G.R. No.

L-47851 October 3, 1986

JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,

vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION COMPANY, INC., JUAN
J. CARLOS, and the PHILIPPINE BAR ASSOCIATION, respondents.

G.R. No. L-47863 October 3, 1986

THE UNITED CONSTRUCTION CO., INC., petitioner,

vs.
COURT OF APPEALS, ET AL., respondents.

G.R. No. L-47896 October 3, 1986

PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,

vs.
COURT OF APPEALS, ET AL., respondents.

PARAS, J.:

These are petitions for review on certiorari of the November 28, 1977
decision of the Court of Appeals in CA-G.R. No. 51771-R modifying the
decision of the Court of First Instance of Manila, Branch V, in Civil Case
No. 74958 dated September 21, 1971 as modified by the Order of the
lower court dated December 8, 1971. The Court of Appeals in
modifying the decision of the lower court included an award of an
additional amount of P200,000.00 to the Philippine Bar Association to
be paid jointly and severally by the defendant United Construction Co.
and by the third-party defendants Juan F. Nakpil and Sons and Juan F.
Nakpil.

The dispositive portion of the modified decision of the lower court

reads:

WHEREFORE, judgment is hereby rendered:

(a) Ordering defendant United Construction Co., Inc. and third-party

defendants (except Roman Ozaeta) to pay the plaintiff, jointly and
severally, the sum of P989,335.68 with interest at the legal rate from
November 29, 1968, the date of the filing of the complaint until full
payment;

(b) Dismissing the complaint with respect to defendant Juan J. Carlos;

(c) Dismissing the third-party complaint;

(d) Dismissing the defendant's and third-party defendants'

counterclaims for lack of merit;

(e) Ordering defendant United Construction Co., Inc. and third-party

defendants (except Roman Ozaeta) to pay the costs in equal shares.

SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).

The dispositive portion of the decision of the Court of Appeals reads:

WHEREFORE, the judgment appealed from is modified to include an

award of P200,000.00 in favor of plaintiff-appellant Philippine Bar
Association, with interest at the legal rate from November 29, 1968
until full payment to be paid jointly and severally by defendant United
Construction Co., Inc. and third party defendants (except Roman
Ozaeta). In all other respects, the judgment dated September 21, 1971
as modified in the December 8, 1971 Order of the lower court is hereby
affirmed with COSTS to be paid by the defendant and third party
defendant (except Roman Ozaeta) in equal shares.

SO ORDERED.

Petitioners Juan F. Nakpil & Sons in L-47851 and United Construction

Co., Inc. and Juan J. Carlos in L-47863 seek the reversal of the decision
of the Court of Appeals, among other things, for exoneration from
liability while petitioner Philippine Bar Association in L-47896 seeks the
modification of aforesaid decision to obtain an award of P1,830,000.00
for the loss of the PBA building plus four (4) times such amount as
damages resulting in increased cost of the building, P100,000.00 as
exemplary damages; and P100,000.00 as attorney's fees.

These petitions arising from the same case filed in the Court of First
Instance of Manila were consolidated by this Court in the resolution of
May 10, 1978 requiring the respective respondents to comment. (Rollo,
L-47851, p. 172).

The facts as found by the lower court (Decision, C.C. No. 74958; Record
on Appeal, pp. 269-348; pp. 520-521; Rollo, L-47851, p. 169) and
affirmed by the Court of Appeals are as follows:

The plaintiff, Philippine Bar Association, a civic-non-profit association,

incorporated under the Corporation Law, decided to construct an office
building on its 840 square meters lot located at the comer of Aduana
and Arzobispo Streets, Intramuros, Manila. The construction was
undertaken by the United Construction, Inc. on an "administration"
basis, on the suggestion of Juan J. Carlos, the president and general
manager of said corporation. The proposal was approved by plaintiff's
board of directors and signed by its president Roman Ozaeta, a third-
party defendant in this case. The plans and specifications for the
building were prepared by the other third-party defendants Juan F.
Nakpil & Sons. The building was completed in June, 1966.

In the early morning of August 2, 1968 an unusually strong earthquake

hit Manila and its environs and the building in question sustained major
damage. The front columns of the building buckled, causing the
building to tilt forward dangerously. The tenants vacated the building in
view of its precarious condition. As a temporary remedial measure, the
building was shored up by United Construction, Inc. at the cost of
P13,661.28.

On November 29, 1968, the plaintiff commenced this action for the
recovery of damages arising from the partial collapse of the building
against United Construction, Inc. and its President and General
Manager Juan J. Carlos as defendants. Plaintiff alleges that the collapse
of the building was accused by defects in the construction, the failure
of the contractors to follow plans and specifications and violations by
the defendants of the terms of the contract.

Defendants in turn filed a third-party complaint against the architects

who prepared the plans and specifications, alleging in essence that the
collapse of the building was due to the defects in the said plans and
specifications. Roman Ozaeta, the then president of the plaintiff Bar
Association was included as a third-party defendant for damages for
having included Juan J. Carlos, President of the United Construction Co.,
Inc. as party defendant.

On March 3, 1969, the plaintiff and third-party defendants Juan F.

Nakpil & Sons and Juan F. Nakpil presented a written stipulation which
reads:

1. That in relation to defendants' answer with counterclaims and

third- party complaints and the third-party defendants Nakpil & Sons'
answer thereto, the plaintiff need not amend its complaint by including
the said Juan F. Nakpil & Sons and Juan F. Nakpil personally as parties
defendant.

2. That in the event (unexpected by the undersigned) that the

Court should find after the trial that the above-named defendants Juan
J. Carlos and United Construction Co., Inc. are free from any blame and
liability for the collapse of the PBA Building, and should further find
that the collapse of said building was due to defects and/or inadequacy
of the plans, designs, and specifications p by the third-party
defendants, or in the event that the Court may find Juan F. Nakpil and
Sons and/or Juan F. Nakpil contributorily negligent or in any way jointly
and solidarily liable with the defendants, judgment may be rendered in
whole or in part. as the case may be, against Juan F. Nakpil & Sons
and/or Juan F. Nakpil in favor of the plaintiff to all intents and purposes
as if plaintiff's complaint has been duly amended by including the said
Juan F. Nakpil & Sons and Juan F. Nakpil as parties defendant and by
alleging causes of action against them including, among others, the
defects or inadequacy of the plans, designs, and specifications
prepared by them and/or failure in the performance of their contract
with plaintiff.

3. Both parties hereby jointly petition this Honorable Court to approve

this stipulation. (Record on Appeal, pp. 274-275; Rollo, L-47851,p.169).

Upon the issues being joined, a pre-trial was conducted on March 7,

1969, during which among others, the parties agreed to refer the
technical issues involved in the case to a Commissioner. Mr. Andres O.
Hizon, who was ultimately appointed by the trial court, assumed his
office as Commissioner, charged with the duty to try the following
issues:

1. Whether the damage sustained by the PBA building during the

August 2, 1968 earthquake had been caused, directly or indirectly, by:

(a) The inadequacies or defects in the plans and specifications

prepared by third-party defendants;

(b) The deviations, if any, made by the defendants from said plans and
specifications and how said deviations contributed to the damage
sustained;

(c) The alleged failure of defendants to observe the requisite quality of

materials and workmanship in the construction of the building;

(d) The alleged failure to exercise the requisite degree of supervision

expected of the architect, the contractor and/or the owner of the
building;

(e) An act of God or a fortuitous event; and

(f) Any other cause not herein above specified.

2. If the cause of the damage suffered by the building arose from a
combination of the above-enumerated factors, the degree or
proportion in which each individual factor contributed to the damage
sustained;

3. Whether the building is now a total loss and should be completely

demolished or whether it may still be repaired and restored to a
tenantable condition. In the latter case, the determination of the cost
of such restoration or repair, and the value of any remaining
construction, such as the foundation, which may still be utilized or
availed of (Record on Appeal, pp. 275-276; Rollo, L-47851, p. 169).

Thus, the issues of this case were divided into technical issues and
non-technical issues. As aforestated the technical issues were referred
to the Commissioner. The non-technical issues were tried by the Court.

Meanwhile, plaintiff moved twice for the demolition of the building on

the ground that it may topple down in case of a strong earthquake. The
motions were opposed by the defendants and the matter was referred
to the Commissioner. Finally, on April 30, 1979 the building was
authorized to be demolished at the expense of the plaintiff, but not
another earthquake of high intensity on April 7, 1970 followed by other
strong earthquakes on April 9, and 12, 1970, caused further damage to
the property. The actual demolition was undertaken by the buyer of the
damaged building. (Record on Appeal, pp. 278-280; Ibid.)

After the protracted hearings, the Commissioner eventually submitted

his report on September 25, 1970 with the findings that while the
damage sustained by the PBA building was caused directly by the
August 2, 1968 earthquake whose magnitude was estimated at 7.3
they were also caused by the defects in the plans and specifications
prepared by the third-party defendants' architects, deviations from said
plans and specifications by the defendant contractors and failure of the
latter to observe the requisite workmanship in the construction of the
building and of the contractors, architects and even the owners to
exercise the requisite degree of supervision in the construction of
subject building.

All the parties registered their objections to aforesaid findings which in

turn were answered by the Commissioner.

The trial court agreed with the findings of the Commissioner except as
to the holding that the owner is charged with full nine supervision of
the construction. The Court sees no legal or contractual basis for such
conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed
decision which was modified by the Intermediate Appellate Court on
November 28, 1977.

All the parties herein appealed from the decision of the Intermediate
Appellate Court. Hence, these petitions.

On May 11, 1978, the United Architects of the Philippines, the

Association of Civil Engineers, and the Philippine Institute of Architects
filed with the Court a motion to intervene as amicus curiae. They
proposed to present a position paper on the liability of architects when
a building collapses and to submit likewise a critical analysis with
computations on the divergent views on the design and plans as
submitted by the experts procured by the parties. The motion having
been granted, the amicus curiae were granted a period of 60 days
within which to submit their position.

After the parties had all filed their comments, We gave due course to
the petitions in Our Resolution of July 21, 1978.

The position papers of the amicus curiae (submitted on November 24,

1978) were duly noted.

The amicus curiae gave the opinion that the plans and specifications of
the Nakpils were not defective. But the Commissioner, when asked by
Us to comment, reiterated his conclusion that the defects in the plans
and specifications indeed existed.

