OBLICON Case Part 3

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;
THIRD DIVISION
LEA MER INDUSTRIES, INC.,

Petitioner,
G.R. No. 161745

Present
- versus -
Panganiban, J.,
Chairman,
Sandoval-Gutierrez,
Corona,
Carpio Morales, and
Garcia, JJ
Promulgated:
MALAYAN INSURANCE CO., INC.,*
Respondent.
September 30, 2005
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION
PANGANIBAN, J.:
C ommon carriers are bound to observe extraordinary diligence in their vigilance over the goods
entrusted to them, as required by the nature of their business and for reasons of public policy.
Consequently, the law presumes that common carriers are at fault or negligent for any loss or damage
to the goods that they transport. In the present case, the evidence submitted by petitioner to overcome
this presumption was sorely insufficient.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the October 9,
2002 Decision[2] and the December 29, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR CV
No. 66028. The challenged Decision disposed as follows:
WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of
the Regional Trial Court of Manila, Branch 42 in Civil Case No. 92-63159 is
hereby REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein
respondent] the value of the lost cargo in the amount of P565,000.00. Costs against the
[herein petitioner].[4]
The assailed Resolution denied reconsideration.
1|Page

The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the
shipment of 900 metric tons of silica sand valued at P565,000.[5] Consigned to Vulcan Industrial and
Mining Corporation, the cargo was to be transported from Palawan to Manila. On October 25, 1991,
the silica sand was placed on board Judy VII, a barge leased by Lea Mer.[6] During the voyage, the
vessel sank, resulting in the loss of the cargo.[7]
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo.[8] To recover
the amount paid and in the exercise of its right of subrogation, Malayan demanded reimbursement from
Lea Mer, which refused to comply. Consequently, Malayan instituted a Complaint with the Regional
Trial Court (RTC) of Manila on September 4, 1992, for the collection of P565,000 representing the
amount that respondent had paid Vulcan.[9]
On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the
loss was a fortuitous event.[10] The RTC noted that the vessel had sunk because of the bad weather
condition brought about by Typhoon Trining. The court ruled that petitioner had no advance knowledge
of the incoming typhoon, and that the vessel had been cleared by the Philippine Coast Guard to travel
from Palawan to Manila.[11]
Ruling of the Court of Appeals
Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for
Manila. Thus, the loss of the cargo was occasioned by petitioners fault, not by a fortuitous event.[12]
Hence, this recourse.[13]
The Issues
Petitioner states the issues in this wise:
A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not
been presented as a witness of the said report during the trial of this case before the
lower court can be admitted in evidence to prove the alleged facts cited in the said
report.
B. Whether or not the respondent, Court of Appeals, had validly or legally reversed
the finding of fact of the Regional Trial Court which clearly and unequivocally held that
the loss of the cargo subject of this case was caused by fortuitous event for which herein
petitioner could not be held liable.
C. Whether or not the respondent, Court of Appeals, had committed serious error and
grave abuse of discretion in disregarding the testimony of the witness from the MARINA,
Engr. Jacinto Lazo y Villegal, to the effect that the vessel Judy VII was seaworthy at the
time of incident and further in disregarding the testimony of the PAG-ASA weather
specialist, Ms. Rosa Barba y Saliente, to the effect that typhoon Trining did not hit
Metro Manila or Palawan.[14]
In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo, and
(2) whether the survey report of Jesus Cortez is admissible in evidence.
2|Page
The Courts Ruling

The Petition has no merit.
First Issue:
Liability for Loss of Cargo
Question of Fact
The resolution of the present case hinges on whether the loss of the cargo was due to a
fortuitous event. This issue involves primarily a question of fact, notwithstanding petitioners claim that
it pertains only to a question of law. As a general rule, questions of fact may not be raised in a petition
for review.[15] The present case serves as an exception to this rule, because the factual findings of the
appellate and the trial courts vary.[16] This Court meticulously reviewed the records, but found no
reason to reverse the CA.
Rule on Common Carriers
Common carriers are persons, corporations, firms or associations engaged in the business of
carrying or transporting passengers or goods, or both -- by land, water, or air -- when this service is
offered to the public for compensation.[17] Petitioner is clearly a common carrier, because it offers to the
public its business of transporting goods through its vessels.[18]
Thus, the Court corrects the trial courts finding that petitioner became a private carrier when
Vulcan chartered it.[19] Charter parties are classified as contracts of demise (or bareboat) and
affreightment, which are distinguished as follows:
Under the demise or bareboat charter of the vessel, the charterer will generally
be considered as owner for the voyage or service stipulated. The charterer mans the
vessel with his own people and becomes, in effect, the owner pro hac vice, subject to
liability to others for damages caused by negligence. To create a demise, the owner of a
vessel must completely and exclusively relinquish possession, command and navigation
thereof to the charterer; anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all. [20]
The distinction is significant, because a demise or bareboat charter indicates a business

undertaking that isprivate in character. [21] Consequently, the rights and obligations of the parties to a
contract of private carriage are governed principally by their stipulations, not by the law on common
carriers.[22]
The Contract in the present case was one of affreightment, as shown by the fact that it was
petitioners crew that manned the tugboat M/V Ayalit and controlled the barge Judy VII.[23] Necessarily,
petitioner was a common carrier, and the pertinent law governs the present factual circumstances.
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their vigilance over the goods
and the safety of the passengers they transport, as required by the nature of their business and for
reasons of public policy.[24] Extraordinary diligence requires rendering service with the greatest skill and
foresight to avoid damage and destruction to the goods entrusted for carriage and delivery.[25]
3|Page
Common carriers are presumed to have been at fault or to have acted negligently for loss or
damage to the goods that they have transported.[26] This presumption can be rebutted only by proof
that they observed extraordinary diligence, or that the loss or damage was occasioned by any of the
following causes:[27]
(1)
(2)
(3)
(4)
(5)
Flood, storm, earthquake, lightning, or other natural disaster or calamity;

Act of the public enemy in war, whether international or civil;
Act or omission of the shipper or owner of the goods;
The character of the goods or defects in the packing or in the containers;
Order or act of competent public authority.[28]
Rule on Fortuitous Events

Article 1174 of the Civil Code provides that no person shall be responsible for a fortuitous event
which could not be foreseen, or which, though foreseen, was inevitable. Thus, if the loss or damage
was due to such an event, a common carrier is exempted from liability.
Jurisprudence defines the elements of a fortuitous event as follows: (a) the cause of the
unforeseen and unexpected occurrence, or the failure of the debtors to comply with their obligations,
must have been independent of human will; (b) the event that constituted the caso fortuito must have
been impossible to foreseeor, if foreseeable, impossible to avoid; (c) the occurrence must have been
such as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d) the
obligor must have been free from any participation in the aggravation of the resulting injury to the
creditor.[29]
To excuse the common carrier fully of any liability, the fortuitous event must have been the
proximate and only cause of the loss.[30] Moreover, it should have exercised due diligence to prevent or
minimize the loss before, during and after the occurrence of the fortuitous event. [31]
Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present case. As the common
carrier, petitioner bore the burden of proving that it had exercised extraordinary diligence to avoid the
loss, or that the loss had been occasioned by a fortuitous event -- an exempting circumstance.
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that
the loss of the cargo was due to the bad weather condition brought about by Typhoon Trining. [32]
Evidence was presented to show that petitioner had not been informed of the incoming typhoon, and
that the Philippine Coast Guard had given it clearance to begin the voyage.[33] On October 25, 1991,
the date on which the voyage commenced and the barge sank, Typhoon Trining was allegedly far from
Palawan, where the storm warning was only Signal No. 1.[34]
The evidence presented by petitioner in support of its defense of fortuitous event was sorely
insufficient. As required by the pertinent law, it was not enough for the common carrier to show that
there was an unforeseen or unexpected occurrence. It had to show that it was free from any fault -- a
fact it miserably failed to prove.
First, petitioner presented no evidence that it had attempted to minimize or prevent the loss
before, during or after the alleged fortuitous event.[35] Its witness, Joey A. Draper, testified that he could
no longer remember whether anything had been done to minimize loss when water started entering the
4|Page

barge.[36] This fact was confirmed during his cross-examination, as shown by the following brief
exchange:
Atty. Baldovino, Jr.:
Other than be[a]ching the barge Judy VII, were there other precautionary
measure[s] exercised by you and the crew of Judy VII so as to prevent the los[s]
or sinking of barge Judy VII?
xxx
xxx
xxx
Atty. Baldovino, Jr.:

Your Honor, what I am asking [relates to the] action taken by the officers and
crew of tugboat Ayalit and barge Judy VII x x x to prevent the sinking of barge
Judy VII?
xxx
xxx
xxx
Court:
Mr. witness, did the captain of that tugboat give any instruction on how to save
the barge Judy VII?
Joey Draper:
I can no longer remember sir, because that happened [a] long time ago.[37]
Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is
a preponderance of evidence that the barge was not seaworthy when it sailed for Manila. [38]
Respondent was able to prove that, in the hull of the barge, there were holes that might have caused or
aggravated the sinking.[39] Because the presumption of negligence or fault applied to petitioner, it was
incumbent upon it to show that there were no holes; or, if there were, that they did not aggravate the
sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A.
Luna, testified that the barge was in tip-top or excellent condition,[40] but that he had not personally
inspected it when it left Palawan.[41]
The submission of the Philippine Coast Guards Certificate of Inspection of Judy VII, dated July
31, 1991, did not conclusively prove that the barge was seaworthy.[42] The regularity of the issuance of
the Certificate is disputably presumed.[43] It could be contradicted by competent evidence, which
respondent offered. Moreover, this evidence did not necessarily take into account the actual condition
of
5|Page

the vessel at the time of the commencement of the voyage.[44]
Second Issue:
Admissibility of the Survey Report
Petitioner claims that the Survey Report[45] prepared by Jesus Cortez, the cargo surveyor, should
not have been admitted in evidence. The Court partly agrees. Because he did not testify during the
trial,[46] then the Report that he had prepared was hearsay and therefore inadmissible for the purpose of
proving the truth of its contents.
The Survey Report Not the Sole Evidence
The facts reveal that Cortezs Survey Report was used in the testimonies of respondents
witnesses -- Charlie M. Soriano; and Federico S. Manlapig, a cargo marine surveyor and the vicepresident of Toplis and Harding Company.[47] Soriano testified that the Survey Report had been used in
preparing the final Adjustment Report conducted by their company.[48] The final Report showed that the
barge was not seaworthy because of the existence of the holes. Manlapig testified that he had
prepared that Report after taking into account the findings of the surveyor, as well as the pictures and
the sketches of the place where the sinking occurred.[49] Evidently, the existence of the holes was
proved by the testimonies of the witnesses, not merely by Cortez Survey Report.
Rule on Independently
Relevant Statement
That witnesses must be examined and presented during the trial,[50] and that their testimonies
must be confined to personal knowledge is required by the rules on evidence, from which we quote:
Section 36. Testimony generally confined to personal knowledge; hearsay
excluded. A witness can testify only to those facts which he knows of his personal
knowledge; that is, which are derived from his own perception, except as otherwise
provided in these rules.[51]
On this basis, the trial court correctly refused to admit Jesus Cortezs Affidavit, which respondent
had offered as evidence.[52] Well-settled is the rule that, unless the affiant is presented as a witness, an
affidavit is considered hearsay.[53]
An exception to the foregoing rule is that on independently relevant statements. A report
made by a person is admissible if it is intended to prove the tenor, not the truth, of the statements. [54]
Independent of the truth or the falsity of the statement given in the report, the fact that it has been made
is relevant. Here, the hearsay rule does not apply.[55]
In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part
of the testimonies of respondents witnesses. The referral to Cortezs Report was in relation to
Manlapigs final Adjustment Report. Evidently, it was the existence of the Survey Report that was
testified to. The admissibility of that Report as part of the testimonies of the witnesses was correctly
ruled upon by the trial court.
6|Page
At any rate, even without the Survey Report, petitioner has already failed to overcome the
presumption of fault that applies to common carriers.
WHEREFORE, the Petition is DENIED and
are AFFIRMED. Costs against petitioner.
the
assailed
Decision
and
Resolution
SO ORDERED.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
W E
C O N C U R:
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice
RENATO C. CORONA
Associate Justice
CONCHITA CARPIO MORALES

