed upon, respondents paid the full downpayment
of P1,552,200.00 and had been paying the P63,363.33 monthly amortizations until September
1998. HCTEDa
Upon learning that construction works had stopped, respondents likewise stopped paying
their monthly amortization. Claiming to have paid a total of P2,198,949.96 to petitioners, respondents
through two (2) successive letters, demanded a full refund of their payment with interest. When their
demands went unheeded, respondents were constrained to file a Complaint for Refund and Damages
before the Housing and Land Use Regulatory Board (HLURB). Respondents prayed for
reimbursement/refund of P2,198,949.96 representing the total amortization payments, P200,000.00
as and by way of moral damages, attorney's fees and other litigation expenses.
On 21 October 2000, the HLURB issued an Order of Default against petitioners for failing
to file their Answer within the reglementary period despite service of summons. 2
Petitioners filed a motion to lift order of default and attached their position paper attributing
the delay in construction to the 1997 Asian financial crisis. Petitioners denied committing fraud or
misrepresentation which could entitle respondents to an award of moral damages.
On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor, rendered
judgment ordering petitioners to jointly and severally pay respondents the following amount:
a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT
THOUSAND NINE HUNDRED FORTY NINE PESOS & 96/100
(P2,198,949.96) with interest thereon at twelve percent (12%) per
annum to be computed from the time of the complainants'
demand for refund on October 08, 1998 until fully paid,
b) ONE HUNDRED THOUSAND PESOS (P100,000.00) as moral damages,
c) FIFTY THOUSAND PESOS (P50,000.00) as attorney's fees,
d) The costs of suit, and ADCTac
e) An administrative fine of TEN THOUSAND PESOS (P10,000.00) payable
to this Office fifteen (15) days upon receipt of this decision, for
violation of Section 20 in relation to Section 38 of PD 957. 3
The Arbiter considered petitioners' failure to develop the condominium project as a
substantial breach of their obligation which entitles respondents to seek for rescission with payment
of damages. The Arbiter also stated that mere economic hardship is not an excuse for contractual
and legal delay.
Petitioners appealed the Arbiter's Decision through a petition for review pursuant to Rule
XII of the 1996 Rules of Procedure of HLURB. On 17 February 2005, the Board of Commissioners of
the HLURB denied 4 the petition and affirmed the Arbiter's Decision. The HLURB reiterated that the
depreciation of the peso as a result of the Asian financial crisis is not a fortuitous event which will
exempt petitioners from the performance of their contractual obligation.
Petitioners filed a motion for reconsideration but it was denied 5 on 8 May 2006.
Thereafter, petitioners filed a Notice of Appeal with the Office of the President. On 18 April 2007,
petitioners' appeal was dismissed 6 by the Office of the President for lack of merit. Petitioners moved
for a reconsideration but their motion was denied 7 on 26 July 2007.
Petitioners sought relief from the Court of Appeals through a petition for review under Rule
43 containing the same arguments they raised before the HLURB and the Office of the President:
I.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE HONORABLE HOUSING AND
LAND USE REGULATORY BOARD AND ORDERING PETITIONERS-
APPELLANTS TO REFUND RESPONDENTS-APPELLEES THE SUM
 OF P2,198,949.96 WITH 12% INTEREST FROM 8 OCTOBER 1998
UNTIL FULLY PAID, CONSIDERING THAT THE COMPLAINT STATES
NO CAUSE OF ACTION AGAINST PETITIONERS-APPELLANTS.
II.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE OFFICE BELOW ORDERING
PETITIONERS-APPELLANTS TO PAY RESPONDENTS-APPELLEES
THE SUM OF P100,000.00 AS MORAL DAMAGES AND P50,000.00 AS
ATTORNEY'S FEES CONSIDERING THE ABSENCE OF ANY
FACTUAL OR LEGAL BASIS THEREFOR.