Using the same authorities availed of by the amicus curiae such as the
Manila Code (Ord. No. 4131) and the 1966 Asep Code, the
Commissioner added that even if it can be proved that the defects in
the construction alone (and not in the plans and design) caused the
damage to the building, still the deficiency in the original design and
jack of specific provisions against torsion in the original plans and the
overload on the ground floor columns (found by an the experts
including the original designer) certainly contributed to the damage
which occurred. (Ibid, p. 174).

In their respective briefs petitioners, among others, raised the

following assignments of errors: Philippine Bar Association claimed that
the measure of damages should not be limited to P1,100,000.00 as
estimated cost of repairs or to the period of six (6) months for loss of
rentals while United Construction Co., Inc. and the Nakpils claimed that
it was an act of God that caused the failure of the building which
should exempt them from responsibility and not the defective
construction, poor workmanship, deviations from plans and
specifications and other imperfections in the case of United
Construction Co., Inc. or the deficiencies in the design, plans and
specifications prepared by petitioners in the case of the Nakpils. Both
UCCI and the Nakpils object to the payment of the additional amount of
P200,000.00 imposed by the Court of Appeals. UCCI also claimed that
it should be reimbursed the expenses of shoring the building in the
amount of P13,661.28 while the Nakpils opposed the payment of
damages jointly and solidarity with UCCI.

The pivotal issue in this case is whether or not an act of God-an

unusually strong earthquake-which caused the failure of the building,
exempts from liability, parties who are otherwise liable because of their
negligence.

The applicable law governing the rights and liabilities of the parties
herein is Article 1723 of the New Civil Code, which provides:

Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen years
from the completion of the structure the same should collapse by
reason of a defect in those plans and specifications, or due to the
defects in the ground. The contractor is likewise responsible for the
damage if the edifice fags within the same period on account of
defects in the construction or the use of materials of inferior quality
furnished by him, or due to any violation of the terms of the contract. If
the engineer or architect supervises the construction, he shall be
solidarily liable with the contractor.

Acceptance of the building, after completion, does not imply waiver of

any of the causes of action by reason of any defect mentioned in the
preceding paragraph.

The action must be brought within ten years following the collapse of
the building.

On the other hand, the general rule is that no person shall be

responsible for events which could not be foreseen or which though
foreseen, were inevitable (Article 1174, New Civil Code).

An act of God has been defined as an accident, due directly and

exclusively to natural causes without human intervention, which by no
amount of foresight, pains or care, reasonably to have been expected,
could have been prevented. (1 Corpus Juris 1174).

There is no dispute that the earthquake of August 2, 1968 is a

fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil Code,
for a breach of an obligation due to an "act of God," the following must
concur: (a) the cause of the breach of the obligation must be
independent of the will of the debtor; (b) the event must be either
unforseeable or unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner;
and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor. (Vasquez v. Court of Appeals,
138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423; Austria v. Court of
Appeals, 39 SCRA 527; Republic of the Phil. v. Luzon Stevedoring Corp.,
21 SCRA 279; Lasam v. Smith, 45 Phil. 657).

Thus, if upon the happening of a fortuitous event or an act of God,

there concurs a corresponding fraud, negligence, delay or violation or
contravention in any manner of the tenor of the obligation as provided
for in Article 1170 of the Civil Code, which results in loss or damage,
the obligor cannot escape liability.

The principle embodied in the act of God doctrine strictly requires that
the act must be one occasioned exclusively by the violence of nature
and all human agencies are to be excluded from creating or entering
into the cause of the mischief. When the effect, the cause of which is to
be considered, is found to be in part the result of the participation of
man, whether it be from active intervention or neglect, or failure to act,
the whole occurrence is thereby humanized, as it were, and removed
from the rules applicable to the acts of God. (1 Corpus Juris, pp. 1174-
1175).

Thus it has been held that when the negligence of a person concurs
with an act of God in producing a loss, such person is not exempt from
liability by showing that the immediate cause of the damage was the
act of God. To be exempt from liability for loss because of an act of
God, he must be free from any previous negligence or misconduct by
which that loss or damage may have been occasioned. (Fish & Elective
Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan, 49 O.G. 4379;
Limpangco & Sons v. Yangco Steamship Co., 34 Phil. 594, 604; Lasam
v. Smith, 45 Phil. 657).

The negligence of the defendant and the third-party defendants

petitioners was established beyond dispute both in the lower court and
in the Intermediate Appellate Court. Defendant United Construction
Co., Inc. was found to have made substantial deviations from the plans
and specifications. and to have failed to observe the requisite
workmanship in the construction as well as to exercise the requisite
degree of supervision; while the third-party defendants were found to
have inadequacies or defects in the plans and specifications prepared
by them. As correctly assessed by both courts, the defects in the
construction and in the plans and specifications were the proximate
causes that rendered the PBA building unable to withstand the
earthquake of August 2, 1968. For this reason the defendant and third-
party defendants cannot claim exemption from liability. (Decision,
Court of Appeals, pp. 30-31).

It is well settled that the findings of facts of the Court of Appeals are
conclusive on the parties and on this court (cases cited in Tolentino vs.
de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17, 1985, 134
SCRA 105, 121), unless (1) the conclusion is a finding grounded
entirely on speculation, surmise and conjectures; (2) the inference
made is manifestly mistaken; (3) there is grave abuse of discretion; (4)
the judgment is based on misapprehension of facts; (5) the findings of
fact are conflicting , (6) the Court of Appeals went beyond the issues of
the case and its findings are contrary to the admissions of both
appellant and appellees (Ramos vs. Pepsi-Cola Bottling Co., February 8,
1967, 19 SCRA 289, 291-292; Roque vs. Buan, Oct. 31, 1967, 21 SCRA
648, 651); (7) the findings of facts of the Court of Appeals are contrary
to those of the trial court; (8) said findings of facts are conclusions
without citation of specific evidence on which they are based; (9) the
facts set forth in the petition as well as in the petitioner's main and
reply briefs are not disputed by the respondents (Garcia vs. CA, June
30, 1970, 33 SCRA 622; Alsua-Bett vs. Court of Appeals, July 30, 1979,
92 SCRA 322, 366); (10) the finding of fact of the Court of Appeals is
premised on the supposed absence of evidence and is contradicted by
evidence on record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243,
247; Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10,
1986).

It is evident that the case at bar does not fall under any of the
exceptions above-mentioned. On the contrary, the records show that
the lower court spared no effort in arriving at the correct appreciation
of facts by the referral of technical issues to a Commissioner chosen by
the parties whose findings and conclusions remained convincingly
unrebutted by the intervenors/amicus curiae who were allowed to
intervene in the Supreme Court.

In any event, the relevant and logical observations of the trial court as
affirmed by the Court of Appeals that "while it is not possible to state
with certainty that the building would not have collapsed were those
defects not present, the fact remains that several buildings in the same
area withstood the earthquake to which the building of the plaintiff was
similarly subjected," cannot be ignored.
The next issue to be resolved is the amount of damages to be awarded
to the PBA for the partial collapse (and eventual complete collapse) of
its building.

The Court of Appeals affirmed the finding of the trial court based on
the report of the Commissioner that the total amount required to repair
the PBA building and to restore it to tenantable condition was
P900,000.00 inasmuch as it was not initially a total loss. However,
while the trial court awarded the PBA said amount as damages, plus
unrealized rental income for one-half year, the Court of Appeals
modified the amount by awarding in favor of PBA an additional sum of
P200,000.00 representing the damage suffered by the PBA building as
a result of another earthquake that occurred on April 7, 1970 (L-47896,
Vol. I, p. 92).

The PBA in its brief insists that the proper award should be
P1,830,000.00 representing the total value of the building (L-47896,
PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS and
UNITED question the additional award of P200,000.00 in favor of the
PBA (L- 47851, NAKPIL's Brief as Petitioner, p. 6, UNITED's Brief as
Petitioner, p. 25). The PBA further urges that the unrealized rental
income awarded to it should not be limited to a period of one-half year
but should be computed on a continuing basis at the rate of
P178,671.76 a year until the judgment for the principal amount shall
have been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p.
19).

The collapse of the PBA building as a result of the August 2, 1968

earthquake was only partial and it is undisputed that the building could
then still be repaired and restored to its tenantable condition. The PBA,
however, in view of its lack of needed funding, was unable, thru no
fault of its own, to have the building repaired. UNITED, on the other
hand, spent P13,661.28 to shore up the building after the August 2,
1968 earthquake (L-47896, CA Decision, p. 46). Because of the
earthquake on April 7, 1970, the trial court after the needed
consultations, authorized the total demolition of the building (L-47896,
Vol. 1, pp. 53-54).

There should be no question that the NAKPILS and UNITED are liable
for the damage resulting from the partial and eventual collapse of the
PBA building as a result of the earthquakes.

We quote with approval the following from the erudite decision penned
by Justice Hugo E. Gutierrez (now an Associate Justice of the Supreme
Court) while still an Associate Justice of the Court of Appeals:
There is no question that an earthquake and other forces of nature
such as cyclones, drought, floods, lightning, and perils of the sea are
acts of God. It does not necessarily follow, however, that specific losses
and suffering resulting from the occurrence of these natural force are
also acts of God. We are not convinced on the basis of the evidence on
record that from the thousands of structures in Manila, God singled out
the blameless PBA building in Intramuros and around six or seven
other buildings in various parts of the city for collapse or severe
damage and that God alone was responsible for the damages and
losses thus suffered.

The record is replete with evidence of defects and deficiencies in the

designs and plans, defective construction, poor workmanship,
deviation from plans and specifications and other imperfections. These
deficiencies are attributable to negligent men and not to a perfect God.