Associate Justice
CANCIO C. GARCIA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
Associate Justice
Chairman, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is hereby certified that the conclusions
in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.
HILARIO G. DAVIDE, JR.
Chief Justice
[1]
[2]
[3]
[4]
[5]
[6]
[7]
[8]
[9]
[10]
The Petition included the Court of Appeals as a respondent. However, the CA was omitted by the Court from the title of the case
because, under Section 4 of Rule 45 of the Rules of Court, the appellate court need not be impleaded in petitions for review.
Rollo, pp. 12-27.
Id., pp. 36-41. Tenth Division. Penned by Justice Elvi John S. Asuncion, with the concurrence of Justices Portia Alio-Hormachuelos
(Division chairperson) and Juan Q. Enriquez Jr. (member).
Id., p. 48.
Assailed Decision, pp. 5-6; rollo, pp. 40-41.
Id., pp. 1 & 36.
The barge was allegedly owned by J. T. Lighterage Services. (TSN dated September 27, 1995, p. 3) It was non-propelled therefore,
it could only operate through its towing by petitioners tugboat M/T Ayalit. (TSN dated April 26, 1995, p. 12; TSN dated April 25,
1996, p. 19)
Assailed Decision, p. 1; rollo, p. 36.
Id., pp. 2 & 37.
Ibid. The case was docketed as Civil Case No. 92-63159 and raffled to Branch 42.
Ibid.
7|Page

[11]
[12]
[13]
[14]
[15]
[16]
[17]
[18]
[19]
[20]
[21]
[22]
[23]
[24]
[25]
[26]
[27]
[28]
[29]
[30]
[31]
[32]
[33]
[34]
[35]
[36]
[37]
[38]
RTC Decision dated December 7, 1999, p. 9; rollo, p. 58.

Assailed Decision, p. 4; rollo, p. 39.
The case was deemed submitted for decision on October 25, 2004, upon this Courts receipt of petitioners sparse, 6-page (with only
two pages of argument) Memorandum, signed by Atty. Romualdo M. Jubay. Respondents Memorandum, signed by Atty. Frederick
C. Angel, was received by this Court on October 7, 2004.
Petition, p. 8; rollo, p. 19. Original in uppercase.
1 of Rule 45 of the Rules of Court.
Menchavez v. Teves Jr., 449 SCRA 380, 395, January 26, 2005; Philippine American General Insurance Company v. PKS Shipping
Company,401 SCRA 222, 230, April 9, 2003; Commissioner of Internal Revenue v. Embroidery and Garments Industries (Phil.),
Inc., 364 Phil. 541, 546, March 22, 1999.
Art. 1732 of the Civil Code.
Petition, pp. 4-5; rollo, pp. 14-15.
Puromines, Inc. v. Court of Appeals, 220 SCRA 281, 288, per Nocon J. See also National Food Authority v. Court of Appeals, 370
Phil. 735, 743, August 4, 1999.
Philippine American General Insurance Company v. PKS Shipping Company, supra, p. 228; Coastwise Lighterage Corporation v.
Court of Appeals,316 Phil. 13, 19, July 12, 1995.
National Steel Corporation v. Court of Appeals, 347 Phil. 345, 362, December 12, 1997; Valenzuela Hardwood and Industrial Supply,
Inc. v. Court of Appeals, 274 SCRA 642, 654, June 30, 1997.
RTC Decision dated December 7, 1999, pp. 4-6; rollo, pp. 53-55.
Calvo v. UCPB General Insurance Co., Inc., 429 Phil. 244, 252, March 19, 2002; Compania Maritima v. Court of Appeals, 164 SCRA
685, 692, August 29, 1988.
Ibid. See also National Trucking and Forwarding Corp. v. Lorenzo Shipping Corporation, GR No. 153563, February 7, 2005; Asia
Lighterage and Shipping, Inc. v. Court of Appeals, 409 SCRA 340, 346, August 19, 2003; Philippine American General Insurance
Company v. PKS Shipping Company, supra, p. 229; Coastwise Lighterage Corporation v. Court of Appeals, supra, p. 20; Basco v.
Court of Appeals, 221 SCRA 318, 323, April 7, 1993.
Mindex Resources Development v. Morillo, 428 Phil. 934, 944, March 12, 2002; Philippine American General Insurance Co. Inc. v.
MGG Marine Services, Inc., 428 Phil. 705, 714, March 8, 2002; Metal Forming Corp. v. Office of the President, 317 Phil. 853, 859,
August 28, 1995;Vasquez v. Court of Appeals, 138 SCRA 553, 557, September 13, 1985; Republic v. Luzon Stevedoring Corp., 128
Phil. 313, 318, September 29, 1967.
Ibid.
RTC Decision dated December 7, 1999, p. 9; rollo p. 58 (citing the testimony of Rosa S. Barba). See also Petitioners Memorandum,
p. 2; rollo, p. 157.
Ibid. (citing the testimony of Domingo A. Luna).
The testimony of Rosa S. Barba, weather specialist of Philippine Atmosphere (PAGASA), was summarized by the RTC as follows:
In May 1993, upon the request of [petitioners] counsel, she issued a weather bureau report or
certification, an official record of Pagasa, which weather report is based on their weather station at Puerto
Princesa, Palawan. x x x The report on the weather condition on October 21, 1991 at around 11:00 am to 2:00
pm was weathercast sky. The bad weather condition on October 25, 26, and 27, 1991 was caused by typhoon
Trining but said typhoon then was far from Palawan, which was only signal No. 1. Tropical storm Trining
entered the Philippine area of responsibility on October 24. Pagasa did issue a warning that said storm was
approaching the Philippines. Storm Trining was classified, as super typhoon with a maximum of 185
kilometer[s] per hour and the coverage was big. On October 24, 1991, typhoon Trining hit Batangas, the
Ilocos Provinces, Isabela, but not Metro Manila or Palawan. Maybe Palawan was affected but if ever it was
affected it was only minimal. RTC Decision dated December 7, 1999, p. 6; rollo, p. 55.
See Art. 1739 of the Civil Code.
The testimony of Joey A. Draper, the quarter master in charge of steering the tugboat, was summarized by the RTC as follows:
On October 25, 1991, he was assigned in the tugboat M/T Ayalit. x x x [The tugboat] was towing the
barge Judy VII which was carrying silica sand. x x x He was an ordinary seaman in 1991 and it was his first
year as a seaman, although he made several trips to Palawan and Manila. x x x He does not know the
qualification[s] of a seaman but he was then a second year high school [student] and though he did not take any
examination, he knew about navigation. When the incident happened in 1991[,] he had no seaman book as it
was not yet strict at the time and the seaman book can be dispensed with. He was only 18 years and has an
actual training of the work when he boarded the tugboat. Even if he has no formal schooling, the master
allowed him to handle the wheel of the tugboat. When they left San Vicente, Palawan for Manila on said date at
around 4:00 pm, the weather was fair. When they passed by Linapakan Island, the waves were quite big and
the wind was a little bit strong. At that point in time, the barge patrol of Judy VII wave[d] his hand [at] them.
Their captain decided to approach the barge. They noticed that [there was] water already inside the barge.
About two (2) days later, their captain decided to beach the barge. The said barge then sank and only the
barges house at the back portion of the barge (the puppa) was above water. He could only remember that
they save[d] the bargemen and proceeded to El Nido, Palawan where they secured themselves to save the
tugboat. But he could no longer remember how long a time they stayed thereat nor if they went back to the
barge Judy VII. RTC Decision, p. 6; rollo, p. 55.
TSN dated November 22, 1995, pp. 27-29.
In civil cases, parties who carry the burden of proof must establish their case by a preponderance of evidence. 1 of Rule 133 of the
Rules of Court.
8|Page

[39]
[40]
[41]
[42]
[43]
[44]
[45]
[46]
[47]
[48]
[49]
[50]
[51]
[52]
[53]
[54]
[55]
Respondent proved this allegation through the testimony of its witnesses and submission of documentary evidence.
Unseaworthiness was also the finding of the appellate court. Assailed Decision, p. 4; rollo, p. 39.
TSN dated April 26, 1995, p. 44.
TSN dated September 27, 1995, pp. 17-21.
Petitioners Exhibit 4.
3(m) of Rule 131 of the Rules of Court.
Delsan Transport Lines, Inc. v. Court of Appeals, 420 Phil. 824, 834, November 15, 2001.
Exhibit H. See Respondents Offer of Evidence, p. 2; records, p. 159.
Petitioners Memorandum, p. 3; rollo, p. 160.
Respondents witness, Federico S. Manlapig, testified that Jesus Cortez -- who had already migrated to Australia -- could no
longer testify. TSN dated December 15, 1994, p. 9.
Ibid.
TSN dated December 15, 1994, pp. 9-13.
1 of Rule 132 of the Rules of Court.
Rule 130 of the Rules of Court.
RTC Order dated March 17, 1995; records, p. 165.
Melchor v. Gironella, GR No. 151138, February 16, 2005; People v. Crispin, 383 Phil. 919, 931, March 2, 2000; People v. Villeza, 127
SCRA 349, 359, January 31, 1984; Paa v. Chan, 128 Phil. 815, 821, October 31, 1967.
Country Bankers Insurance v. Lianga Bay and Community Multi-purpose Cooperative, 425 Phil. 511, 521, January 25, 2002. See
alsoPresidential Commission on Good Government v. Desierto, 445 Phil. 154, 191, February 10, 2003; People v. Mallari, 369 Phil.
872, 884, July 20, 1999; People v. Cloud, 333 Phil. 306, 322, December 10, 1996.
People v. Velasquez, 352 SCRA 455, 476, February 21, 2001; Gotesco Investment Corporation v. Chatto, 210 SCRA 18, 32, June
16, 1992.
Wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 102970 May 13, 1993
LUZAN SIA, petitioner,
vs.
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents.
Asuncion Law Offices for petitioner.
Cauton, Banares, Carpio & Associates for private respondent.
DAVIDE, JR., J.:

The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21
August 1991, 1reversing and setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the
Regional Trial Court (RTC) of Manila in Civil Case No. 87-42601, entitled "LUZAN SIA vs. SECURITY
BANK and TRUST CO.," is challenged in this petition for review on certiorari under Rule 45 of the
Rules Court.
Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp
collection of the plaintiff (petitioner herein) contained in Safety Deposit Box No. 54 which had been
rented from the defendant pursuant to a contract denominated as a Lease Agreement. 3 Judgment
therein was rendered in favor of the dispositive portion of which reads:
9|Page

WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff and against the defendant, Security Bank & Trust Company, ordering the
defendant bank to pay the plaintiff the sum of
a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;
b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral
damages; and
c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal
expenses.
The counterclaim set up by the defendant are hereby dismissed for lack of merit.
No costs.
SO ORDERED. 4
The antecedent facts of the present controversy are summarized by the public respondent in its
challenged decision as follows:
The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant
bank at its Binondo Branch located at the Fookien Times Building, Soler St., Binondo,
Manila wherein he placed his collection of stamps. The said safety deposit box leased by
the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the
defendant bank at its aforesaid Binondo Branch.
During the floods that took place in 1985 and 1986, floodwater entered into the
defendant bank's premises, seeped into the safety deposit box leased by the plaintiff and
caused, according to the plaintiff, damage to his stamps collection. The defendant bank
rejected the plaintiff's claim for compensation for his damaged stamps collection, so, the
plaintiff instituted an action for damages against the defendant bank.
The defendant bank denied liability for the damaged stamps collection of the plaintiff on
the basis of the "Rules and Regulations Governing the Lease of Safe Deposit Boxes"
(Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which reads (sic):
"9. The liability of the Bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the safe by any person other than the Renter, his
authorized agent or legal representative;
xxx xxx xxx
"13. The Bank is not a depository of the contents of the safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever in said
contents, except as herein provided, and it assumes absolutely no liability in connection
therewith."
10 | P a g e