III.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN
AFFIRMING THE DECISION OF THE HOUSING AND LAND USE
REGULATORY BOARD ORDERING PETITIONERS-APPELLANTS TO
PAY P10,000.00 AS ADMINISTRATIVE FINE IN THE ABSENCE OF
ANY FACTUAL OR LEGAL BASIS TO SUPPORT SUCH
FINDING. 8 HDIaST
On 30 July 2008, the Court of Appeals denied the petition for review for lack of merit. The
appellate court echoed the HLURB Arbiter's ruling that "a buyer for a condominium/subdivision unit/lot
unit which has not been developed in accordance with the approved condominium/subdivision plan
within the time limit for complying with said developmental requirement may opt for reimbursement
under Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 . . . ." 9 The appellate
court supported the HLURB Arbiter's conclusion, which was affirmed by the HLURB Board of
Commission and the Office of the President, that petitioners' failure to develop the condominium
project is tantamount to a substantial breach which warrants a refund of the total amount paid,
including interest. The appellate court pointed out that petitioners failed to prove that the Asian
financial crisis constitutes a fortuitous event which could excuse them from the performance of their
contractual and statutory obligations. The appellate court also affirmed the award of moral damages
in light of petitioners' unjustified refusal to satisfy respondents' claim and the legality of the
administrative fine, as provided in Section 20 of Presidential Decree No. 957.
Petitioners sought reconsideration but it was denied in a Resolution 10 dated 11
December 2008 by the Court of Appeals.
Aggrieved, petitioners filed the instant petition advancing substantially the same grounds
for review:
A.
THE HONORABLE COURT OF APPEALS ERRED WHEN IT
AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE
PRESIDENT WHICH SUSTAINED RESCISSION AND REFUND IN
FAVOR OF THE RESPONDENTS DESPITE LACK OF CAUSE OF
ACTION.
B.
GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS
ARE LIABLE UNDER THE PREMISES, THE HONORABLE COURT OF
APPEALS ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF
INTEREST OF TWELVE PERCENT (12%).
C.
THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT
AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE
PRESIDENT INCLUDING THE PAYMENT OF P100,000.00 AS MORAL
DAMAGES, P50,000.00 AS ATTORNEY'S FEES AND P10,000.00 AS
ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR
LEGAL BASIS TO SUPPORT SUCH CONCLUSIONS. 11 ISHaCD
Petitioners insist that the complaint states no cause of action because they allegedly have
not committed any act of misrepresentation amounting to bad faith which could entitle respondents
to a refund. Petitioners claim that there was a mere delay in the completion of the project and that
they only resorted to "suspension and reformatting as a testament to their commitment to their
buyers." Petitioners attribute the delay to the 1997 Asian financial crisis that befell the
real estateindustry. Invoking Article 1174 of the New Civil Code, petitioners maintain that they cannot
be held liable for a fortuitous event.
Petitioners contest the payment of a huge amount of interest on account of suspension of
development on a project. They liken their situation to a bank which this Court, in Overseas Bank v.
Court of Appeals, 12 adjudged as not liable to pay interest on deposits during the period that its
operations are ordered suspended by the Monetary Board of the Central Bank.
Lastly, petitioners aver that they should not be ordered to pay moral damages because
they never intended to cause delay, and again blamed the Asian economic crisis as the direct,
proximate and only cause of their failure to complete the project. Petitioners submit that moral
damages should not be awarded unless so stipulated except under the instances enumerated in
Article 2208 of the New Civil Code. Lastly, petitioners refuse to pay the administrative fine because
the delay in the project was caused not by their own deceptive intent to defraud their buyers, but due
to unforeseen circumstances beyond their control.
Three issues are presented for our resolution: 1) whether or not the Asian financial crisis
constitute a fortuitous event which would justify delay by petitioners in the performance of their
contractual obligation; 2) assuming that petitioners are liable, whether or not 12% interest was
correctly imposed on the judgment award, and 3) whether the award of moral damages, attorney's
fees and administrative fine was proper. ASIETa
It is apparent that these issues were repeatedly raised by petitioners in all the legal fora.
The rulings were consistent that first, the Asian financial crisis is not a fortuitous event that would
excuse petitioners from performing their contractual obligation; second, as a result of the breach
committed by petitioners, respondents are entitled to rescind the contract and to be refunded the
amount of amortizations paid including interest and damages; and third, petitioners are likewise
obligated to pay attorney's fees and the administrative fine.
This petition did not present any justification for us to deviate from the rulings of the
HLURB, the Office of the President and the Court of Appeals.