The act-of-God arguments of the defendants- appellants and third

party defendants-appellants presented in their briefs are premised on
legal generalizations or speculations and on theological fatalism both
of which ignore the plain facts. The lengthy discussion of United on
ordinary earthquakes and unusually strong earthquakes and on
ordinary fortuitous events and extraordinary fortuitous events leads to
its argument that the August 2, 1968 earthquake was of such an
overwhelming and destructive character that by its own force and
independent of the particular negligence alleged, the injury would have
been produced. If we follow this line of speculative reasoning, we will
be forced to conclude that under such a situation scores of buildings in
the vicinity and in other parts of Manila would have toppled down.
Following the same line of reasoning, Nakpil and Sons alleges that the
designs were adequate in accordance with pre-August 2, 1968
knowledge and appear inadequate only in the light of engineering
information acquired after the earthquake. If this were so, hundreds of
ancient buildings which survived the earthquake better than the two-
year old PBA building must have been designed and constructed by
architects and contractors whose knowledge and foresight were
unexplainably auspicious and prophetic. Fortunately, the facts on
record allow a more down to earth explanation of the collapse. The
failure of the PBA building, as a unique and distinct construction with
no reference or comparison to other buildings, to weather the severe
earthquake forces was traced to design deficiencies and defective
construction, factors which are neither mysterious nor esoteric. The
theological allusion of appellant United that God acts in mysterious
ways His wonders to perform impresses us to be inappropriate. The
evidence reveals defects and deficiencies in design and construction.
There is no mystery about these acts of negligence. The collapse of the
PBA building was no wonder performed by God. It was a result of the
imperfections in the work of the architects and the people in the
construction company. More relevant to our mind is the lesson from the
parable of the wise man in the Sermon on the Mount "which built his
house upon a rock; and the rain descended and the floods came and
the winds blew and beat upon that house; and it fen not; for it was
founded upon a rock" and of the "foolish upon the sand. And the rain
descended and man which built his house the floods came, and the
winds blew, and beat upon that house; and it fell and great was the fall
of it. (St. Matthew 7: 24-27)." The requirement that a building should
withstand rains, floods, winds, earthquakes, and natural forces is
precisely the reason why we have professional experts like architects,
and engineers. Designs and constructions vary under varying
circumstances and conditions but the requirement to design and build
well does not change.

The findings of the lower Court on the cause of the collapse are more
rational and accurate. Instead of laying the blame solely on the
motions and forces generated by the earthquake, it also examined the
ability of the PBA building, as designed and constructed, to withstand
and successfully weather those forces.

The evidence sufficiently supports a conclusion that the negligence

and fault of both United and Nakpil and Sons, not a mysterious act of
an inscrutable God, were responsible for the damages. The Report of
the Commissioner, Plaintiff's Objections to the Report, Third Party
Defendants' Objections to the Report, Defendants' Objections to the
Report, Commissioner's Answer to the various Objections, Plaintiffs'
Reply to the Commissioner's Answer, Defendants' Reply to the
Commissioner's Answer, Counter-Reply to Defendants' Reply, and
Third-Party Defendants' Reply to the Commissioner's Report not to
mention the exhibits and the testimonies show that the main
arguments raised on appeal were already raised during the trial and
fully considered by the lower Court. A reiteration of these same
arguments on appeal fails to convince us that we should reverse or
disturb the lower Court's factual findings and its conclusions drawn
from the facts, among them:

The Commissioner also found merit in the allegations of the

defendants as to the physical evidence before and after the
earthquake showing the inadequacy of design, to wit:

Physical evidence before the earthquake providing (sic) inadequacy of

design;

1. inadequate design was the cause of the failure of the building.

2. Sun-baffles on the two sides and in front of the building;

a. Increase the inertia forces that move the building laterally toward
the Manila Fire Department.

b. Create another stiffness imbalance.

3. The embedded 4" diameter cast iron down spout on all exterior
columns reduces the cross-sectional area of each of the columns and
the strength thereof.

4. Two front corners, A7 and D7 columns were very much less

reinforced.

Physical Evidence After the Earthquake, Proving Inadequacy of design;

1. Column A7 suffered the severest fracture and maximum sagging.

Also D7.

2. There are more damages in the front part of the building than
towards the rear, not only in columns but also in slabs.

3. Building leaned and sagged more on the front part of the

building.

4. Floors showed maximum sagging on the sides and toward the

front corner parts of the building.

5. There was a lateral displacement of the building of about 8",

Maximum sagging occurs at the column A7 where the floor is lower by
80 cm. than the highest slab level.

6. Slab at the corner column D7 sagged by 38 cm.

The Commissioner concluded that there were deficiencies or defects in

the design, plans and specifications of the PBA building which involved
appreciable risks with respect to the accidental forces which may result
from earthquake shocks. He conceded, however, that the fact that
those deficiencies or defects may have arisen from an obsolete or not
too conservative code or even a code that does not require a design
for earthquake forces mitigates in a large measure the responsibility or
liability of the architect and engineer designer.

The Third-party defendants, who are the most concerned with this
portion of the Commissioner's report, voiced opposition to the same on
the grounds that (a) the finding is based on a basic erroneous
conception as to the design concept of the building, to wit, that the
design is essentially that of a heavy rectangular box on stilts with
shear wan at one end; (b) the finding that there were defects and a
deficiency in the design of the building would at best be based on an
approximation and, therefore, rightly belonged to the realm of
speculation, rather than of certainty and could very possibly be
outright error; (c) the Commissioner has failed to back up or support
his finding with extensive, complex and highly specialized
computations and analyzes which he himself emphasizes are
necessary in the determination of such a highly technical question; and
(d) the Commissioner has analyzed the design of the PBA building not
in the light of existing and available earthquake engineering
knowledge at the time of the preparation of the design, but in the light
of recent and current standards.

The Commissioner answered the said objections alleging that third-

party defendants' objections were based on estimates or exhibits not
presented during the hearing that the resort to engineering references
posterior to the date of the preparation of the plans was induced by
the third-party defendants themselves who submitted computations of
the third-party defendants are erroneous.

The issue presently considered is admittedly a technical one of the

highest degree. It involves questions not within the ordinary
competence of the bench and the bar to resolve by themselves.
Counsel for the third-party defendants has aptly remarked that
"engineering, although dealing in mathematics, is not an exact science
and that the present knowledge as to the nature of earthquakes and
the behaviour of forces generated by them still leaves much to be
desired; so much so "that the experts of the different parties, who are
all engineers, cannot agree on what equation to use, as to what
earthquake co-efficients are, on the codes to be used and even as to
the type of structure that the PBA building (is) was (p. 29, Memo, of
third- party defendants before the Commissioner).

The difficulty expected by the Court if tills technical matter were to be

tried and inquired into by the Court itself, coupled with the intrinsic
nature of the questions involved therein, constituted the reason for the
reference of the said issues to a Commissioner whose qualifications
and experience have eminently qualified him for the task, and whose
competence had not been questioned by the parties until he submitted
his report. Within the pardonable limit of the Court's ability to
comprehend the meaning of the Commissioner's report on this issue,
and the objections voiced to the same, the Court sees no compelling
reasons to disturb the findings of the Commissioner that there were
defects and deficiencies in the design, plans and specifications
prepared by third-party defendants, and that said defects and
deficiencies involved appreciable risks with respect to the accidental
forces which may result from earthquake shocks.

(2) (a) The deviations, if any, made by the defendants from the
plans and specifications, and how said deviations contributed to the
damage sustained by the building.

(b) The alleged failure of defendants to observe the requisite quality

of materials and workmanship in the construction of the building.

These two issues, being interrelated with each other, will be discussed
together.

The findings of the Commissioner on these issues were as follows:

We now turn to the construction of the PBA Building and the alleged
deficiencies or defects in the construction and violations or deviations
from the plans and specifications. All these may be summarized as
follows:

a. Summary of alleged defects as reported by Engineer Mario M.

Bundalian.

(1) Wrongful and defective placing of reinforcing bars.

(2) Absence of effective and desirable integration of the 3 bars in

the cluster.

(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification

requires no larger than 1 inch.

(4) Reinforcement assembly is not concentric with the column,

eccentricity being 3" off when on one face the main bars are only 1
1/2' from the surface.

(5) Prevalence of honeycombs,

(6) Contraband construction joints,

(7) Absence, or omission, or over spacing of spiral hoops,

(8) Deliberate severance of spirals into semi-circles in noted on Col.

A-5, ground floor,
(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4,
ground floor,

(10) Undergraduate concrete is evident,

(11) Big cavity in core of Column 2A-4, second floor,

(12) Columns buckled at different planes. Columns buckled worst

where there are no spirals or where spirals are cut. Columns suffered
worst displacement where the eccentricity of the columnar
reinforcement assembly is more acute.

b. Summary of alleged defects as reported by Engr. Antonio

Avecilla.

Columns are first (or ground) floor, unless otherwise stated.

(1) Column D4 Spacing of spiral is changed from 2" to 5" on

centers,

(2) Column D5 No spiral up to a height of 22" from the ground

floor,

(3) Column D6 Spacing of spiral over 4 l/2,

(4) Column D7 Lack of lateral ties,

(5) Column C7 Absence of spiral to a height of 20" from the

ground level, Spirals are at 2" from the exterior column face and 6"
from the inner column face,

(6) Column B6 Lack of spiral on 2 feet below the floor beams,

(7) Column B5 Lack of spirals at a distance of 26' below the beam,

(8) Column B7 Spirals not tied to vertical reinforcing bars, Spirals

are uneven 2" to 4",

(9) Column A3 Lack of lateral ties,

(10) Column A4 Spirals cut off and welded to two separate

clustered vertical bars,

(11) Column A4 (second floor Column is completely hollow to a

height of 30"
(12) Column A5 Spirals were cut from the floor level to the bottom
of the spandrel beam to a height of 6 feet,

(13) Column A6 No spirals up to a height of 30' above the ground

floor level,

(14) Column A7 Lack of lateralties or spirals,

c. Summary of alleged defects as reported by the experts of the

Third-Party defendants.

Ground floor columns.

(1) Column A4 Spirals are cut,

(2) Column A5 Spirals are cut,

(3) Column A6 At lower 18" spirals are absent,

(4) Column A7 Ties are too far apart,

(5) Column B5 At upper fourth of column spirals are either absent

or improperly spliced,

(6) Column B6 At upper 2 feet spirals are absent,

(7) Column B7 At upper fourth of column spirals missing or

improperly spliced.

(8) Column C7 Spirals are absent at lowest 18"

(9) Column D5 At lowest 2 feet spirals are absent,

(10) Column D6 Spirals are too far apart and apparently improperly
spliced,

(11) Column D7 Lateral ties are too far apart, spaced 16" on
centers.

There is merit in many of these allegations. The explanations given by

the engineering experts for the defendants are either contrary to
general principles of engineering design for reinforced concrete or not
applicable to the requirements for ductility and strength of reinforced
concrete in earthquake-resistant design and construction.
We shall first classify and consider defects which may have appreciable
bearing or relation to' the earthquake-resistant property of the
building.

As heretofore mentioned, details which insure ductility at or near the

connections between columns and girders are desirable in earthquake
resistant design and construction. The omission of spirals and ties or
hoops at the bottom and/or tops of columns contributed greatly to the
loss of earthquake-resistant strength. The plans and specifications
required that these spirals and ties be carried from the floor level to
the bottom reinforcement of the deeper beam (p. 1, Specifications, p.
970, Reference 11). There were several clear evidences where this was
not done especially in some of the ground floor columns which failed.