The defendant bank also contended that its contract with the plaintiff over safety deposit
box No. 54 was one of lease and not of deposit and, therefore, governed by the lease
agreement (Exhs. "A", "L") which should be the applicable law; that the destruction of the
plaintiff's stamps collection was due to a calamity beyond obligation on its part to notify
the plaintiff about the floodwaters that inundated its premises at Binondo branch which
allegedly seeped into the safety deposit box leased to the plaintiff.
The trial court then directed that an ocular inspection on (sic) the contents of the safety
deposit box be conducted, which was done on December 8, 1988 by its clerk of court in
the presence of the parties and their counsels. A report thereon was then submitted on
December 12, 1988 (Records, p. 98-A) and confirmed in open court by both parties thru
counsel during the hearing on the same date (Ibid., p. 102) stating:
"That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan
Sia and the Acting Branch Manager Jimmy B. Ynion in the presence of
the undersigned, plaintiff's and defendant's counsel. Said Safety Box
when opened contains two albums of different sizes and thickness, length
and width and a tin box with printed word 'Tai Ping Shiang Roast Pork in
pieces with Chinese designs and character."
Condition of the above-stated Items
"Both albums are wet, moldy and badly damaged.
1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick.
The leaves of the album are attached to every page and cannot be lifted without
destroying it, hence the stamps contained therein are no longer visible.
2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick. Some
of its pages can still be lifted. The stamps therein can still be distinguished but beyond
restoration. Others have lost its original form.
3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up
to the cover of the box. The condition of the album is the second abovementioned
album." 5
The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial
court's decision to the public respondent Court of Appeals. The appeal was docketed as CA-G.R. CV
No. 26737.
In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter
erred in (a) holding that the lease agreement is a contract of adhesion; (b) finding that the defendant
had failed to exercise the required diligence expected of a bank in maintaining the safety deposit box;
(c) awarding to the plaintiff actual damages in the amount of P20,000.00, moral damages in the amount
of P100,000.00 and attorney's fees and legal expenses in the amount of P5,000.00; and (d) dismissing
the counterclaim.
On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads:
11 | P a g e

WHEREFORE, the decision appealed from is hereby REVERSED and instead the
appellee's complaint is hereby DISMISSED. The appellant bank's counterclaim is
likewise DISMISSED. No costs.6
In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and
ruled that:
a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions of
the contract of lease which the appellee (now petitioner) had voluntarily and knowingly executed with
SBTC;
b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of
deposit wherein the bank became a depositary of the subject stamp collection; hence, as contended by
SBTC, the provisions of Book IV, Title XII of the Civil Code on deposits do not apply;
c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's
liability:
9. The liability of the bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the Safe by any person other than the Renter, his
authorized agent or legal representative.
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever in said
therewith.
are valid since said stipulations are not contrary to law, morals, good customs, public order or public
policy; and
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in
maintaining the safety deposit box; what was proven was that the floods of 1985 and 1986, which were
beyond the control of SBTC, caused the damage to the stamp collection; said floods were fortuitous
events which SBTC should not be held liable for since it was not shown to have participated in the
aggravation of the damage to the stamp collection; on the contrary, it offered its services to secure the
assistance of an expert in order to save most of the stamps, but the appellee refused; appellee must
then bear the lose under the principle of "res perit domino."
Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner
filed the instant petition wherein he contends that:
I
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE
RESPONDENT COURT WHEN IT RULED THAT RESPONDENT SBTC DID NOT FAIL
TO EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE SAFETY
12 | P a g e

DEPOSIT BOX OF THE PETITIONER CONSIDERING THAT SUBSTANTIAL
EVIDENCE EXIST (sic) PROVING THE CONTRARY.
II
THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE
RESPONDENT FROM ANY LIABILITY WHATSOEVER BY REASON OF THE
PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A" AND
"A-1").
III
THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE
AWARDS OF THE TRIAL COURT FOR ACTUAL AND MORAL DAMAGES,
INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF THE
PETITIONER. 8
We subsequently gave due course the petition and required both parties to submit their respective
memoranda, which they complied with. 9
Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required
diligence expected of a bank maintaining such safety deposit box . . . in the light of the environmental
circumstance of said safety deposit box after the floods of 1985 and 1986." He argues that such a
conclusion is supported by the evidence on record, to wit: SBTC was fully cognizant of the exact
location of the safety deposit box in question; it knew that the premises were inundated by floodwaters
in 1985 and 1986 and considering that the bank is guarded twenty-four (24) hours a day , it is safe to
conclude that it was also aware of the inundation of the premises where the safety deposit box was
located; despite such knowledge, however, it never bothered to inform the petitioner of the flooding or
take any appropriate measures to insure the safety and good maintenance of the safety deposit box in
question.
SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the
Court of Appeals, when supported by substantial exidence, are not reviewable on appeal
by certiorari. 10
The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity
between the factual findings and conclusions of the Court of Appeals and the trial court. 11 Such a
disparity obtains in the present case.
As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement
" covering Safe Deposit Box No. 54 (Exhibit "A and "1") is just that a contract of lease and not a
contract of deposit, and that paragraphs 9 and 13 thereof, which expressly limit the bank's liability as
follows:
9. The liability of the bank by reason of the lease, is limited to the exercise of the
diligence to prevent the opening of the Safe by any person other than the Renter, his
autliorized agent or legal representative;
xxx xxx xxx
13 | P a g e

13. The bank is not a depository of the contents of the Safe and it has neither the
possession nor the control of the same. The Bank has no interest whatsoever said
therewith. 12
are valid and binding upon the parties. In the challenged decision, the public respondent further avers
that even without such a limitation of liability, SBTC should still be absolved from any responsibility for
the damage sustained by the petitioner as it appears that such damage was occasioned by a fortuitous
event and that the respondent bank was free from any participation in the aggravation of the injury.
We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be
impressed with merit.
In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly
rejected the contention that a contract for the use of a safety deposit box is a contract of lease
governed by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a
contract of deposit to be strictly governed by the Civil Code provision on deposit; 14 it is, as We
declared, a special kind of deposit. The prevailing rule in American jurisprudence that the relation
between a bank renting out safe deposit boxes and its customer with respect to the contents of the box
is that of a bailor and bailee, the bailment for hire and mutual benefit 15 has been adopted in this
jurisdiction, thus:
In the context of our laws which authorize banking institutions to rent out safety deposit
boxes, it is clear that in this jurisdiction, the prevailing rule in the United States has been
adopted. Section 72 of the General Banking Act [R.A. 337, as amended] pertinently
provides:
"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act,
banking institutions other than building and loan associations may perform the following
services:
(a) Receive in custody funds, documents, and valuable objects, and rent
safety deposit boxes for the safequarding of such effects.
xxx xxx xxx
The banks shall perform the services permitted under subsections (a), (b) and (c) of this
section asdepositories or as agents. . . ."(emphasis supplied)
Note that the primary function is still found within the parameters of a contract
of deposit, i.e., the receiving in custody of funds, documents and other valuable objects
for safekeeping. The renting out of the safety deposit boxes is not independent from, but
related to or in conjunction with, this principal function. A contract of deposit may be
entered into orally or in writing (Art. 1969, Civil Code] and, pursuant to Article 1306 of the
Civil Code, the parties thereto may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals,
good customs, public order or public policy. The depositary's responsibility for the
safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV of
the Civil Code. Accordingly, the depositary would be liable if, in performing its obligation,
it is found guilty of fraud, negligence, delay or contravention of the tenor of the
14 | P a g e

agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of
diligence required, that of a good father of a family is to be observed [Art. 1173, id.].
Hence, any stipulation exempting the depositary from any liability arising from the loss of
the thing deposited on account of fraud, negligence or delay would be void for being
contrary to law and public policy. In the instant case, petitioner maintains that conditions
13 and l4 of the questioned contract of lease of the safety deposit box, which read:
"13. The bank is a depositary of the contents of the safe and it has neither the
possession nor control of the same.
"14. The bank has no interest whatsoever in said contents, except as herein expressly
provided, and it assumes absolutely no liability in connection therewith."
are void as they are contrary to law and public policy. We find Ourselves in agreement
with this proposition for indeed, said provisions are inconsistent with the respondent
Bank's responsibility as a depositary under Section 72 (a) of the General Banking Act.
Both exempt the latter from any liability except as contemplated in condition 8 thereof
which limits its duty to exercise reasonable diligence only with respect to who shall be
admitted to any rented safe, to wit:
"8. The Bank shall use due diligence that no unauthorized person shall be
admitted to any rented safe and beyond this, the Bank will not be
responsible for the contents of any safe rented from it."
Furthermore condition 13 stands on a wrong premise and is contrary to the actual
practice of the Bank. It is not correct to assert that the Bank has neither the possession
nor control of the contents of the box since in fact, the safety deposit box itself is located
in its premises and is under its absolute control; moreover, the respondent Bank keeps
the guard key to the said box. As stated earlier, renters cannot open their respective
boxes unless the Bank cooperates by presenting and using this guard key. Clearly then,
to the extent above stated, the foregoing conditions in the contract in question are void
and ineffective. It has been said:
"With respect to property deposited in a safe-deposit box by a customer
of a safe-deposit company, the parties, since the relation is a contractual
one, may by special contract define their respective duties or provide for
increasing or limiting the liability of the deposit company, provided such
contract is not in violation of law or public policy. It must clearly appear
that there actually was such a special contract, however, in order to vary
the ordinary obligations implied by law from the relationship of the parties;
liability of the deposit company will not be enlarged or restricted by words
of doubtful meaning. The company, in renting safe-deposit boxes, cannot
exempt itself from liability for loss of the contents by its own fraud or
negligence or that, of its agents or servants, and if a provision of the
contract may be construed as an attempt to do so, it will be held
ineffective for the purpose. Although it has been held that the lessor of a
safe-deposit box cannot limit its liability for loss of the contents thereof
through its own negligence, the view has been taken that such a lessor
may limit its liability to some extent by agreement or stipulation ."[10 AM
JUR 2d., 466]. (citations omitted) 16
15 | P a g e