Indeed, the non-performance of petitioners' obligation entitles respondents to rescission
under Article 1191 of the New Civil Code which states:
 Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
More in point is Section 23 of Presidential Decree No. 957, the rule governing the sale of
condominiums, which provides:
Section 23. Non-Forfeiture of Payments. — No installment
payment made by a buyer in a subdivision or condominium project for the lot
or unit he contracted to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner or developer,
desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved
plans and within the time limit for complying with the same.Such buyer may,
at his option, be reimbursed the total amount paid including
amortization interests but excluding delinquency interests, with
interest thereon at the legal rate. (Emphasis supplied).
Conformably with these provisions of law, respondents are entitled to rescind the contract
and demand reimbursement for the payments they had made to petitioners.
Notably, the issues had already been settled by the Court in the case of Fil-
Estate Properties, Inc. v. Spouses Go 13 promulgated on 17 August 2007, where the Court stated
that the Asian financial crisis is not an instance of caso fortuito. Bearing the same factual milieu as
the instant case, G.R. No. 165164 involves the same company, Fil-Estate, albeit about a different
condominium property. The company likewise reneged on its obligation to respondents therein by
failing to develop the condominium project despite substantial payment of the contract price. Fil-
Estate advanced the same argument that the 1997 Asian financial crisis is a fortuitous event which
justifies the delay of the construction project. First off, the Court classified the issue as a question of
fact which may not be raised in a petition for review considering that there was no variance in the
factual findings of the HLURB, the Office of the President and the Court of Appeals. Second, the
Court cited the previous rulings of Asian Construction and Development Corporation v. Philippine
Commercial International Bank 14 and Mondragon Leisure and Resorts Corporation v. Court of
Appeals 15 holding that the 1997 Asian financial crisis did not constitute a valid justification to renege
on obligations. The Court expounded:
Also, we cannot generalize that the Asian financial crisis in 1997
was unforeseeable and beyond the control of a business corporation. It is
unfortunate that petitioner apparently met with considerable difficulty e.g.,
increase cost of materials and labor, even before the scheduled
commencement of its real estate project as early as 1995. However, a
real estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency
movements and business risks. The fluctuating movement of the Philippine
peso in the foreign exchange market is an everyday occurrence, and
fluctuations in currency exchange rates happen everyday, thus, not an
instance of caso fortuito. 16
The aforementioned decision becomes a precedent to future cases in which the facts are
substantially the same, as in this case. The principle of stare decisis, which means adherence to
judicial precedents, applies.
In said case, the Court ordered the refund of the total amortizations paid by respondents
plus 6% legal interest computed from the date of demand. The Court also awarded attorney's fees.
We follow that ruling in the case before us.
The resulting modification of the award of legal interest is, also, in line with our recent
ruling in Nacar v. Gallery Frames, 17 embodying the amendment introduced by the Bangko Sentral
ng Pilipinas Monetary Board in BSP-MB Circular No. 799 which pegged the interest rate at 6%
regardless of the source of obligation.
We likewise affirm the award of attorney's fees because respondents were forced to litigate
for 14 years and incur expenses to protect their rights and interest by reason of the unjustified act on
the part of petitioners. 18 The imposition of P10,000.00 administrative fine is correct pursuant to
Section 38 of Presidential Decree No. 957 which reads: TIHDAa
Section 38.Administrative Fines. — The Authority may prescribe
and impose fines not exceeding ten thousand pesos for violations of the
provisions of this Decree or of any rule or regulation thereunder. Fines shall
be payable to the Authority and enforceable through writs of execution in
accordance with the provisions of the Rules of Court.
Finally, we sustain the award of moral damages. In order that moral damages may be
awarded in breach of contract cases, the defendant must have acted in bad faith, must be found guilty
of gross negligence amounting to bad faith, or must have acted in wanton disregard of contractual
obligations. 19 The Arbiter found petitioners to have acted in bad faith when they breached their
contract, when they failed to address respondents' grievances and when they adamantly refused to
refund respondents' payment.
In fine, we find no reversible error on the merits in the impugned Court of Appeals' Decision
and Resolution.
WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision
is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on
the amount due computed from the time of respondents' demand for refund on 8 October 1998.
SO ORDERED.
Carpio, Brion, Del Castillo and Perlas-Bernabe, JJ., concur.
||| (Fil-Estate Properties, Inc. v. Spouses Ronquillo, G.R. No. 185798, [January 13, 2014], 724 PHIL
81-93)