There were also unmistakable evidences that the spacings of the

spirals and ties in the columns were in many cases greater than those
called for in the plans and specifications resulting again in loss of
earthquake-resistant strength. The assertion of the engineering experts
for the defendants that the improper spacings and the cutting of the
spirals did not result in loss of strength in the column cannot be
maintained and is certainly contrary to the general principles of
column design and construction. And even granting that there be no
loss in strength at the yield point (an assumption which is very
doubtful) the cutting or improper spacings of spirals will certainly result
in the loss of the plastic range or ductility in the column and it is
precisely this plastic range or ductility which is desirable and needed
for earthquake-resistant strength.

There is no excuse for the cavity or hollow portion in the column A4,
second floor, and although this column did not fail, this is certainly an
evidence on the part of the contractor of poor construction.

The effect of eccentricities in the columns which were measured at

about 2 1/2 inches maximum may be approximated in relation to
column loads and column and beam moments. The main effect of
eccentricity is to change the beam or girder span. The effect on the
measured eccentricity of 2 inches, therefore, is to increase or diminish
the column load by a maximum of about 1% and to increase or
diminish the column or beam movements by about a maximum of 2%.
While these can certainly be absorbed within the factor of safety, they
nevertheless diminish said factor of safety.

The cutting of the spirals in column A5, ground floor is the subject of
great contention between the parties and deserves special
consideration.
The proper placing of the main reinforcements and spirals in column
A5, ground floor, is the responsibility of the general contractor which is
the UCCI. The burden of proof, therefore, that this cutting was done by
others is upon the defendants. Other than a strong allegation and
assertion that it is the plumber or his men who may have done the
cutting (and this was flatly denied by the plumber) no conclusive proof
was presented. The engineering experts for the defendants asserted
that they could have no motivation for cutting the bar because they
can simply replace the spirals by wrapping around a new set of spirals.
This is not quite correct. There is evidence to show that the pouring of
concrete for columns was sometimes done through the beam and
girder reinforcements which were already in place as in the case of
column A4 second floor. If the reinforcement for the girder and column
is to subsequently wrap around the spirals, this would not do for the
elasticity of steel would prevent the making of tight column spirals and
loose or improper spirals would result. The proper way is to produce
correct spirals down from the top of the main column bars, a procedure
which can not be done if either the beam or girder reinforcement is
already in place. The engineering experts for the defendants strongly
assert and apparently believe that the cutting of the spirals did not
materially diminish the strength of the column. This belief together
with the difficulty of slipping the spirals on the top of the column once
the beam reinforcement is in place may be a sufficient motivation for
the cutting of the spirals themselves. The defendants, therefore,
should be held responsible for the consequences arising from the loss
of strength or ductility in column A5 which may have contributed to the
damages sustained by the building.

The lack of proper length of splicing of spirals was also proven in the
visible spirals of the columns where spalling of the concrete cover had
taken place. This lack of proper splicing contributed in a small measure
to the loss of strength.

The effects of all the other proven and visible defects although nor can
certainly be accumulated so that they can contribute to an appreciable
loss in earthquake-resistant strength. The engineering experts for the
defendants submitted an estimate on some of these defects in the
amount of a few percent. If accumulated, therefore, including the effect
of eccentricity in the column the loss in strength due to these minor
defects may run to as much as ten percent.

To recapitulate: the omission or lack of spirals and ties at the bottom

and/or at the top of some of the ground floor columns contributed
greatly to the collapse of the PBA building since it is at these points
where the greater part of the failure occurred. The liability for the
cutting of the spirals in column A5, ground floor, in the considered
opinion of the Commissioner rests on the shoulders of the defendants
and the loss of strength in this column contributed to the damage
which occurred.

It is reasonable to conclude, therefore, that the proven defects,

deficiencies and violations of the plans and specifications of the PBA
building contributed to the damages which resulted during the
earthquake of August 2, 1968 and the vice of these defects and
deficiencies is that they not only increase but also aggravate the
weakness mentioned in the design of the structure. In other words,
these defects and deficiencies not only tend to add but also to multiply
the effects of the shortcomings in the design of the building. We may
say, therefore, that the defects and deficiencies in the construction
contributed greatly to the damage which occurred.

Since the execution and supervision of the construction work in the

hands of the contractor is direct and positive, the presence of
existence of all the major defects and deficiencies noted and proven
manifests an element of negligence which may amount to imprudence
in the construction work. (pp. 42-49, Commissioners Report).

As the parties most directly concerned with this portion of the

Commissioner's report, the defendants voiced their objections to the
same on the grounds that the Commissioner should have specified the
defects found by him to be "meritorious"; that the Commissioner failed
to indicate the number of cases where the spirals and ties were not
carried from the floor level to the bottom reinforcement of the deeper
beam, or where the spacing of the spirals and ties in the columns were
greater than that called for in the specifications; that the hollow in
column A4, second floor, the eccentricities in the columns, the lack of
proper length of splicing of spirals, and the cut in the spirals in column
A5, ground floor, did not aggravate or contribute to the damage
suffered by the building; that the defects in the construction were
within the tolerable margin of safety; and that the cutting of the spirals
in column A5, ground floor, was done by the plumber or his men, and
not by the defendants.

Answering the said objections, the Commissioner stated that, since

many of the defects were minor only the totality of the defects was
considered. As regards the objection as to failure to state the number
of cases where the spirals and ties were not carried from the floor level
to the bottom reinforcement, the Commissioner specified groundfloor
columns B-6 and C-5 the first one without spirals for 03 inches at the
top, and in the latter, there were no spirals for 10 inches at the bottom.
The Commissioner likewise specified the first storey columns where the
spacings were greater than that called for in the specifications to be
columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7. The objection to the
failure of the Commissioner to specify the number of columns where
there was lack of proper length of splicing of spirals, the Commissioner
mentioned groundfloor columns B-6 and B-5 where all the splices were
less than 1-1/2 turns and were not welded, resulting in some loss of
strength which could be critical near the ends of the columns. He
answered the supposition of the defendants that the spirals and the
ties must have been looted, by calling attention to the fact that the
missing spirals and ties were only in two out of the 25 columns, which
rendered said supposition to be improbable.

The Commissioner conceded that the hollow in column A-4, second

floor, did not aggravate or contribute to the damage, but averred that
it is "evidence of poor construction." On the claim that the eccentricity
could be absorbed within the factor of safety, the Commissioner
answered that, while the same may be true, it also contributed to or
aggravated the damage suffered by the building.

The objection regarding the cutting of the spirals in Column A-5,

groundfloor, was answered by the Commissioner by reiterating the
observation in his report that irrespective of who did the cutting of the
spirals, the defendants should be held liable for the same as the
general contractor of the building. The Commissioner further stated
that the loss of strength of the cut spirals and inelastic deflections of
the supposed lattice work defeated the purpose of the spiral
containment in the column and resulted in the loss of strength, as
evidenced by the actual failure of this column.

Again, the Court concurs in the findings of the Commissioner on these

issues and fails to find any sufficient cause to disregard or modify the
same. As found by the Commissioner, the "deviations made by the
defendants from the plans and specifications caused indirectly the
damage sustained and that those deviations not only added but also
aggravated the damage caused by the defects in the plans and
specifications prepared by third-party defendants. (Rollo, Vol. I, pp.
128-142)

The afore-mentioned facts clearly indicate the wanton negligence of

both the defendant and the third-party defendants in effecting the
plans, designs, specifications, and construction of the PBA building and
We hold such negligence as equivalent to bad faith in the performance
of their respective tasks.

Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49
O.G. 4379, 4380) which may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape
liability for the natural and probable consequences thereof, although
the act of a third person, or an act of God for which he is not
responsible, intervenes to precipitate the loss.

As already discussed, the destruction was not purely an act of God.

Truth to tell hundreds of ancient buildings in the vicinity were hardly
affected by the earthquake. Only one thing spells out the fatal
difference; gross negligence and evident bad faith, without which the
damage would not have occurred.

WHEREFORE, the decision appealed from is hereby MODIFIED and

considering the special and environmental circumstances of this case,
We deem it reasonable to render a decision imposing, as We do hereby
impose, upon the defendant and the third-party defendants (with the
exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra, p.
10) indemnity in favor of the Philippine Bar Association of FIVE MILLION
(P5,000,000.00) Pesos to cover all damages (with the exception of
attorney's fees) occasioned by the loss of the building (including
interest charges and lost rentals) and an additional ONE HUNDRED
THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total
sum being payable upon the finality of this decision. Upon failure to
pay on such finality, twelve (12%) per cent interest per annum shall be
imposed upon afore-mentioned amounts from finality until paid.
Solidary costs against the defendant and third-party defendants
(except Roman Ozaeta).

SO ORDERED.

G.R. No. L-21749 September 29, 1967

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,

vs.
LUZON STEVEDORING CORPORATION, defendant-appellant.

Office of the Solicitor General for plaintiff-appellee.

H. San Luis and L.V. Simbulan for defendant-appellant.
REYES, J.B.L., J.:

The present case comes by direct appeal from a decision of the Court
of First Instance of Manila (Case No. 44572) adjudging the defendant-
appellant, Luzon Stevedoring Corporation, liable in damages to the
plaintiff-appellee Republic of the Philippines.

In the early afternoon of August 17, 1960, barge L-1892, owned by the
Luzon Stevedoring Corporation was being towed down the Pasig river
by tugboats "Bangus" and "Barbero"1 also belonging to the same
corporation, when the barge rammed against one of the wooden piles
of the Nagtahan bailey bridge, smashing the posts and causing the
bridge to list. The river, at the time, was swollen and the current swift,
on account of the heavy downpour of Manila and the surrounding
provinces on August 15 and 16, 1960.

Sued by the Republic of the Philippines for actual and consequential

damage caused by its employees, amounting to P200,000 (Civil Case
No. 44562, CFI of Manila), defendant Luzon Stevedoring Corporation
disclaimed liability therefor, on the grounds that it had exercised due
diligence in the selection and supervision of its employees; that the
damages to the bridge were caused by force majeure; that plaintiff has
no capacity to sue; and that the Nagtahan bailey bridge is an
obstruction to navigation.

After due trial, the court rendered judgment on June 11, 1963, holding
the defendant liable for the damage caused by its employees and
ordering it to pay to plaintiff the actual cost of the repair of the
Nagtahan bailey bridge which amounted to P192,561.72, with legal
interest thereon from the date of the filing of the complaint.