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA
Agro-Industrial Development Corp. are strikingly similar to condition No. 13 in the instant case. On the
other hand, both condition No. 8 in CA Agro-Industrial Development Corp. and condition No. 9 in the
present case limit the scope of the exercise of due diligence by the banks involved to merely seeing to
it that only the renter, his authorized agent or his legal representative should open or have access to
the safety deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercise
diligence of any kind at all. Assayed in the light of Our aforementioned pronouncements in CA Agrolndustrial Development Corp., it is not at all difficult to conclude that both conditions No. 9 and No. 13 of
the "Lease Agreement" covering the safety deposit box in question (Exhibits "A" and "1") must be
stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any
liability for damage, loss or destruction of the contents of the safety deposit box which may arise from
its own or its agents' fraud, negligence or delay. Accordingly, SBTC cannot take refuge under the said
conditions.
Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of
the stamp collection because the flooding was a fortuitous event and there was no showing of SBTC's
participation in the aggravation of the loss or injury. It states:
Article 1174 of the Civil Code provides:
"Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which, though foreseen, were inevitable.'
In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada
Espaola 17 says: "In a legal sense and, consequently, also in relation to contracts,
a "caso fortuito" prevents (sic) 18 the following essential characteristics: (1) the cause of
the unforeseen ands unexpected occurrence, or of the failure of the debtor to comply
with his obligation, must be independent of the human will; (2) it must be impossible to
foresee the event which constitutes the "caso fortuito," or if it can be foreseen, it must be
impossible to avoid; (3) the occurrence must be such as to render it impossible for one
debtor to fulfill his obligation in a normal manner; and (4) the obligor must be free from
any participation in the aggravation of the injury resulting to the creditor." (cited in
Servando vs.Phil., Steam Navigation Co., supra). 19
Here, the unforeseen or unexpected inundating floods were independent of the will of
the appellant bank and the latter was not shown to have participated in aggravating
damage (sic) to the stamps collection of the appellee. In fact, the appellant bank offered
its services to secure the assistance of an expert to save most of the then good stamps
but the appelle refused and let (sic) these recoverable stamps inside the safety deposit
box until they were ruined. 20
Both the law and authority cited are clear enough and require no further elucidation. Unfortunately,
however, the public respondent failed to consider that in the instant case, as correctly held by the trial
court, SBTC was guilty of negligence. The facts constituting negligence are enumerated in the petition
and have been summarized in this ponencia. SBTC's negligenceaggravated the injury or damage to the
stamp collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where Safe Deposit Box No. 54 was located. In view thereof, it should have lost no
time in notifying the petitioner in order that the box could have been opened to retrieve the stamps, thus
16 | P a g e

saving the same from further deterioration and loss. In this respect, it failed to exercise the reasonable
care and prudence expected of a good father of a family, thereby becoming a party to the aggravation
of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent
Article 1170 of the Civil Code, which reads:
Those who in the performance of their obligation are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages,
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in
the language of the trial court, the "product of 27 years of patience and diligence" 21 caused the
petitioner pecuniary loss; hence, he must be compensated therefor.
We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the
relationship between the petitioner and SBTC is based on a contract, either of them may be held liable
for moral damages for breach thereof only if said party had acted fraudulently or in bad faith. 22 There is
here no proof of fraud or bad faith on the part of SBTC.
WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of
the public respondent Court of Appeals of 21 August 1991 and 21 November 1991, respectively, in CAG.R. CV No. 26737, are hereby SET ASIDE and the Decision of 19 February 1990 of Branch 47 of the
Regional Trial Court of Manila in Civil Case No. 87-42601 is hereby REINSTATED in full, except as to
the award of moral damages which is hereby set aside.
Costs against the private respondent.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ., concur.
# Footnotes
1 Rollo, 34-41. Per Associate Justice Lucio L. Victor, concurred in by Associate Justices Santiago M. Kapunan and
Segundino G. Chua.
2 Id., 52-55.
3 Exhibit "A" and "1", Original Records of Civil Case No. 87-42601, 87.
4 Rollo, 55.
5 Rollo, 34-36.
6 Rollo, 41.
7 Rollo, 43-49.
8 Id., 17.
9 Id., 63.
10 Rollo, 61, citing Gonzales vs. Court of Appeals, 90 SCRA 183 [1979].
11 Sacay vs. Sandiganbayan, 142 SCRA 593 [1986]; Remalante vs. Tibe, 158 SCRA 138 [1988]; Medina vs. Asisitio, 191
SCRA 218 [1990].
12 Exhibit "A-1", Original Records, dorsal side of page 87.
13 G.R. No. 90027, 3 March 1993.
14 Title XII, Book IV, Civil Code.
15 10 Am Jur 2d, 440-441.
16 Entries in brackets appear as footnotes in the decision.
17 5 Enciclopedia Juridicada Espaola.
18 Should be presents.
19 117 SCRA 832 [1982].
20 Rollo, 40.
21 Rollo, 54.
22 Article 2220, Civil Code.
17 | P a g e

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 147839
June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000 of the
Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of
the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of
action for damages of Insurance Company of North America (respondent) against Gaisano Cagayan,
Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's motion for
reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and
LSPI separately obtained from respondent fire insurance policies with book debt endorsements. The
insurance policies provide for coverage on "book debts in connection with ready-made clothing
materials which have been sold or delivered to various customers and dealers of the Insured anywhere
in the Philippines."2 The policies defined book debts as the "unpaid account still appearing in the Book
of Account of the Insured 45 days after the time of the loss covered under this Policy." 3 The policies
also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the
close of every calendar month all amount shown in their books of accounts as unpaid and thus
become receivable item from their customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the
Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire.
Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold and
delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC
and LSPI filed with respondent their claims under their respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery
of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that
18 | P a g e

respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their
rights against petitioner; that respondent made several demands for payment upon petitioner but these
went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable
because the property covered by the insurance policies were destroyed due to fortuities event or force
majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of
contract committed by it since the loss was due to fire which it could not prevent or foresee; that IMC
and LSPI never communicated to it that they insured their properties; that it never consented to paying
the claim of the insured.6
At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on the
merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint. 8 It held that the
fire was purely accidental; that the cause of the fire was not attributable to the negligence of the
petitioner; that it has not been established that petitioner is the debtor of IMC and LSPI; that since the
sales invoices state that "it is further agreed that merely for purpose of securing the payment of
purchase price, the above-described merchandise remains the property of the vendor until the
purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bear
the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting
aside the decision of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a
new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the
insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until
fully paid;
2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the
insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity
and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner since
the proviso contained in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to
the general rule that if the thing is lost by a fortuitous event, the risk is borne by the owner of the thing
at the time the loss under the principle of res perit domino; that petitioner's obligation to IMC and LSPI
is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation to
pay is not extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer
has the right to go against petitioner; that, being a fire insurance with book debt endorsements, what
was insured was the vendor's interest as a creditor.11
19 | P a g e

Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April
11, 2001.13
Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE
WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN
THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION
UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be
over credit since an insurance "on credit" belies not only the nature of fire insurance but the express
terms of the policies; that it was not credit that was insured since respondent paid on the occasion of
the loss of the insured goods to fire and not because of the non-payment by petitioner of any obligation;
that, even if the insurance is deemed as one over credit, there was no loss as the accounts were not
yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the debt
and such demands came from respondent only after it had already paid IMC and LSPI under the fire
insurance policies.15
As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and
LSPI assumed the risk of loss when they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as
no valid insurance could be maintained thereon by IMC and LSPI since all risk had transferred to
petitioner upon delivery of the goods; that petitioner was not privy to the insurance contract or the
payment between respondent and its insured nor was its consent or approval ever secured; that this
lack of privity forecloses any real interest on the part of respondent in the obligation to pay, limiting its
interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made clothing materials was
transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as
creditors who stand to suffer direct pecuniary loss from its destruction by fire; that petitioner is liable for
loss of the ready-made clothing materials since it failed to overcome the presumption of liability under
Article 126516 of the Civil Code; that the fire was caused through petitioner's negligence in failing to
provide stringent measures of caution, care and maintenance on its property because electric wires do
not usually short circuit unless there are defects in their installation or when there is lack of proper
maintenance and supervision of the property; that petitioner is guilty of gross and evident bad faith in
refusing to pay respondent's valid claim and should be liable to respondent for contracted lawyer's fees,
litigation expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the
CA is limited to reviewing questions of law which involves no examination of the probative value of the
evidence presented by the litigants or any of them.18 The Supreme Court is not a trier of facts; it is not
its function to analyze or weigh evidence all over again.19 Accordingly, findings of fact of the appellate
court are generally conclusive on the Supreme Court.20
20 | P a g e

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be
resolved by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there
is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when
the findings of facts are conflicting; (6) when in making its findings the CA went beyond the issues of
the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when
the findings are contrary to the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on record; and (11)
when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present
petition.
At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA
erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC
and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered
to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily understood, there is no room for
construction.22 In this case, the questioned insurance policies provide coverage for "book debts in
connection with ready-made clothing materials which have been sold or delivered to various customers
and dealers of the Insured anywhere in the Philippines."23 ; and defined book debts as the "unpaid
account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered
under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the
insurance is the goods sold and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to
read into it any alleged intention of the parties, the terms are to be understood literally just as they
appear on the face of the contract.25 Thus, what were insured against were the accounts of IMC and
LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or
destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods
by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the
payment of the purchase price the above described merchandise remains the property of the vendor
until the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance
of the contract and the ownership in the goods has been retained by the seller merely to secure
21 | P a g e

performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from
the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is
borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's
interest is not determined by concept of title, but whether insured has substantial economic interest in
the property.28
Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real
or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated
peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an
insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on
existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the
expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien
upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest
is requisite to the existence of such an interest, it is sufficient that the insured is so situated with
reference to the property that he would be liable to loss should it be injured or destroyed by the peril
against which it is insured.29 Anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.30Indeed, a vendor or seller retains an insurable
interest in the property sold so long as he has any interest therein, in other words, so long as he would
suffer by its destruction, as where he has a vendor's lien.31 In this case, the insurable interest of IMC
and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of
the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the
Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil
Code.
Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly,
petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor to make the payment even by reason of a
fortuitous event shall not relieve him of his liability.33 The rationale for this is that the rule that an obligor
should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when
the obligation consists in the delivery of a determinate thing and there is no stipulation holding him
liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction
of anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense
that the object thereof is designated merely by its class or genus without any particular designation or
22 | P a g e

physical segregation from all others of the same class, the loss or destruction of anything of the same
kind even without the debtor's fault and before he has incurred in delay will not have the effect of
extinguishing the obligation.35 This rule is based on the principle that the genus of a thing can never
perish. Genus nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by
fortuitous loss of any specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case.
What is relevant here is whether it has been established that petitioner has outstanding accounts with
IMC and LSPI.
With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show
that petitioner has an outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the
check voucher evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt executed by IMC in
favor of respondent upon receipt of the insurance proceeds. All these documents have been properly
identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to
establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.41 Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer or the
person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary
weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General
Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI.
It only confirms the loss of Levi's products in the amount of P535,613.00 in the fire that razed
petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was
offered in evidence. Thus, there is no evidence that respondent has been subrogated to any right which
LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's
case for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATIONthat the order to pay the amount of P535,613.00 to respondent is DELETED for
lack of factual basis.
No pronouncement as to costs.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
23 | P a g e

Chief Justice
Chairperson
(On Leave)
CONSUELO YNARES-SANTIAGO
Associate Justice
ROMEO J. CALLEJO, SR.

Asscociate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the opinion of the Court's Division.
Chief Justice
Footnotes
1
Penned by Associate Justice Portia Alio-Hormachuelos and concurred in by Associate Justices Angelina
Sandoval-Gutierrez (now Associate Justice of this Court) and Elvi John S. Asuncion.
2
Records, pp. 146, 190.
3
Id. at pp. 149 and 200; Exhibits "A-3-a" and "E-2-a Levi Strauss".
4
Id., Exhibits "A-3" and "E-2 Levi Strauss".
5
Id. at 1.
6
Id. at 63.
7
Id. at 93.
8
Id. at 540.
9
CA rollo, p. 18.
10
Id. at 101-102.
11
Id. at 98-100.
12
Id. at 105.
13
Id. at 135.
14
Rollo, p. 36.
15
Id. at 28 (Petition), 132 (Memorandum).
16
Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to
his fault, unless there is proof to the contrary, and without prejudice to the provisions of Article 1165. This
presumption does not apply in case of earthquake, flood, storm, or other natural calamity.
17
Rollo, pp. 105 (Comment), 153 (Memorandum).
18
Spouses Hanopol v. Shoemart, Incorporated, 439 Phil. 266, 277 (2002); St. Michael's Institute v. Santos, 422 Phil.
723, 737 (2001).
19
Go v. Court of Appeals, G.R. No. 158922, May 28, 2004, 430 SCRA 358, 364; Spouses Hanopol v. Shoemart,
Incorporated, supra.
20
Custodio v. Corrado, G.R. No. 146082, July 30, 2004, 435 SCRA 500, 511; Spouses Hanopol v. Shoemart,
Incorporated, supra.
21
The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No. 126850, April 28, 2004, 428 SCRA 79, 86;
Aguirre v. Court of Appeals, G.R. No. 122249, January 29, 2004, 421 SCRA 310, 319.
22
De Mesa v. Court of Appeals, 375 Phil. 432, 443 (1999).
23
Records, pp. 146, 190.
24
Id.
25
First Fil-Sin Lending Corporation v. Padillo, G.R. No. 160533, January 12, 2005, 448 SCRA 71, 76; Azarraga v.
Rodriguez, 9 Phil. 637 (1908).
26
Records, at the back of pp. 151-173; Exhibits "C" to "C-22".
27
See Lawyers Cooperative Publishing Co. v. Tabora, 121 Phil. 737, 741 (1965).
28
Aetna Ins. Co. v. King, 265 So 2d 716, cited in 43 Am Jur 2d 943.
29
43 Am Jur 2d 943.
30
Id.
31
43 Am Jur 2d 962.
24 | P a g e