Defendant appealed directly to this Court assigning the following errors

allegedly committed by the court a quo, to wit:

I The lower court erred in not holding that the herein defendant-
appellant had exercised the diligence required of it in the selection and
supervision of its personnel to prevent damage or injury to
others.1awphl.nt

II The lower court erred in not holding that the ramming of the
Nagtahan bailey bridge by barge L-1892 was caused by force majeure.

III The lower court erred in not holding that the Nagtahan bailey
bridge is an obstruction, if not a menace, to navigation in the Pasig
river.
IV The lower court erred in not blaming the damage sustained by the
Nagtahan bailey bridge to the improper placement of the dolphins.

V The lower court erred in granting plaintiff's motion to adduce

further evidence in chief after it has rested its case.

VI The lower court erred in finding the plaintiff entitled to the

amount of P192,561.72 for damages which is clearly exorbitant and
without any factual basis.

However, it must be recalled that the established rule in this

jurisdiction is that when a party appeals directly to the Supreme Court,
and submits his case there for decision, he is deemed to have waived
the right to dispute any finding of fact made by the trial Court. The
only questions that may be raised are those of law (Savellano vs. Diaz,
L-17441, July 31, 1963; Aballe vs. Santiago, L-16307, April 30, 1963;
G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a party who
resorts to the Court of Appeals, and submits his case for decision there,
is barred from contending later that his claim was beyond the
jurisdiction of the aforesaid Court. The reason is that a contrary rule
would encourage the undesirable practice of appellants' submitting
their cases for decision to either court in expectation of favorable
judgment, but with intent of attacking its jurisdiction should the
decision be unfavorable (Tyson Tan, et al. vs. Filipinas Compaia de
Seguros) et al., L-10096, Res. on Motion to Reconsider, March 23,
1966). Consequently, we are limited in this appeal to the issues of law
raised in the appellant's brief.

Taking the aforesaid rules into account, it can be seen that the only
reviewable issues in this appeal are reduced to two:

1) Whether or not the collision of appellant's barge with the supports or

piers of the Nagtahan bridge was in law caused by fortuitous event or
force majeure, and

2) Whether or not it was error for the Court to have permitted the
plaintiff-appellee to introduce additional evidence of damages after
said party had rested its case.

As to the first question, considering that the Nagtahan bridge was an

immovable and stationary object and uncontrovertedly provided with
adequate openings for the passage of water craft, including barges like
of appellant's, it is undeniable that the unusual event that the barge,
exclusively controlled by appellant, rammed the bridge supports raises
a presumption of negligence on the part of appellant or its employees
manning the barge or the tugs that towed it. For in the ordinary course
of events, such a thing does not happen if proper care is used. In Anglo
American Jurisprudence, the inference arises by what is known as the
"res ipsa loquitur" rule (Scott vs. London Docks Co., 2 H & C 596; San
Juan Light & Transit Co. vs. Requena, 224 U.S. 89, 56 L. Ed., 680;
Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs. Great
Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs.
Smith, 146 S.W. 2d 719).

The appellant strongly stresses the precautions taken by it on the day

in question: that it assigned two of its most powerful tugboats to tow
down river its barge L-1892; that it assigned to the task the more
competent and experienced among its patrons, had the towlines,
engines and equipment double-checked and inspected; that it
instructed its patrons to take extra precautions; and concludes that it
had done all it was called to do, and that the accident, therefore,
should be held due to force majeure or fortuitous event.

These very precautions, however, completely destroy the appellant's

defense. For caso fortuito or force majeure (which in law are identical
in so far as they exempt an obligor from liability)2 by definition, are
extraordinary events not foreseeable or avoidable, "events that could
not be foreseen, or which, though foreseen, were inevitable" (Art.
1174, Civ. Code of the Philippines). 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: "un hecho no constituye caso fortuito por la sola
circunstancia de que su existencia haga mas dificil o mas onerosa la
accion diligente del presento ofensor" (Peirano Facio, Responsibilidad
Extra-contractual, p. 465; Mazeaud Trait de la Responsibilite Civil, Vol.
2, sec. 1569). The very measures adopted by appellant prove that the
possibility of danger was not only foreseeable, but actually foreseen,
and was not caso fortuito.

Otherwise stated, the appellant, Luzon Stevedoring Corporation,

knowing and appreciating the perils posed by the swollen stream and
its swift current, voluntarily entered into a situation involving obvious
danger; it therefore assured the risk, and can not shed responsibility
merely because the precautions it adopted turned out to be
insufficient. Hence, the lower Court committed no error in holding it
negligent in not suspending operations and in holding it liable for the
damages caused.

It avails the appellant naught to argue that the dolphins, like the
bridge, were improperly located. Even if true, these circumstances
would merely emphasize the need of even higher degree of care on
appellant's part in the situation involved in the present case. The
appellant, whose barges and tugs travel up and down the river
everyday, could not safely ignore the danger posed by these allegedly
improper constructions that had been erected, and in place, for years.

On the second point: appellant charges the lower court with having
abused its discretion in the admission of plaintiff's additional evidence
after the latter had rested its case. There is an insinuation that the
delay was deliberate to enable the manipulation of evidence to
prejudice defendant-appellant.

We find no merit in the contention. Whether or not further evidence will

be allowed after a party offering the evidence has rested his case, lies
within the sound discretion of the trial Judge, and this discretion will
not be reviewed except in clear case of abuse.3

In the present case, no abuse of that discretion is shown. What was

allowed to be introduced, after plaintiff had rested its evidence in chief,
were vouchers and papers to support an item of P1,558.00 allegedly
spent for the reinforcement of the panel of the bailey bridge, and which
item already appeared in Exhibit GG. Appellant, in fact, has no reason
to charge the trial court of being unfair, because it was also able to
secure, upon written motion, a similar order dated November 24, 1962,
allowing reception of additional evidence for the said defendant-
appellant.4

WHEREFORE, finding no error in the decision of the lower Court

appealed from, the same is hereby affirmed. Costs against the
defendant-appellant.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles

and Fernando, JJ., concur.
Bengzon, J.P. J., on leave, took no part

G.R. No. 179337 April 30, 2008

JOSEPH SALUDAGA, petitioner,

vs.
FAR EASTERN UNIVERSITY and EDILBERTO C. DE JESUS in his capacity
as President of FEU, respondents.

DECISION
YNARES-SANTIAGO, J.:

This Petition for Review on Certiorari1 under Rule 45 of the Rules of

Court assails the June 29, 2007 Decision2 of the Court of Appeals in
CA-G.R. CV No. 87050, nullifying and setting aside the November 10,
2004 Decision3 of the Regional Trial Court of Manila, Branch 2, in Civil
Case No. 98-89483 and dismissing the complaint filed by petitioner; as
well as its August 23, 2007 Resolution4 denying the Motion for
Reconsideration.5

The antecedent facts are as follows:

Petitioner Joseph Saludaga was a sophomore law student of respondent

Far Eastern University (FEU) when he was shot by Alejandro Rosete
(Rosete), one of the security guards on duty at the school premises on
August 18, 1996. Petitioner was rushed to FEU-Dr. Nicanor Reyes
Medical Foundation (FEU-NRMF) due to the wound he sustained.6
Meanwhile, Rosete was brought to the police station where he
explained that the shooting was accidental. He was eventually released
considering that no formal complaint was filed against him.

Petitioner thereafter filed a complaint for damages against respondents

on the ground that they breached their obligation to provide students
with a safe and secure environment and an atmosphere conducive to
learning. Respondents, in turn, filed a Third-Party Complaint7 against
Galaxy Development and Management Corporation (Galaxy), the
agency contracted by respondent FEU to provide security services
within its premises and Mariano D. Imperial (Imperial), Galaxy's
President, to indemnify them for whatever would be adjudged in favor
of petitioner, if any; and to pay attorney's fees and cost of the suit. On
the other hand, Galaxy and Imperial filed a Fourth-Party Complaint
against AFP General Insurance.8

On November 10, 2004, the trial court rendered a decision in favor of

petitioner, the dispositive portion of which reads:

WHEREFORE, from the foregoing, judgment is hereby rendered

ordering:

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

pay jointly and severally Joseph Saludaga the amount of P35,298.25 for
actual damages with 12% interest per annum from the filing of the
complaint until fully paid; moral damages of P300,000.00, exemplary
damages of P500,000.00, attorney's fees of P100,000.00 and cost of
the suit;
2. Galaxy Management and Development Corp. and its president, Col.
Mariano Imperial to indemnify jointly and severally 3rd party plaintiffs
(FEU and Edilberto de Jesus in his capacity as President of FEU) for the
above-mentioned amounts;

3. And the 4th party complaint is dismissed for lack of cause of action.
No pronouncement as to costs.

SO ORDERED.9

Respondents appealed to the Court of Appeals which rendered the

assailed Decision, the decretal portion of which provides, viz:

WHEREFORE, the appeal is hereby GRANTED. The Decision dated

November 10, 2004 is hereby REVERSED and SET ASIDE. The
complaint filed by Joseph Saludaga against appellant Far Eastern
University and its President in Civil Case No. 98-89483 is DISMISSED.

SO ORDERED.10

Petitioner filed a Motion for Reconsideration which was denied; hence,

the instant petition based on the following grounds:

THE COURT OF APPEALS SERIOUSLY ERRED IN MANNER CONTRARY TO

LAW AND JURISPRUDENCE IN RULING THAT:

5.1. THE SHOOTING INCIDENT IS A FORTUITOUS EVENT;

5.2. RESPONDENTS ARE NOT LIABLE FOR DAMAGES FOR THE INJURY
RESULTING FROM A GUNSHOT WOUND SUFFERED BY THE PETITIONER
FROM THE HANDS OF NO LESS THAN THEIR OWN SECURITY GUARD IN
VIOLATION OF THEIR BUILT-IN CONTRACTUAL OBLIGATION TO
PETITIONER, BEING THEIR LAW STUDENT AT THAT TIME, TO PROVIDE
HIM WITH A SAFE AND SECURE EDUCATIONAL ENVIRONMENT;

5.3. SECURITY GAURD, ALEJANDRO ROSETE, WHO SHOT PETITIONER

WHILE HE WAS WALKING ON HIS WAY TO THE LAW LIBRARY OF
RESPONDENT FEU IS NOT THEIR EMPLOYEE BY VIRTUE OF THE
CONTRACT FOR SECURITY SERVICES BETWEEN GALAXY AND FEU
NOTWITHSTANDING THE FACT THAT PETITIONER, NOT BEING A PARTY
TO IT, IS NOT BOUND BY THE SAME UNDER THE PRINCIPLE OF
RELATIVITY OF CONTRACTS; and

5.4. RESPONDENT EXERCISED DUE DILIGENCE IN SELECTING GALAXY

AS THE AGENCY WHICH WOULD PROVIDE SECURITY SERVICES WITHIN
THE PREMISES OF RESPONDENT FEU.11
Petitioner is suing respondents for damages based on the alleged
breach of student-school contract for a safe learning environment. The
pertinent portions of petitioner's Complaint read:

6.0. At the time of plaintiff's confinement, the defendants or any of

their representative did not bother to visit and inquire about his
condition. This abject indifference on the part of the defendants
continued even after plaintiff was discharged from the hospital when
not even a word of consolation was heard from them. Plaintiff waited
for more than one (1) year for the defendants to perform their moral
obligation but the wait was fruitless. This indifference and total lack of
concern of defendants served to exacerbate plaintiff's miserable
condition.

xxxx

11.0. Defendants are responsible for ensuring the safety of its students
while the latter are within the University premises. And that should
anything untoward happens to any of its students while they are within
the University's premises shall be the responsibility of the defendants.
In this case, defendants, despite being legally and morally bound,
miserably failed to protect plaintiff from injury and thereafter, to
mitigate and compensate plaintiff for said injury;

12.0. When plaintiff enrolled with defendant FEU, a contract was

entered into between them. Under this contract, defendants are
supposed to ensure that adequate steps are taken to provide an
atmosphere conducive to study and ensure the safety of the plaintiff
while inside defendant FEU's premises. In the instant case, the latter
breached this contract when defendant allowed harm to befall upon
the plaintiff when he was shot at by, of all people, their security guard
who was tasked to maintain peace inside the campus.12

In Philippine School of Business Administration v. Court of Appeals,13

we held that:

When an academic institution accepts students for enrollment, there is

established a contract between them, resulting in bilateral obligations
which both parties are bound to comply with. For its part, the school
undertakes to provide the student with an education that would
presumably suffice to equip him with the necessary tools and skills to
pursue higher education or a profession. On the other hand, the
student covenants to abide by the school's academic requirements and
observe its rules and regulations.
Institutions of learning must also meet the implicit or "built-in"
obligation of providing their students with an atmosphere that
promotes or assists in attaining its primary undertaking of imparting
knowledge. Certainly, no student can absorb the intricacies of physics
or higher mathematics or explore the realm of the arts and other
sciences when bullets are flying or grenades exploding in the air or
where there looms around the school premises a constant threat to life
and limb. Necessarily, the school must ensure that adequate steps are
taken to maintain peace and order within the campus premises and to
prevent the breakdown thereof.14

It is undisputed that petitioner was enrolled as a sophomore law

student in respondent FEU. As such, there was created a contractual
obligation between the two parties. On petitioner's part, he was
obliged to comply with the rules and regulations of the school. On the
other hand, respondent FEU, as a learning institution is mandated to
impart knowledge and equip its students with the necessary skills to
pursue higher education or a profession. At the same time, it is obliged
to ensure and take adequate steps to maintain peace and order within
the campus.

It is settled that in culpa contractual, the mere proof of the existence of

the contract and the failure of its compliance justify, prima facie, a
corresponding right of relief.15 In the instant case, we find that, when
petitioner was shot inside the campus by no less the security guard
who was hired to maintain peace and secure the premises, there is a
prima facie showing that respondents failed to comply with its
obligation to provide a safe and secure environment to its students.

In order to avoid liability, however, respondents aver that the shooting

incident was a fortuitous event because they could not have
reasonably foreseen nor avoided the accident caused by Rosete as he
was not their employee;16 and that they complied with their obligation
to ensure a safe learning environment for their students by having
exercised due diligence in selecting the security services of Galaxy.

After a thorough review of the records, we find that respondents failed

to discharge the burden of proving that they exercised due diligence in
providing a safe learning environment for their students. They failed to
prove that they ensured that the guards assigned in the campus met
the requirements stipulated in the Security Service Agreement. Indeed,
certain documents about Galaxy were presented during trial; however,
no evidence as to the qualifications of Rosete as a security guard for
the university was offered.
Respondents also failed to show that they undertook steps to ascertain
and confirm that the security guards assigned to them actually possess
the qualifications required in the Security Service Agreement. It was
not proven that they examined the clearances, psychiatric test results,
201 files, and other vital documents enumerated in its contract with
Galaxy. Total reliance on the security agency about these matters or
failure to check the papers stating the qualifications of the guards is
negligence on the part of respondents. A learning institution should not
be allowed to completely relinquish or abdicate security matters in its
premises to the security agency it hired. To do so would result to
contracting away its inherent obligation to ensure a safe learning
environment for its students.

Consequently, respondents' defense of force majeure must fail. In

order for force majeure to be considered, respondents must show that
no negligence or misconduct was committed that may have
occasioned the loss. An act of God cannot be invoked to protect a
person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred
with an act of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not exempt one from
liability. When the effect is found to be partly the result of a person's
participation - whether by active intervention, neglect or failure to act -
the whole occurrence is humanized and removed from the rules
applicable to acts of God.17

Article 1170 of the Civil Code provides that those who are negligent in
the performance of their obligations are liable for damages.
Accordingly, for breach of contract due to negligence in providing a
safe learning environment, respondent FEU is liable to petitioner for
damages. It is essential in the award of damages that the claimant
must have satisfactorily proven during the trial the existence of the
factual basis of the damages and its causal connection to defendant's
acts.18

In the instant case, it was established that petitioner spent P35,298.25

for his hospitalization and other medical expenses.19 While the trial
court correctly imposed interest on said amount, however, the case at
bar involves an obligation arising from a contract and not a loan or
forbearance of money. As such, the proper rate of legal interest is six
percent (6%) per annum of the amount demanded. Such interest shall
continue to run from the filing of the complaint until the finality of this
Decision.20 After this Decision becomes final and executory, the
applicable rate shall be twelve percent (12%) per annum until its
satisfaction.
The other expenses being claimed by petitioner, such as transportation
expenses and those incurred in hiring a personal assistant while
recuperating were however not duly supported by receipts.21 In the
absence thereof, no actual damages may be awarded. Nonetheless,
temperate damages under Art. 2224 of the Civil Code may be
recovered where it has been shown that the claimant suffered some
pecuniary loss but the amount thereof cannot be proved with certainty.
Hence, the amount of P20,000.00 as temperate damages is awarded to
petitioner.

As regards the award of moral damages, there is no hard and fast rule
in the determination of what would be a fair amount of moral damages
since each case must be governed by its own peculiar
circumstances.22 The testimony of petitioner about his physical
suffering, mental anguish, fright, serious anxiety, and moral shock
resulting from the shooting incident23 justify the award of moral
damages. However, moral damages are in the category of an award
designed to compensate the claimant for actual injury suffered and not
to impose a penalty on the wrongdoer. The award is not meant to
enrich the complainant at the expense of the defendant, but to enable
the injured party to obtain means, diversion, or amusements that will
serve to obviate the moral suffering he has undergone. It is aimed at
the restoration, within the limits of the possible, of the spiritual status
quo ante, and should be proportionate to the suffering inflicted. Trial
courts must then guard against the award of exorbitant damages; they
should exercise balanced restrained and measured objectivity to avoid
suspicion that it was due to passion, prejudice, or corruption on the
part of the trial court.24 We deem it just and reasonable under the
circumstances to award petitioner moral damages in the amount of
P100,000.00.

Likewise, attorney's fees and litigation expenses in the amount of

P50,000.00 as part of damages is reasonable in view of Article 2208 of
the Civil Code.25 However, the award of exemplary damages is deleted
considering the absence of proof that respondents acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner.

We note that the trial court held respondent De Jesus solidarily liable
with respondent FEU. In Powton Conglomerate, Inc. v. Agcolicol,26 we
held that:

[A] corporation is invested by law with a personality separate and

distinct from those of the persons composing it, such that, save for
certain exceptions, corporate officers who entered into contracts in
behalf of the corporation cannot be held personally liable for the
liabilities of the latter. Personal liability of a corporate director, trustee
or officer along (although not necessarily) with the corporation may so
validly attach, as a rule, only when - (1) he assents to a patently
unlawful act of the corporation, or when he is guilty of bad faith or
gross negligence in directing its affairs, or when there is a conflict of
interest resulting in damages to the corporation, its stockholders or
other persons; (2) he consents to the issuance of watered down stocks
or who, having knowledge thereof, does not forthwith file with the
corporate secretary his written objection thereto; (3) he agrees to hold
himself personally and solidarily liable with the corporation; or (4) he is
made by a specific provision of law personally answerable for his
corporate action.27

None of the foregoing exceptions was established in the instant case;

hence, respondent De Jesus should not be held solidarily liable with
respondent FEU.

Incidentally, although the main cause of action in the instant case is

the breach of the school-student contract, petitioner, in the alternative,
also holds respondents vicariously liable under Article 2180 of the Civil
Code, which provides:

Art. 2180. The obligation imposed by Article 2176 is demandable not

only for one's own acts or omissions, but also for those of persons for
whom one is responsible.

xxxx

Employers shall be liable for the damages caused by their employees

and household helpers acting within the scope of their assigned tasks,
even though the former are not engaged in any business or industry.

xxxx

The responsibility treated of in this article shall cease when the

persons herein mentioned prove that they observed all the diligence of
a good father of a family to prevent damage.