32
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which
could not be foreseen, or which, though foreseen were inevitable.
33
CA Decision, p. 11; CA rollo, p. 100.
34
Lawyers Cooperative Publishing v. Tabora, supra note 27, at 741.
35
Jurado, Comments and Jurisprudence on Obligations and Contracts (1993), pp. 289-290. See also Republic of the
Philippines v. Grijaldo, 122 Phil. 1060, 1066 (1965); De Leon v. Soriano, 87 Phil. 193, 196 (1950).
36
Bunge Corp. and Universal Comm. Agencies v. Elena Camenforte & Company, 91 Phil. 861, 865 (1952). See also
Republic of the Philippines v. Grijaldo, supra; De Leon v. Soriano, supra.
37
Ramirez v. Court of Appeals, 98 Phil. 225, 228 (1956).
38
Records, pp. 151-173.
39
Id. at 182.
40
Id. at 183.
41
Delsan Transport Lines, Inc. v. Court of Appeals, 420 Phil. 824, 834 (2001); Philippine American General Insurance
Company, Inc. v. Court of Appeals, 339 Phil. 455, 466 (1997).
42
Records, p. 201.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-55300 March 15, 1990
FRANKLIN G. GACAL and CORAZON M. GACAL, the latter assisted by her husband, FRANKLIN
G. GACAL,petitioners,
vs.
PHILIPPINE AIR LINES, INC., and THE HONORABLE PEDRO SAMSON C. ANIMAS, in his
capacity as PRESIDING JUDGE of the COURT OF FIRST INSTANCE OF SOUTH COTABATO,
BRANCH I, respondents.
Vicente A. Mirabueno for petitioners.
Siguion Reyna, Montecillo & Ongsiako for private respondent.
PARAS, J.:
This is a, petition for review on certiorari of the decision of the Court of First Instance of South
Cotabato, Branch 1,* promulgated on August 26, 1980 dismissing three (3) consolidated cases for
damages: Civil Case No. 1701, Civil Case No. 1773 and Civil Case No. 1797 (Rollo, p. 35).
The facts, as found by respondent court, are as follows:
Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal, Bonifacio S. Anislag and his
wife, Mansueta L. Anislag, and the late Elma de Guzman, were then passengers
boarding defendant's BAC 1-11 at Davao Airport for a flight to Manila, not knowing that
on the same flight, Macalinog, Taurac Pendatum known as Commander Zapata, Nasser
Omar, Liling Pusuan Radia, Dimantong Dimarosing and Mike Randa, all of Marawi City
and members of the Moro National Liberation Front (MNLF), were their co-passengers,
three (3) armed with grenades, two (2) with .45 caliber pistols, and one with a .22 caliber
pistol. Ten (10) minutes after take off at about 2:30 in the afternoon, the hijackers
brandishing their respective firearms announced the hijacking of the aircraft and directed
25 | P a g e

its pilot to fly to Libya. With the pilot explaining to them especially to its leader,
Commander Zapata, of the inherent fuel limitations of the plane and that they are not
rated for international flights, the hijackers directed the pilot to fly to Sabah. With the
same explanation, they relented and directed the aircraft to land at Zamboanga Airport,
Zamboanga City for refueling. The aircraft landed at 3:00 o'clock in the afternoon of May
21, 1976 at Zamboanga Airport. When the plane began to taxi at the runway, it was met
by two armored cars of the military with machine guns pointed at the plane, and it
stopped there. The rebels thru its commander demanded that a DC-aircraft take them to
Libya with the President of the defendant company as hostage and that they be given
$375,000 and six (6) armalites, otherwise they will blow up the plane if their demands
will not be met by the government and Philippine Air Lines. Meanwhile, the passengers
were not served any food nor water and it was only on May 23, a Sunday, at about 1:00
o'clock in the afternoon that they were served 1/4 slice of a sandwich and 1/10 cup of
PAL water. After that, relatives of the hijackers were allowed to board the plane but
immediately after they alighted therefrom, an armored car bumped the stairs. That
commenced the battle between the military and the hijackers which led ultimately to the
liberation of the surviving crew and the passengers, with the final score of ten (10)
passengers and three (3) hijackers dead on the spot and three (3) hijackers captured.
City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M. Gacal suffered injuries in the
course of her jumping out of the plane when it was peppered with bullets by the army
and after two (2) hand grenades exploded inside the plane. She was hospitalized at
General Santos Doctors Hospital, General Santos City, for two (2) days, spending
P245.60 for hospital and medical expenses, Assistant City Fiscal Bonifacio S. Anislag
also escaped unhurt but Mrs. Anislag suffered a fracture at the radial bone of her left
elbow for which she was hospitalized and operated on at the San Pedro Hospital, Davao
City, and therefore, at Davao Regional Hospital, Davao City, spending P4,500.00. Elma
de Guzman died because of that battle. Hence, the action of damages instituted by the
plaintiffs demanding the following damages, to wit:
Civil Case No. 1701
City Fiscal Franklin G. Gacal and Mrs. Corazon M. Gacal actual
damages: P245.60 for hospital and medical expenses of Mrs Gacal;
P8,995.00 for their personal belongings which were lost and not
recovered; P50,000.00 each for moral damages; and P5,000.00 for
attorney's fees, apart from the prayer for an award of exemplary damages
(Record, pp. 4-6, Civil Case No. 1701).
Civil Case No. 1773
xxx xxx xxx
Civil Case No. 1797
xxx xxx xxx
The trial court, on August 26, 1980, dismissed the complaints finding that all the damages sustained in
the premises were attributed to force majeure.
26 | P a g e

On September 12, 1980 the spouses Franklin G. Gacal and Corazon M. Gacal, plaintiffs in Civil Case
No. 1701, filed a notice of appeal with the lower court on pure questions of law (Rollo, p. 55) and the
petition for review oncertiorari was filed with this Court on October 20, 1980 (Rollo, p. 30).
The Court gave due course to the petition (Rollo, p. 147) and both parties filed their respective briefs
but petitioner failed to file reply brief which was noted by the Court in the resolution dated May 3, 1982
(Rollo, p. 183).
Petitioners alleged that the main cause of the unfortunate incident is the gross, wanton and inexcusable
negligence of respondent Airline personnel in their failure to frisk the passengers adequately in order to
discover hidden weapons in the bodies of the six (6) hijackers. They claimed that despite the
prevalence of skyjacking, PAL did not use a metal detector which is the most effective means of
discovering potential skyjackers among the passengers (Rollo, pp. 6-7).
Respondent Airline averred that in the performance of its obligation to safely transport passengers as
far as human care and foresight can provide, it has exercised the utmost diligence of a very cautious
person with due regard to all circumstances, but the security checks and measures and surveillance
precautions in all flights, including the inspection of baggages and cargo and frisking of passengers at
the Davao Airport were performed and rendered solely by military personnel who under appropriate
authority had assumed exclusive jurisdiction over the same in all airports in the Philippines.
Similarly, the negotiations with the hijackers were a purely government matter and a military operation,
handled by and subject to the absolute and exclusive jurisdiction of the military authorities. Hence, it
concluded that the accident that befell RP-C1161 was caused by fortuitous event, force majeure and
other causes beyond the control of the respondent Airline.
The determinative issue in this case is whether or not hijacking or air piracy during martial law and
under the circumstances obtaining herein, is a caso fortuito or force majeure which would exempt an
aircraft from payment of damages to its passengers whose lives were put in jeopardy and whose
personal belongings were lost during the incident.
Under the Civil Code, common carriers are required to exercise extraordinary diligence in their vigilance
over the goods and for the safety of passengers transported by them, according to all the
circumstances of each case (Article 1733). They are presumed at fault or to have acted negligently
whenever a passenger dies or is injured (Philippine Airlines, Inc. v. National Labor Relations
Commission, 124 SCRA 583 [1983]) or for the loss, destruction or deterioration of goods in cases other
than those enumerated in Article 1734 of the Civil Code (Eastern Shipping Lines, Inc. v. Intermediate
Appellate Court, 150 SCRA 463 [1987]).
The source of a common carrier's legal liability is the contract of carriage, and by entering into said
contract, it binds itself to carry the passengers safely as far as human care and foresight can provide.
There is breach of this obligation if it fails to exert extraordinary diligence according to all the
circumstances of the case in exercise of the utmost diligence of a very cautious person (Isaac v.
Ammen Transportation Co., 101 Phil. 1046 [1957]; Juntilla v. Fontanar, 136 SCRA 624 [1985]).
It is the duty of a common carrier to overcome the presumption of negligence (Philippine National
Railways v. Court of Appeals, 139 SCRA 87 [1985]) and it must be shown that the carrier had observed
the required extraordinary diligence of a very cautious person as far as human care and foresight can
provide or that the accident was caused by a fortuitous event (Estrada v. Consolacion, 71 SCRA 523
[1976]). Thus, as ruled by this Court, no person shall be responsible for those "events which could not
27 | P a g e

be foreseen or which though foreseen were inevitable. (Article 1174, Civil Code). The term is
synonymous with caso fortuito (Lasam v. Smith, 45 Phil. 657 [1924]) which is of the same sense as
"force majeure" (Words and Phrases Permanent Edition, Vol. 17, p. 362).
In order to constitute a caso fortuito or force majeure that would exempt a person from liability under
Article 1174 of the Civil Code, it is necessary that the following elements must concur: (a) the cause of
the breach of the obligation must be independent of the human will (the will of the debtor or the obligor);
(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 (Lasam v. Smith, 45 Phil. 657
[1924]; Austria v. Court of Appeals, 39 SCRA 527 [1971]; Estrada v. Consolacion, supra; Vasquez v.
Court of Appeals, 138 SCRA 553 [1985]; Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596
[1986]). Caso fortuito or force majeure, by definition, are extraordinary events not foreseeable or
avoidable, events that could not be foreseen, or which, though foreseen, are inevitable. It is, therefore,
not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it
must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not
impossibility to foresee the same (Republic v. Luzon Stevedoring Corporation, 21 SCRA 279 [1967]).
Applying the above guidelines to the case at bar, the failure to transport petitioners safely from Davao
to Manila was due to the skyjacking incident staged by six (6) passengers of the same plane, all
members of the Moro National Liberation Front (MNLF), without any connection with private
respondent, hence, independent of the will of either the PAL or of its passengers.
Under normal circumstances, PAL might have foreseen the skyjacking incident which could have been
avoided had there been a more thorough frisking of passengers and inspection of baggages as
authorized by R.A. No. 6235. But the incident in question occurred during Martial Law where there was
a military take-over of airport security including the frisking of passengers and the inspection of their
luggage preparatory to boarding domestic and international flights. In fact military take-over was
specifically announced on October 20, 1973 by General Jose L. Rancudo, Commanding General of the
Philippine Air Force in a letter to Brig. Gen. Jesus Singson, then Director of the Civil Aeronautics
Administration (Rollo, pp. 71-72) later confirmed shortly before the hijacking incident of May 21, 1976
by Letter of Instruction No. 399 issued on April 28, 1976 (Rollo, p. 72).
Otherwise stated, these events rendered it impossible for PAL to perform its obligations in a nominal
manner and obviously it cannot be faulted with negligence in the performance of duty taken over by the
Armed Forces of the Philippines to the exclusion of the former.
Finally, there is no dispute that the fourth element has also been satisfied. Consequently the existence
of force majeure has been established exempting respondent PAL from the payment of damages to its
passengers who suffered death or injuries in their persons and for loss of their baggages.
PREMISES CONSIDERED, the petition is hereby DISMISSED for lack of merit and the decision of the
Court of First Instance of South Cotabato, Branch I is hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera, Padilla, Sarmiento and Regalado, JJ., concur.
Footnotes
* Presided over by CFI Judge Pedro Samson C. Animas.
28 | P a g e

SUPREME COURT
Manila
EN BANC
G.R. No. L-7003
January 18, 1912
MANUEL ORIA Y GONZALES, plaintiff-appellant,
vs.
JOSE McMICKING, as sheriff of the city of Manila,
GUTIERREZ HERMANOS, MIGUEL GUTIERREZ DE CELIS, DANIEL PEREZ, and LEOPOLDO
CRIADO,defendants-appellees.
Chicote & Miranda for appellant.
Eduardo Gutierrez Repide for appellees.
MORELAND, J.:
These are the facts:
In the month of August, 1909, Gutierrez Hermanos brought an action Oria Hermanos & Co. for the
recovery of P147,204.28; that action is known as No. 7289 in the Court of First Instance of Manila. In
March, 1910 the plaintiff began another action against the same defendant for the recovery of
P12,318.57; this case was known as No. 7719 in said court. Subsequent to the beginning of the above
actions, and on or about the 30th day of April, 1910, the members of the company of Oria Hermanos &
Co., on account of the expiration of the time stated in their agreement of copartnership, dissolved their
relations and entered into liquidation. On the first day of June, 1910, Tomas Oria y Balbas, as
managing partner in liquidation, acting for himself and on behalf of his other coowners Casimiro Oria y
Balbas and Adolfo Fuster Robles, entered into a contract with the plaintiff in this case, Manuel Orio
Gonzales, which said contract was for the purpose of selling and transferring to the plaintiff in this
action all of the property of which the said Oria Hermanos & Co. was owner. Said instrument contained
the following clauses:
5. I, Tomas Oria y Balbas, do further state declare that I have agreed with the other party hereto, Don
Manuel Oria Gonzales, to sell all the property I have mentioned, which is specified more in detail in the
general inventory of Orio Hermanos & Co., for the price and under the conditions hereinafter
expressed; and in order to carry into effect such agreement made by me with the said Don Manuel Orio
Gonzales, in my own right and also in representation of my partners, Don Casimiro Oria and Don
Adolfo Fuster, I do hereby stipulate and agree:
6. As managing partner and liquidator of Oria Hermanos & Co., and further in my own right and in the
name and representation of Don Casimiro Oria y Balbas and Don Adolfo Fuster y Robles, personally
and as partners in Oria Hermanos & Co., in consideration of the sum of two hundred seventy-four
thousand pesos (P274,000), which the said Don Manuel Oria y Gonzales undertakes and engages to
pay to the firm of Oria Hermanos & Co., in liquidation, or to us the parties hereto, myself and the
persons I represent, as partners in Oria Hermanos & Co., which whom shall be paid in installments, in
the manner and under the conditions hereinafter set forth. I hereby sell, cede and transfer absolutely
and forever to the said Don Manuel Oria y Gonzales, his heirs and his assigns, all and every part of the
property mentioned in the fourth section hereof and more specially described in the general inventory of
Oria Hermosa & Co.; under the following mutual conditions:
(a) Don Manuel Oria y Gonzales engages and undertakes to pay and to settle the sum agreed
upon for this sale, cession and transfer within a period of twelve (12) years, further engaging
29 | P a g e

and undertaking to pay each year a sum of not less than ten thousand (10,000) pesos and at
the end of the said period to settle the balance of said price.
(b) After the first six (6) years of the period for the payment of the stipulated price, that is, during
the last six years of said period, Don Manuel Oria y Gonzales engages and undertakes to pay
the interest at 3 per cent a year on the price stipulated or the part thereof unpaid at such time;
provided, that this is mutual obligation and interest payable annually.
(c) Don Manuel Oria y Gonzales further engages and undertakes to pay Don Tomas Oria, Don
Casimiro Oria and Don Adolfo Fuster during the time that they remain in the Philippines and do
not reside abroad, the sum of one hundred and fifty (150) pesos monthly; which obligation shall
be understood to be contracted individually with each of the said parties; and the amounts so
paid to each and all of them shall be charged to the account of Oria Hermanos & Co., in
liquidation, in discharge of the stipulated consideration and the installments thereof and interest
thereon when due.
(d) Don Manuel Oria y Gonzales engages and undertakes not to sell, alienate, transfer or
mortgage, either wholly or in part, the property hereby sold to him, without the written
authorization of Don Tomas Oria as liquidator of the firm of Oria Hermanos & Co., so long as
the consideration of this sale is not fully satisfied, to guarantee which this restriction is imposed:
provided, that this restriction applies only to the vessels, real estate and branch stores in the
towns mentioned in the fourth section of this instrument, not to the rest of the property.
(e) Don Manuel Oria y Gonzales engages and undertakes to cede gratuitously in the dwellinghouse in the town of Laoag, hereby sold, the use of the same or the portion thereof that may be
necessary for Don Tomas Oria to establish therein the liquidation office of Oria Hermanos &
Co.; provided, that this cession is made for a period of only two (2) years.
( f ) Don Tomas Oria y Balbas and Don Adolfo Fuster engage and undertake to place their
personal services at the disposal of Don Manuel Oria y Gonzales in everything relating to his
instruction in the management and conduct of the property and business hereby sold; provided,
that this obligation and promise shall be binding upon Don Adolfo Fuster only for the time he
may reside in the Philippines and upon both parties only for a maximum period of 12 months.
7. I, Manuel Oria y Gonzales, being informed of the foregoing action and contract executed by Don
Tomas Oria y Balbas, do on my part stipulated and agree: that I accept the sale, cession and transfer
hereby made by him in my favor and engage and undertake to pay Oria Hermanos & Co., either in
liquidation, or if necessary to the partners of Oria Hermanos & Co., the price of said sale, cession and
transfer, that is, the sum of P274,000 within a period of 12 years, in the manner and under the
conditions set forth by him in the preceding section, and especially engaged not to sell, alienate,
transfer or mortgage the property involved in this sale which is specified in paragraph (d) of the
preceding section, without the previous written authorization of the vendor, Oria Hermanos & Co., such
property being so exempted as a guaranty for the payment of the purchase price of this sale.
Among the goods transferred by this instrument was the steamship Serantes, which is the subject of
litigation.
On the 17th day of September, 1910, case No. 7719, above referred to, was resolved by the Court of
First Instance in favor of Gutierrez Hermanos and against Oria Hermanos & Co. for the sum demanded
in the complaint. The cause was appealed to the Supreme Court and, the judgment therein having
30 | P a g e

been affirmed,1 execution was issued thereon and placed in the hands of the sheriff of Manila. The
sheriff immediately demanded that Tomas Oria y Balbas, as liquidator of the firm of Oria Hermanos &
Co. make payment of the said judgment, to which he replied that there were no funds with which to pay
the same. Thereupon the sheriff levied upon the said steamerSerantes, took possession of the same,
and announced it for sale at public auction on the 21st day of October, 19110. On the 18th day of
October, 190, three days before the sale, the plaintiff in this action presented to the sheriff a written
statement claiming to be the owner of the said steamship, and to have the right of possession of the
same by reason of the sale to him by Oria Hermanos & Co. of all of the property belonging to said
company, including the said steamer Serantes, a shown by the instrument above referred to the
quoted. The sheriff thereupon required Gutierrez Hermanos to present a bond for his protection, which
having been done, the sheriff proceeded to the sale of the steamship. At the sale Gutierrez Hermanos
became the purchaser, said company being the highest bidder, and the sum which it paid being the
highest sum bidden for the same.
On the 19th day of October, 191, the plaintiff began the present action, which has for its object, as
shown by the prayer of the complaint: First, the issuance of a preliminary injunction to prevent the sale
of the steamship; and, second, the declaration that the plaintiff is the owner of said steamship and is
entitled to the possession of the same, and that the defendant be required to restore the same to the
plaintiff and to pay P10,000 damages for its detention.
Upon the trial judgment was found in favor of the defendant and against the plaintiff, and the complaint
was dismissed upon the merits with costs. From that judgment this appeal is taken.
The substantial question presented for our consideration is the validity of the sale from Oria Hermanos
& Co. to Manuel Oria y Gonzalez as against the creditors of said company. It is the contention of
Gutierrez Hermanos that said sale is fraudulent as against the creditors of Oria Hermanos & Co., and
that the transfer thereby consummated of the steamship in question was void as to said creditors and
as to Gutierrez Hermanos in particular.
There is some contention on the part of the plaintiffs that aside from the property included in the sale
referred to, Oria Hermanos & Co. had sufficient other property to pay the judgment of Gutierrez
Hermanos. The trial court found, however, against the plaintiff in this regard. A careful examination of
the record fails to disclose any sufficient reason for the reversal of the finding. While the evidence is
somewhat conflicting, we are of the opinion that there is sufficient to sustain the findings made.
In determining whether or not the sale in question was fraudulent as against creditors, these facts must
be kept in mind:
1. At the time of said sale the value of the assets of Oria Hermanos & Co., as stated by the
partners themselves, was P274,000.
2. That at the time of said sale actions were pending against said company by one single
creditor for sums aggregating in amount nearly P160,000.
3. The vendee of said sale was a son of Tomas Oria y Balbas and a nephew of the other two
persons heretofore mentioned which said three brothers together constituted all of the members
of said company.
4. Nothing of value seems to have been delivered by the plaintiff in consideration of said sale
and no security whatsoever was given for the payments therein provided for.
31 | P a g e

5. The plaintiff is a young man twenty-five years of age. There is no pretense whatsoever that
he owned any property or had any business at the time of the sale. On the contrary it appears
without contradiction that, when the sale took place, he was merely a student without assets
and without gainful occupation.
6. Plaintiff, at the time of the sale, was fully aware of the two suits that have already been begun
against the company whose assets he was purchasing and well knew that if said suits should
terminate in favor of the plaintiffs therein the judgments in which they terminated would have to
be paid out of the property which he was then taking over or they would not be paid at all.
7. Under all the circumstances the sale in question was, so far as the creditors were concerned,
without consideration. To turn over a business worth P274,000 to an "impecunious and
vocationless youth" who knew absolutely nothing about the business he received, and whose
adaptability to the management of that business was entirely unknown, without a penny being
paid down, without any security whatsoever, is a proceeding so unusual, so devoid of care and
caution, and so wholly outside of the well defined lines of ordinary business transactions, as to
startle any person interested in the concern.
8. It is certain that the members of the company of Oria Hermanos & Co. would never have
made a similar contract or executed a similar instrument with a stranger.
9. The prohibition in the contract against the sale of certain portions of the property by the
plaintiff offers no protection whatever to the creditors. Such prohibitions is not security. The
parties who made the original transfer can waive and release it at pleasure. Such restrictions is
of no value to the creditors of the company. They can not utilize it for the reduction of their
claims or in any other beneficial ways.
In determining whether or not a certain conveyance is fraudulent the question in every case is whether
the conveyance was a bona fide transaction or a trick and contrivance to defeat creditors, or whether it
conserves to the debtor a special right. It is not sufficient that it is founded on good consideration or is
made with bona fideintent: it must have both elements. If defective in either of these particulars,
although good between the parties, it is voidable as to creditors. The rule is universal both at law and in
equity that whatever fraud creates justice will destroy. The test as to whether or not a conveyance is
fraudulent is, does it prejudice the rights of creditors?
In the consideration of whether or not certain transfers were fraudulent, courts have laid down certain
rules by which the fraudulent character of the transaction may be determined. The following are some
of the circumstances attending sales which have been dominated by the courts badges of fraud:
1. The fact that the consideration of the conveyance is fictitious or is inadequate.
2. A transfer made by a debtor after suit has been begun and while it is pending against him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or
greatly embarrassed financially.
32 | P a g e