We agree with the findings of the Court of Appeals that respondents

cannot be held liable for damages under Art. 2180 of the Civil Code
because respondents are not the employers of Rosete. The latter was
employed by Galaxy. The instructions issued by respondents' Security
Consultant to Galaxy and its security guards are ordinarily no more
than requests commonly envisaged in the contract for services entered
into by a principal and a security agency. They cannot be construed as
the element of control as to treat respondents as the employers of
Rosete.28

As held in Mercury Drug Corporation v. Libunao:29

In Soliman, Jr. v. Tuazon,30 we held that where the security agency

recruits, hires and assigns the works of its watchmen or security
guards to a client, the employer of such guards or watchmen is such
agency, and not the client, since the latter has no hand in selecting the
security guards. Thus, the duty to observe the diligence of a good
father of a family cannot be demanded from the said client:

[I]t is settled in our jurisdiction that where the security agency, as

here, recruits, hires and assigns the work of its watchmen or security
guards, the agency is the employer of such guards or watchmen.
Liability for illegal or harmful acts committed by the security guards
attaches to the employer agency, and not to the clients or customers
of such agency. As a general rule, a client or customer of a security
agency has no hand in selecting who among the pool of security
guards or watchmen employed by the agency shall be assigned to it;
the duty to observe the diligence of a good father of a family in the
selection of the guards cannot, in the ordinary course of events, be
demanded from the client whose premises or property are protected by
the security guards.

xxxx

The fact that a client company may give instructions or directions to

the security guards assigned to it, does not, by itself, render the client
responsible as an employer of the security guards concerned and liable
for their wrongful acts or omissions.31

We now come to respondents' Third Party Claim against Galaxy. In

Firestone Tire and Rubber Company of the Philippines v. Tempengko,32
we held that:

The third-party complaint is, therefore, a procedural device whereby a

'third party' who is neither a party nor privy to the act or deed
complained of by the plaintiff, may be brought into the case with leave
of court, by the defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity,
subrogation or any other relief, in respect of the plaintiff's claim. The
third-party complaint is actually independent of and separate and
distinct from the plaintiff's complaint. Were it not for this provision of
the Rules of Court, it would have to be filed independently and
separately from the original complaint by the defendant against the
third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in
respect of plaintiff's claim against a third-party in the original and
principal case with the object of avoiding circuitry of action and
unnecessary proliferation of law suits and of disposing expeditiously in
one litigation the entire subject matter arising from one particular set
of facts.33

Respondents and Galaxy were able to litigate their respective claims

and defenses in the course of the trial of petitioner's complaint.
Evidence duly supports the findings of the trial court that Galaxy is
negligent not only in the selection of its employees but also in their
supervision. Indeed, no administrative sanction was imposed against
Rosete despite the shooting incident; moreover, he was even allowed
to go on leave of absence which led eventually to his disappearance.34
Galaxy also failed to monitor petitioner's condition or extend the
necessary assistance, other than the P5,000.00 initially given to
petitioner. Galaxy and Imperial failed to make good their pledge to
reimburse petitioner's medical expenses.

For these acts of negligence and for having supplied respondent FEU
with an unqualified security guard, which resulted to the latter's breach
of obligation to petitioner, it is proper to hold Galaxy liable to
respondent FEU for such damages equivalent to the above-mentioned
amounts awarded to petitioner.

Unlike respondent De Jesus, we deem Imperial to be solidarily liable

with Galaxy for being grossly negligent in directing the affairs of the
security agency. It was Imperial who assured petitioner that his medical
expenses will be shouldered by Galaxy but said representations were
not fulfilled because they presumed that petitioner and his family were
no longer interested in filing a formal complaint against them.35

WHEREFORE, the petition is GRANTED. The June 29, 2007 Decision of

the Court of Appeals in CA-G.R. CV No. 87050 nullifying the Decision of
the trial court and dismissing the complaint as well as the August 23,
2007 Resolution denying the Motion for Reconsideration are REVERSED
and SET ASIDE. The Decision of the Regional Trial Court of Manila,
Branch 2, in Civil Case No. 98-89483 finding respondent FEU liable for
damages for breach of its obligation to provide students with a safe
and secure learning atmosphere, is AFFIRMED with the following
MODIFICATIONS:

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

petitioner actual damages in the amount of P35,298.25, plus 6%
interest per annum from the filing of the complaint until the finality of
this Decision. After this decision becomes final and executory, the
applicable rate shall be twelve percent (12%) per annum until its
satisfaction;

b. respondent FEU is also ORDERED to pay petitioner temperate

damages in the amount of P20,000.00; moral damages in the amount
of P100,000.00; and attorney's fees and litigation expenses in the
amount of P50,000.00;

c. the award of exemplary damages is DELETED.

The Complaint against respondent Edilberto C. De Jesus is DISMISSED.

The counterclaims of respondents are likewise DISMISSED.

Galaxy Development and Management Corporation (Galaxy) and its

president, Mariano D. Imperial are ORDERED to jointly and severally
pay respondent FEU damages equivalent to the above-mentioned
amounts awarded to petitioner.

G.R. No. 185798 January 13, 2014

FIL-ESTATE PROPERTIES, INC. AND FIL-ESTATE NETWORK INC.,

Petitioners,
vs.
SPOUSES CONRADO AND MARIA VICTORIA RONQUILLO, Respondents.

DECISION

PEREZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of

the 1997 Rules .of Civil Procedure assailing the Decision1 of the Court
of Appeals in CA-G.R. SP No. 100450 which affirmed the Decision of the
Office of the President in O.P. Case No. 06-F-216.

As culled from the records, the facts are as follow:

Petitioner Fil-Estate Properties, Inc. is the owner and developer of the

Central Park Place Tower while co-petitioner Fil-Estate Network, Inc. is
its authorized marketing agent. Respondent Spouses Conrado and
Maria Victoria Ronquillo purchased from petitioners an 82-square meter
condominium unit at Central Park Place Tower in Mandaluyong City for
a pre-selling contract price of FIVE MILLION ONE HUNDRED SEVENTY-
FOUR THOUSAND ONLY (P5,174,000.00). On 29 August 1997,
respondents executed and signed a Reservation Application Agreement
wherein they deposited P200,000.00 as reservation fee. As agreed
upon, respondents paid the full downpayment of P1,552,200.00 and
had been paying the P63,363.33 monthly amortizations until
September 1998.

Upon learning that construction works had stopped, respondents

likewise stopped paying their monthly amortization. Claiming to have
paid a total of P2,198,949.96 to petitioners, respondents through two
(2) successive letters, demanded a full refund of their payment with
interest. When their demands went unheeded, respondents were
constrained to file a Complaint for Refund and Damages before the
Housing and Land Use Regulatory Board (HLURB). Respondents prayed
for reimbursement/refund of P2,198,949.96 representing the total
amortization payments, P200,000.00 as and by way of moral damages,
attorneys fees and other litigation expenses.

On 21 October 2000, the HLURB issued an Order of Default against

petitioners for failing to file their Answer within the reglementary
period despite service of summons.2

Petitioners filed a motion to lift order of default and attached their

position paper attributing the delay in construction to the 1997 Asian
financial crisis. Petitioners denied committing fraud or
misrepresentation which could entitle respondents to an award of
moral damages.

On 13 June 2002, the HLURB, through Arbiter Atty. Joselito F. Melchor,

rendered judgment ordering petitioners to jointly and severally pay
respondents the following amount:

a) The amount of TWO MILLION ONE HUNDRED NINETY-EIGHT

THOUSAND NINE HUNDRED FORTY NINE PESOS & 96/100
(P2,198,949.96) with interest thereon at twelve percent (12%) per
annum to be computed from the time of the complainants demand for
refund on October 08, 1998 until fully paid,

b) ONE HUNDRED THOUSAND PESOS (P100,000.00) as moral damages,

c) FIFTY THOUSAND PESOS (P50,000.00) as attorneys fees,

d) The costs of suit, and

e) An administrative fine of TEN THOUSAND PESOS (P10,000.00)

payable to this Office fifteen (15) days upon receipt of this decision, for
violation of Section 20 in relation to Section 38 of PD 957.3
The Arbiter considered petitioners failure to develop the condominium
project as a substantial breach of their obligation which entitles
respondents to seek for rescission with payment of damages. The
Arbiter also stated that mere economic hardship is not an excuse for
contractual and legal delay.

Petitioners appealed the Arbiters Decision through a petition for

review pursuant to Rule XII of the 1996 Rules of Procedure of HLURB.
On 17 February 2005, the Board of Commissioners of the HLURB
denied4 the petition and affirmed the Arbiters Decision. The HLURB
reiterated that the depreciation of the peso as a result of the Asian
financial crisis is not a fortuitous event which will exempt petitioners
from the performance of their contractual obligation.

Petitioners filed a motion for reconsideration but it was denied5 on 8

May 2006. Thereafter, petitioners filed a Notice of Appeal with the
Office of the President. On 18 April 2007, petitioners appeal was
dismissed6 by the Office of the President for lack of merit. Petitioners
moved for a reconsideration but their motion was denied7 on 26 July
2007.

Petitioners sought relief from the Court of Appeals through a petition

for review under Rule 43 containing the same arguments they raised
before the HLURB and the Office of the President:

I.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE

DECISION OF THE HONORABLE HOUSING AND LAND USE REGULATORY
BOARD AND ORDERING PETITIONERS-APPELLANTS TO REFUND
RESPONDENTS-APPELLEES THE SUM OF P2,198,949.96 WITH 12%
INTEREST FROM 8 OCTOBER 1998 UNTIL FULLY PAID, CONSIDERING
THAT THE COMPLAINT STATES NO CAUSE OF ACTION AGAINST
PETITIONERS-APPELLANTS.

II.

THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE

DECISION OF THE OFFICE BELOW ORDERING PETITIONERS-APPELLANTS
TO PAY RESPONDENTS-APPELLEES THE SUM OF P100,000.00 AS MORAL
DAMAGES AND P50,000.00 AS ATTORNEYS FEES CONSIDERING THE
ABSENCE OF ANY FACTUAL OR LEGAL BASIS THEREFOR.

III.
THE HONORABLE OFFICE OF THE PRESIDENT ERRED IN AFFIRMING THE
DECISION OF THE HOUSING AND LAND USE REGULATORY BOARD
ORDERING PETITIONERS-APPELLANTS TO PAY P10,000.00 AS
ADMINISTRATIVE FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL
BASIS TO SUPPORT SUCH FINDING.8

On 30 July 2008, the Court of Appeals denied the petition for review for
lack of merit. The appellate court echoed the HLURB Arbiters ruling
that "a buyer for a condominium/subdivision unit/lot unit which has not
been developed in accordance with the approved
condominium/subdivision plan within the time limit for complying with
said developmental requirement may opt for reimbursement under
Section 20 in relation to Section 23 of Presidential Decree (P.D.) 957 x x
x."9 The appellate court supported the HLURB Arbiters conclusion,
which was affirmed by the HLURB Board of Commission and the Office
of the President, that petitioners failure to develop the condominium
project is tantamount to a substantial breach which warrants a refund
of the total amount paid, including interest. The appellate court
pointed out that petitioners failed to prove that the Asian financial
crisis constitutes a fortuitous event which could excuse them from the
performance of their contractual and statutory obligations. The
appellate court also affirmed the award of moral damages in light of
petitioners unjustified refusal to satisfy respondents claim and the
legality of the administrative fine, as provided in Section 20 of
Presidential Decree No. 957.