6. The fact that the transfer is made between father and son, when there are present other of
the above circumstances.
7. The failure of the vendee to take exclusive possession of all the property.
The case at bar presents every one of the badges of fraud above enumerated. Tested by the inquiry,
does the sale prejudice the rights of the creditors, the result is clear. The sale in the form in which it was
made leaves the creditors substantially without recourse. The property of the company is gone, its
income is gone, the business itself is likely to fail, the property is being dissipated, and is depreciating in
value. As a result, even if the claims of the creditors should live twelve years and the creditors
themselves wait that long, it more than likely that nothing would be found to satisfy their claim at the
end of the long wait. (Regalado vs. Luchsinger & Co., 5 Phil. Rep., 625; art. 1297, Civil Code, par. 1;
Manresa's Commentaries, vol. 8, pp. 713-719.)
Since the records shows that there was no property with which the judgment in question could be paid,
the defendants were obliged to resort to and levy upon the steamer in suit. The court below was correct
in finding the sale fraudulent and void as to Gutierrez Hermanos in so far as was necessary to permit
the collection of its judgment. As a corollary, the court below found that the evidence failed to show that
the plaintiff was the owner or entitled to the possession of the steamer in question at the time of the
levy and sale complained of, or that he was damaged thereby. Defendant had the right to make the levy
and test the validity of the sale in that way, without first resorting to a direct action to annul the sale. The
creditor may attack the sale by ignoring it and seizing under his execution the property, or any
necessary portion thereof, which is the subject of the sale.
For these reasons the judgment is affirmed, without special finding as to costs. So ordered.
Arellano, C.J., Torres, Mapa, Johnson, Carson and Trent, JJ., concur.
Footnotes
1
19 Phil. Rep., 104.
FIRST DIVISION
[G.R. No. 134685. November 19, 1999]
MARIA ANTONIA SIGUAN, petitioner, vs. ROSA LIM, LINDE LIM, INGRID LIM and NEIL
LIM, respondents.
DECISION
DAVIDE, JR., C.J.:
May the Deed of Donation executed by respondent Rosa Lim (hereafter LIM) in favor of her children be
rescinded for being in fraud of her alleged creditor, petitioner Maria Antonia Siguan? This is the pivotal issue to
be resolved in this petition for review on certiorari under Rule 45 of the Revised Rules of Court.
33 | P a g e

The relevant facts, as borne out of the records, are as follows:
On 25 and 26 August 1990, LIM issued two Metrobank checks in the sums of P300,000 and P241,668,
respectively, payable to cash. Upon presentment by petitioner with the drawee bank, the checks were
dishonored for the reason account closed. Demands to make good the checks proved futile. As a consequence,
a criminal case for violation of Batas Pambansa Blg. 22, docketed as Criminal Cases Nos. 22127-28, were filed
by petitioner against LIM with Branch 23 of the Regional Trial Court (RTC) of Cebu City. In its decision[1] dated
29 December 1992, the court a quo convicted LIM as charged. The case is pending before this Court for review
and docketed as G.R. No. 134685.
It also appears that on 31 July 1990 LIM was convicted of estafa by the RTC of Quezon City in Criminal
Case No. Q-89-2216[2] filed by a certain Victoria Suarez. This decision was affirmed by the Court of
Appeals. On appeal, however, this Court, in a decision[3] promulgated on 7 April 1997, acquitted LIM but held
her civilly liable in the amount of P169,000, as actual damages, plus legal interest.
Meanwhile, on 2 July 1991, a Deed of Donation[4] conveying the following parcels of land and purportedly
executed by LIM on 10 August 1989 in favor of her children, Linde, Ingrid and Neil, was registered with the
Office of the Register of Deeds of Cebu City:
(1) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 563 sq. m. and covered by
TCT No. 93433;
(2) a parcel of land situated at Barrio Lahug, Cebu City, containing an area of 600 sq. m. and covered by
TCT No. 93434;
(3) a parcel of land situated at Cebu City containing an area of 368 sq. m. and covered by TCT No.
87019; and
(4) a parcel of land situated at Cebu City, Cebu containing an area of 511 sq. m. and covered by TCT
No. 87020.
New transfer certificates of title were thereafter issued in the names of the donees.[5]
On 23 June 1993, petitioner filed an accion pauliana against LIM and her children before Branch 18 of the
RTC of Cebu City to rescind the questioned Deed of Donation and to declare as null and void the new transfer
certificates of title issued for the lots covered by the questioned Deed. The complaint was docketed as Civil Case
No. CEB-14181. Petitioner claimed therein that sometime in July 1991, LIM, through a Deed of Donation,
fraudulently transferred all her real property to her children in bad faith and in fraud of creditors, including her;
that LIM conspired and confederated with her children in antedating the questioned Deed of Donation, to
petitioners and other creditors prejudice; and that LIM, at the time of the fraudulent conveyance, left no
sufficient properties to pay her obligations.
On the other hand, LIM denied any liability to petitioner. She claimed that her convictions in Criminal Cases
Nos. 22127-28 were erroneous, which was the reason why she appealed said decision to the Court of Appeals. As
regards the questioned Deed of Donation, she maintained that it was not antedated but was made in good faith at a
time when she had sufficient property. Finally, she alleged that the Deed of Donation was registered only on 2
July 1991 because she was seriously ill.
In its decision of 31 December 1994,[6] the trial court ordered the rescission of the questioned deed of
donation; (2) declared null and void the transfer certificates of title issued in the names of private respondents
Linde, Ingrid and Neil Lim; (3) ordered the Register of Deeds of Cebu City to cancel said titles and to reinstate
the previous titles in the name of Rosa Lim; and (4) directed the LIMs to pay the petitioner, jointly and severally,
the sum ofP10,000 as moral damages; P10,000 as attorneys fees; and P5,000 as expenses of litigation.
On appeal, the Court of Appeals, in a decision[7] promulgated on 20 February 1998, reversed the decision of
the trial court and dismissed petitioners accion pauliana. It held that two of the requisites for filing an accion
34 | P a g e

pauliana were absent, namely, (1) there must be a credit existing prior to the celebration of the contract; and (2)
there must be a fraud, or at least the intent to commit fraud, to the prejudice of the creditor seeking the rescission.
According to the Court of Appeals, the Deed of Donation, which was executed and acknowledged before a
notary public, appears on its face to have been executed on 10 August 1989. Under Section 23 of Rule 132 of the
Rules of Court, the questioned Deed, being a public document, is evidence of the fact which gave rise to its
execution and of the date thereof. No antedating of the Deed of Donation was made, there being no convincing
evidence on record to indicate that the notary public and the parties did antedate it. Since LIMs indebtedness to
petitioner was incurred in August 1990, or a year after the execution of the Deed of Donation, the first
requirement for accion pauliana was not met.
Anent petitioners contention that assuming that the Deed of Donation was not antedated it was nevertheless
in fraud of creditors because Victoria Suarez became LIMs creditor on 8 October 1987, the Court of Appeals
found the same untenable, for the rule is basic that the fraud must prejudice the creditor seeking the rescission.
Her motion for reconsideration having been denied, petitioner came to this Court and submits the following
issue:
WHETHER OR NOT THE DEED OF DONATION, EXH. 1, WAS ENTERED INTO IN FRAUD OF
[THE] CREDITORS OF RESPONDENT ROSA [LIM].
Petitioner argues that the finding of the Court of Appeals that the Deed of Donation was not in fraud of
creditors is contrary to well-settled jurisprudence laid down by this Court as early as 1912 in the case of Oria v.
McMicking,[8] which enumerated the various circumstances indicating the existence of fraud in a transaction. She
reiterates her arguments below, and adds that another fact found by the trial court and admitted by the parties but
untouched by the Court of Appeals is the existence of a prior final judgment against LIM in Criminal Case No. Q89-2216 declaring Victoria Suarez as LIMs judgment creditor before the execution of the Deed of Donation.
Petitioner further argues that the Court of Appeals incorrectly applied or interpreted Section 23, [9] Rule 132
of the Rules of Court, in holding that being a public document, the said deed of donation is evidence of the fact
which gave rise to its execution and of the date of the latter. Said provision should be read with Section 30 [10] of
the same Rule which provides that notarial documents are prima facie evidence of their execution, not of the
facts which gave rise to their execution and of the date of the latter.
Finally, petitioner avers that the Court of Appeals overlooked Article 759 of the New Civil Code, which
provides: The donation is always presumed to be in fraud of creditors when at the time of the execution thereof
the donor did not reserve sufficient property to pay his debts prior to the donation. In this case, LIM made no
reservation of sufficient property to pay her creditors prior to the execution of the Deed of Donation.
On the other hand, respondents argue that (a) having agreed on the law and requisites of accion pauliana,
petitioner cannot take shelter under a different law; (b) petitioner cannot invoke the credit of Victoria Suarez, who
is not a party to this case, to support her accion pauliana; (c) the Court of Appeals correctly applied or interpreted
Section 23 of Rule 132 of the Rules of Court; (d) petitioner failed to present convincing evidence that the Deed of
Donation was antedated and executed in fraud of petitioner; and (e) the Court of Appeals correctly struck down
the awards of damages, attorneys fees and expenses of litigation because there is no factual basis therefor in the
body of the trial courts decision.
The primordial issue for resolution is whether the questioned Deed of Donation was made in fraud of
petitioner and, therefore, rescissible. A corollary issue is whether the awards of damages, attorneys fees and
expenses of litigation are proper.
We resolve these issues in the negative.
35 | P a g e

The rule is well settled that the jurisdiction of this Court in cases brought before it from the Court of Appeals
via Rule 45 of the Rules of Court is limited to reviewing errors of law. Findings of fact of the latter court are
conclusive, except in a number of instances.[11] In the case at bar, one of the recognized exceptions warranting a
review by this Court of the factual findings of the Court of Appeals exists, to wit, the factual findings and
conclusions of the lower court and Court of Appeals are conflicting, especially on the issue of whether the Deed
of Donation in question was in fraud of creditors.
Article 1381 of the Civil Code enumerates the contracts which are rescissible, and among them are those
contracts undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them.
The action to rescind contracts in fraud of creditors is known as accion pauliana. For this action to prosper,
the following requisites must be present: (1) the plaintiff asking for rescission has a credit prior to the
alienation,[12] although demandable later; (2) the debtor has made a subsequent contract conveying a patrimonial
benefit to a third person; (3) the creditor has no other legal remedy to satisfy his claim; [13] (4) the act being
impugned is fraudulent;[14] (5) the third person who received the property conveyed, if it is by onerous title, has
been an accomplice in the fraud.[15]
The general rule is that rescission requires the existence of creditors at the time of the alleged fraudulent
alienation, and this must be proved as one of the bases of the judicial pronouncement setting aside the
contract.[16] Without any prior existing debt, there can neither be injury nor fraud. While it is necessary that the
credit of the plaintiff in the accion pauliana must exist prior to the fraudulent alienation, the date of the judgment
enforcing it is immaterial. Even if the judgment be subsequent to the alienation, it is merely declaratory, with
retroactive effect to the date when the credit was constituted.[17]
In the instant case, the alleged debt of LIM in favor of petitioner was incurred in August 1990, while the
deed of donation was purportedly executed on 10 August 1989.
We are not convinced with the allegation of the petitioner that the questioned deed was antedated to make it
appear that it was made prior to petitioners credit. Notably, that deed is a public document, it having been
acknowledged before a notary public.[18] As such, it is evidence of the fact which gave rise to its execution and of
its date, pursuant to Section 23, Rule 132 of the Rules of Court.
Petitioners contention that the public documents referred to in said Section 23 are only those entries in
public records made in the performance of a duty by a public officer does not hold water. Section 23 reads:
SEC. 23. Public documents as evidence. Documents consisting of entries in public records made in the
performance of a duty by a public officer areprima facie evidence of the facts therein stated. All other public
documents are evidence, even against a third person, of the fact which gave rise to their execution and of the date
of the latter. (Emphasis supplied).
The phrase all other public documents in the second sentence of Section 23 means those public documents
other than the entries in public records made in the performance of a duty by a public officer. And these include
notarial documents, like the subject deed of donation. Section 19, Rule 132 of the Rules of Court provides:
SEC. 19. Classes of documents. -- For the purpose of their presentation in evidence, documents are either public
or private.
Public documents are:
(a) . . .
(b) Documents acknowledged before a notary public except last wills and testaments. . . .
36 | P a g e

It bears repeating that notarial documents, except last wills and testaments, are public documents and are
evidence of the facts that gave rise to their execution and of their date.
In the present case, the fact that the questioned Deed was registered only on 2 July 1991 is not enough to
overcome the presumption as to the truthfulness of the statement of the date in the questioned deed, which is 10
August 1989. Petitioners claim against LIM was constituted only in August 1990, or a year after the questioned
alienation. Thus, the first two requisites for the rescission of contracts are absent.
Even assuming arguendo that petitioner became a creditor of LIM prior to the celebration of the contract of
donation, still her action for rescission would not fare well because the third requisite was not met. Under Article
1381 of the Civil Code, contracts entered into in fraud of creditors may be rescinded only when the creditors
cannot in any manner collect the claims due them. Also, Article 1383 of the same Code provides that the action
for rescission is but a subsidiary remedy which cannot be instituted except when the party suffering damage has
no other legal means to obtain reparation for the same. The term subsidiary remedy has been defined as the
exhaustion of all remedies by the prejudiced creditor to collect claims due him before rescission is resorted
to.[19] It is, therefore, essential that the party asking for rescission prove that he has exhausted all other legal
means to obtain satisfaction of his claim.[20] Petitioner neither alleged nor proved that she did so. On this score,
her action for the rescission of the questioned deed is not maintainable even if the fraud charged actually did
exist.[21]
The fourth requisite for an accion pauliana to prosper is not present either.
Article 1387, first paragraph, of the Civil Code provides: All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to have been entered into in fraud of creditors when the donor
did not reserve sufficient property to pay all debts contracted before the donation. Likewise, Article 759 of the
same Code, second paragraph, states that the donation is always presumed to be in fraud of creditors when at the
time thereof the donor did not reserve sufficient property to pay his debts prior to the donation.
For this presumption of fraud to apply, it must be established that the donor did not leave adequate properties
which creditors might have recourse for the collection of their credits existing before the execution of the
donation.
As earlier discussed, petitioners alleged credit existed only a year after the deed of donation was
executed. She cannot, therefore, be said to have been prejudiced or defrauded by such alienation. Besides, the
evidence disclose that as of 10 August 1989, when the deed of donation was executed, LIM had the following
properties:
(1)
(2)
A parcel of land containing an area of 220 square meters, together with the house constructed
thereon, situated in Sto. Nio Village, Mandaue City, Cebu, registered in the name of Rosa Lim and
covered by TCT No. 19706;[22]
A parcel of land located in Benros Subdivision, Lawa-an, Talisay, Cebu;[23]
(3)
A parcel of land containing an area of 2.152 hectares, with coconut trees thereon, situated at
Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13572.[24]
(4)
A parcel of land containing an area of 3.6 hectares, with coconut trees thereon, situated at
Hindag-an, St. Bernard, Southern Leyte, and covered by Tax Declaration No. 13571.[25]
During her cross-examination, LIM declared that the house and lot mentioned in no. 1 was bought by her in
the amount of about P800,000 toP900,000.[26] Thus:
ATTY. FLORIDO:
Q
These properties at the Sto. Nio Village, how much did you acquire this property?
Including the residential house P800,000.00 to P900,000.00.

37 | P a g e

Q
How about the lot which includes the house. How much was the price in the Deed of Sale of the house
and lot at Sto. Nio Violage [sic]?
I forgot.
How much did you pay for it?
That is P800,000.00 to P900,000.00.
Petitioner did not adduce any evidence that the price of said property was lower. Anent the property in no. 2,
LIM testified that she sold it in 1990.[27] As to the properties in nos. 3 and 4, the total market value stated in the
tax declarations dated 23 November 1993 was P56,871.60. Aside from these tax declarations, petitioner did not
present evidence that would indicate the actual market value of said properties. It was not, therefore, sufficiently
established that the properties left behind by LIM were not sufficient to cover her debts existing before the
donation was made. Hence, the presumption of fraud will not come into play.
Nevertheless, a creditor need not depend solely upon the presumption laid down in Articles 759 and 1387 of
the Civil Code. Under the third paragraph of Article 1387, the design to defraud may be proved in any other
manner recognized by the law of evidence. Thus in the consideration of whether certain transfers are fraudulent,
the Court has laid down specific rules by which the character of the transaction may be determined. The
following have been denominated by the Court as badges of fraud:
(1) The fact that the consideration of the conveyance is fictitious or is inadequate;
(2) A transfer made by a debtor after suit has begun and while it is pending against him;
(3) A sale upon credit by an insolvent debtor;
(4) Evidence of large indebtedness or complete insolvency;
(5) The transfer of all or nearly all of his property by a debtor, especially when he is insolvent or greatly
embarrassed financially;
(6) The fact that the transfer is made between father and son, when there are present other of the above
circumstances; and
(7)
The failure of the vendee to take exclusive possession of all the property.[28]
The above enumeration, however, is not an exclusive list. The circumstances evidencing fraud are as varied
as the men who perpetrate the fraud in each case. This Court has therefore declined to define it, reserving the
liberty to deal with it under whatever form it may present itself.[29]
Petitioner failed to discharge the burden of proving any of the circumstances enumerated above or any other
circumstance from which fraud can be inferred. Accordingly, since the four requirements for the rescission of a
gratuitous contract are not present in this case, petitioners action must fail.
In her further attempt to support her action for rescission, petitioner brings to our attention the 31 July 1990
Decision[30] of the RTC of Quezon City, Branch 92, in Criminal Case No. Q-89-2216. LIM was therein held
guilty of estafa and was ordered to pay complainant Victoria Suarez the sum ofP169,000 for the obligation LIM
incurred on 8 October 1987. This decision was affirmed by the Court of Appeals. Upon appeal, however, this
Court acquitted LIM of estafa but held her civilly liable for P169,000 as actual damages.
It should be noted that the complainant in that case, Victoria Suarez, albeit a creditor prior to the questioned
alienation, is not a party to this accion pauliana. Article 1384 of the Civil Code provides that rescission shall
only be to the extent necessary to cover the damages caused. Under this Article, only the creditor who brought
the action for rescission can benefit from the rescission; those who are strangers to the action cannot benefit from
its effects.[31] And the revocation is only to the extent of the plaintiff creditors unsatisfied credit; as to the excess,
38 | P a g e

the alienation is maintained.[32] Thus, petitioner cannot invoke the credit of Suarez to justify rescission of the
subject deed of donation.
Now on the propriety of the trial courts awards of moral damages, attorneys fees and expenses of litigation
in favor of the petitioner. We have pored over the records and found no factual or legal basis therefor. The trial
court made these awards in the dispositive portion of its decision without stating, however, any justification for
the same in the ratio decidendi. Hence, the Court of Appeals correctly deleted these awards for want of basis in
fact, law or equity.
WHEREFORE, the petition is hereby DISMISSED and the challenged decision of the Court of Appeals in
CA-G.R. CV. No. 50091 is AFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.
Puno, Kapunan, Pardo, and Ynares-Santiago, JJ., concur.
[1]
Original Record (OR), 42.

Id., 135.
[3]
G.R. No. 102784, 271 SCRA 12 [1997].
[4]
OR, 10-12.
[5]
Id., 6-9.
[6]
OR, 160; Rollo, 22. Per Judge Galicano C. Arriesgado.
[7]
Rollo, 31. Per Tuquero, A., J., with Imperial, J., and Verzola, E., JJ., concurring.
[8]
21 Phil. 243 [1912].
[9]
Sec. 23. Public documents as evidence. -- Documents consisting of entries in public records made in the performance of a duty by a public officer
are prima facie evidence of the facts therein stated. All other public documents are evidence, even against a third person, of the fact which gave rise to their
execution and of the date of the latter.
[10]
Sec. 30. Proof of notarial documents. -- Every instrument duly acknowledged or proved and certified as provided by law may be presented in evidence
without further proof, the certificate of acknowledgment being prima facie evidence of the execution of the instrument or document involved.
[11]
In Sta. Maria v. Court of Appeals, 285 SCRA 351 [1998], the Court enumerated some of the instances when the factual findings of the Court of Appeals
are not deemed conclusive, to wit: (1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the inference made is
manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary
to the admissions of both the appellant and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and reply briefs
are not disputed by the respondent; and (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on
record.
[12]
Panlilio v. Victoria, 35 Phil. 706 [1916]; Solis v. Chua Pua Hermanos, 50 Phil. 636 [1927].
[13]
Article 1383, Civil Code.
[14]
4 Tolentino, Arturo M., Civil Code of the Philippines 576 (1991), [hereafter 4 Tolentino]; citing 8 Manresa 756, 2 Castan 543-555, and 3 Camus 207.
[15]
4 Tolentino 576, citing 2 Castan 543-555 and 3 Camus 107.
[16]
Solis v. Chua Pua Hernanes, supra note 12, at 639.
[17]
4 Tolentino 576-577, citing Sentencia (Cuba) of 7 May 1910 and 1 Gasperi 484-485.
[18]
Section 19(b), Rule 132, Rules of Court.
[19]19
Moreno, Federico B., Philippine Law Dictionary 915 (1988).
[20]
Article 1177, Civil Code.
[21]
See Goquiolay v. Sycip, 9 SCRA 663, 677 [1963]; Solis v. Chua Pua Hermanos, supra note 12, at 639-640.
[22]
Exhibit M; Exhibit 2; OR, 114.
[23]
TSN, 12 November 1993, 4.
[24]
Exhibit N; OR, 146.
[25]
Exhibit O; Id., 147.
[26]
TSN, 12 November 1993, 7.
[27]
Id., 6.
[28]
Oria v. McMicking, supra note 8.
[29]
Rivera v. Litam & Co., 4 SCRA 1072 [1962].
[30]
Exhibit K; OR, 135.
[31]
4 Paras, Edgardo L., Civil Code Of The Philippines, 70 (1994); 4 Tolentino 586, citing 7 Planiol & Ripert 274-275.
[32]
4 TOLENTINO 586, Citing 7 Planiol & Ripert 271-272.
[2]
39 | P a g e

OBLICON Case Part 3

Загружено:

Сведения о документе

Авторское право

Доступные форматы

Поделиться этим документом

Поделиться или встроить документ

Параметры публикации

Этот документ был вам полезен?

Это неприемлемый материал?

Авторское право:

Доступные форматы

OBLICON Case Part 3

Загружено:

Авторское право:

Доступные форматы

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

LEA MER INDUSTRIES, INC.,

G.R. No. 161745

The assailed Resolution denied reconsideration.

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

The Courts Ruling

The distinction is significant, because a demise or bareboat charter indicates a business

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Flood, storm, earthquake, lightning, or other natural disaster or calamity;

Rule on Fortuitous Events

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Atty. Baldovino, Jr.:

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

CONCHITA CARPIO MORALES

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

RTC Decision dated December 7, 1999, p. 9; rollo, p. 58.

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

DAVIDE, JR., J.:

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

ROMEO J. CALLEJO, SR.

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

19 Phil. Rep., 104.

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Including the residential house P800,000.00 to P900,000.00.

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

How much did you pay for it?

That is P800,000.00 to P900,000.00.

Obligation and Contracts; CASES/JURISPRUDENCE, November 29, 2014;

Original Record (OR), 42.

Вам также может понравиться