Petitioners sought reconsideration but it was denied in a Resolution10

dated 11 December 2008 by the Court of Appeals.

Aggrieved, petitioners filed the instant petition advancing substantially

the same grounds for review:

A.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT AFFIRMED IN

TOTO THE DECISION OF THE OFFICE OF THE PRESIDENT WHICH
SUSTAINED RESCISSION AND REFUND IN FAVOR OF THE RESPONDENTS
DESPITE LACK OF CAUSE OF ACTION.

B.

GRANTING FOR THE SAKE OF ARGUMENT THAT THE PETITIONERS ARE

LIABLE UNDER THE PREMISES, THE HONORABLE COURT OF APPEALS
ERRED WHEN IT AFFIRMED THE HUGE AMOUNT OF INTEREST OF
TWELVE PERCENT (12%).
C.

THE HONORABLE COURT OF APPEALS LIKEWISE ERRED WHEN IT

AFFIRMED IN TOTO THE DECISION OF THE OFFICE OF THE PRESIDENT
INCLUDING THE PAYMENT OF P100,000.00 AS MORAL DAMAGES,
P50,000.00 AS ATTORNEYS FEES AND P10,000.00 AS ADMINISTRATIVE
FINE IN THE ABSENCE OF ANY FACTUAL OR LEGAL BASIS TO SUPPORT
SUCH CONCLUSIONS.11

Petitioners insist that the complaint states no cause of action because

they allegedly have not committed any act of misrepresentation
amounting to bad faith which could entitle respondents to a refund.
Petitioners claim that there was a mere delay in the completion of the
project and that they only resorted to "suspension and reformatting as
a testament to their commitment to their buyers." Petitioners attribute
the delay to the 1997 Asian financial crisis that befell the real estate
industry. Invoking Article 1174 of the New Civil Code, petitioners
maintain that they cannot be held liable for a fortuitous event.

Petitioners contest the payment of a huge amount of interest on

account of suspension of development on a project. They liken their
situation to a bank which this Court, in Overseas Bank v. Court of
Appeals,12 adjudged as not liable to pay interest on deposits during
the period that its operations are ordered suspended by the Monetary
Board of the Central Bank.

Lastly, petitioners aver that they should not be ordered to pay moral
damages because they never intended to cause delay, and again
blamed the Asian economic crisis as the direct, proximate and only
cause of their failure to complete the project. Petitioners submit that
moral damages should not be awarded unless so stipulated except
under the instances enumerated in Article 2208 of the New Civil Code.
Lastly, petitioners refuse to pay the administrative fine because the
delay in the project was caused not by their own deceptive intent to
defraud their buyers, but due to unforeseen circumstances beyond
their control.

Three issues are presented for our resolution: 1) whether or not the
Asian financial crisis constitute a fortuitous event which would justify
delay by petitioners in the performance of their contractual obligation;
2) assuming that petitioners are liable, whether or not 12% interest
was correctly imposed on the judgment award, and 3) whether the
award of moral damages, attorneys fees and administrative fine was
proper.
It is apparent that these issues were repeatedly raised by petitioners in
all the legal fora. The rulings were consistent that first, the Asian
financial crisis is not a fortuitous event that would excuse petitioners
from performing their contractual obligation; second, as a result of the
breach committed by petitioners, respondents are entitled to rescind
the contract and to be refunded the amount of amortizations paid
including interest and damages; and third, petitioners are likewise
obligated to pay attorneys fees and the administrative fine.

This petition did not present any justification for us to deviate from the
rulings of the HLURB, the Office of the President and the Court of
Appeals.

Indeed, the non-performance of petitioners obligation entitles

respondents to rescission under Article 1191 of the New Civil Code
which states:

Article 1191. The power to rescind obligations is implied in reciprocal

ones, in case one of the obligors should not comply with what is
incumbent upon him.

The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.

More in point is Section 23 of Presidential Decree No. 957, the rule

governing the sale of condominiums, which provides:

Section 23. Non-Forfeiture of Payments.1wphi1 No installment

payment made by a buyer in a subdivision or condominium project for
the lot or unit he contracted to buy shall be forfeited in favor of the
owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner
or developer to develop the subdivision or condominium project
according to the approved plans and within the time limit for
complying with the same. Such buyer may, at his option, be
reimbursed the total amount paid including amortization interests but
excluding delinquency interests, with interest thereon at the legal rate.
(Emphasis supplied).

Conformably with these provisions of law, respondents are entitled to

rescind the contract and demand reimbursement for the payments
they had made to petitioners.
Notably, the issues had already been settled by the Court in the case
of Fil-Estate Properties, Inc. v. Spouses Go13 promulgated on 17 August
2007, where the Court stated that the Asian financial crisis is not an
instance of caso fortuito. Bearing the same factual milieu as the instant
case, G.R. No. 165164 involves the same company, Fil-Estate, albeit
about a different condominium property. The company likewise
reneged on its obligation to respondents therein by failing to develop
the condominium project despite substantial payment of the contract
price. Fil-Estate advanced the same argument that the 1997 Asian
financial crisis is a fortuitous event which justifies the delay of the
construction project. First off, the Court classified the issue as a
question of fact which may not be raised in a petition for review
considering that there was no variance in the factual findings of the
HLURB, the Office of the President and the Court of Appeals. Second,
the Court cited the previous rulings of Asian Construction and
Development Corporation v. Philippine Commercial International
Bank14 and Mondragon Leisure and Resorts Corporation v. Court of
Appeals15 holding that the 1997 Asian financial crisis did not
constitute a valid justification to renege on obligations. The Court
expounded:

Also, we cannot generalize that the Asian financial crisis in 1997 was
unforeseeable and beyond the control of a business corporation. It is
unfortunate that petitioner apparently met with considerable difficulty
e.g. increase cost of materials and labor, even before the scheduled
commencement of its real estate project as early as 1995. However, a
real estate enterprise engaged in the pre-selling of condominium units
is concededly a master in projections on commodities and currency
movements and business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an everyday
occurrence, and fluctuations in currency exchange rates happen
everyday, thus, not an instance of caso fortuito.16

The aforementioned decision becomes a precedent to future cases in

which the facts are substantially the same, as in this case. The
principle of stare decisis, which means adherence to judicial
precedents, applies.

In said case, the Court ordered the refund of the total amortizations
paid by respondents plus 6% legal interest computed from the date of
demand. The Court also awarded attorneys fees. We follow that ruling
in the case before us.

The resulting modification of the award of legal interest is, also, in line
with our recent ruling in Nacar v. Gallery Frames,17 embodying the
amendment introduced by the Bangko Sentral ng Pilipinas Monetary
Board in BSP-MB Circular No. 799 which pegged the interest rate at 6%
regardless of the source of obligation.

We likewise affirm the award of attorneys fees because respondents

were forced to litigate for 14 years and incur expenses to protect their
rights and interest by reason of the unjustified act on the part of
petitioners.18 The imposition of P10,000.00 administrative fine is
correct pursuant to Section 38 of Presidential Decree No. 957 which
reads:

Section 38. Administrative Fines. The Authority may prescribe and

impose fines not exceeding ten thousand pesos for violations of the
provisions of this Decree or of any rule or regulation thereunder. Fines
shall be payable to the Authority and enforceable through writs of
execution in accordance with the provisions of the Rules of Court.

Finally, we sustain the award of moral damages. In order that moral

damages may be awarded in breach of contract cases, the defendant
must have acted in bad faith, must be found guilty of gross negligence
amounting to bad faith, or must have acted in wanton disregard of
contractual obligations.19 The Arbiter found petitioners to have acted
in bad faith when they breached their contract, when they failed to
address respondents grievances and when they adamantly refused to
refund respondents' payment.

In fine, we find no reversible error on the merits in the impugned Court

of Appeals' Decision and Resolution.

WHEREFORE, the petition is PARTLY GRANTED. The appealed Decision

is AFFIRMED with the MODIFICATION that the legal interest to be paid is
SIX PERCENT (6%) on the amount due computed from the time of
respondents' demand for refund on 8 October 1998.

SO ORDERED.

G.R. No. 177921 December 4, 2013

METRO CONCAST STEEL CORPORATION, SPOUSES JOSE S. DYCHIAO
AND TIUOH YAN, SPOUSES GUILLERMO AND MERCEDES DYCHIAO, AND
SPOUSES VICENTE AND FILOMENA DYCHIAO, Petitioners,
vs.
ALLIED BANK CORPORATION, Respondent.

RESOLUTION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2

dated February 12, 2007 and the Resolution3 dated May 10, 2007 of
the Court of Appeals (CA) in CA-G.R. CV No. 86896 which reversed and
set aside the Decision4 dated January 17, 2006 of the Regional Trial
Court of Makati, Branch 57 (RTC) in Civil Case No. 00-1563, thereby
ordering petitioners Metro Concast Steel Corporation (Metro Concast),
Spouses Jose S. Dychiao and Tiu Oh Yan, Spouses Guillermo and
Mercedes Dychiao, and Spouses Vicente and Filomena Duchiao
(individual petitioners) to solidarily pay respondent Allied Bank
Corporation (Allied Bank) the aggregate amount of P51,064,094.28,
with applicable interests and penalty charges.

The Facts

On various dates and for different amounts, Metro Concast, a

corporation duly organized and existing under and by virtue of
Philippine laws and engaged in the business of manufacturing steel,5
through its officers, herein individual petitioners, obtained several
loans from Allied Bank. These loan transactions were covered by a
promissory note and separate letters of credit/trust receipts, the details
of which are as follows:

<<Reference: http://www.scribd.com/doc/196404620/177921>>

Date Document Amount

December 13, 1996 Promissory Note No. 96-213016

P2,000,000.00 November 7, 1995 Trust Receipt No. 96-2023657

P608,603.04 May 13, 1996 Trust Receipt No. 96-9605228

P3,753,777.40 May 24, 1996 Trust Receipt No. 96-9605249

P4,602,648.08 March 21, 1997 Trust Receipt No. 97-20472410

P7,289,757.79 June 7, 1996 Trust Receipt No. 96-20328011

P17,340,360.73 July 26, 1995 Trust Receipt No. 95-20194312

P670,709.24 August 31, 1995 Trust Receipt No. 95-20205313

P313,797.41 November 16, 1995 Trust Receipt No. 96-20243914

P13,015,109.87 July 3, 1996 Trust Receipt No. 96-20355215

P401,608.89 June 20, 1995 Trust Receipt No. 95-20171016

P750,089.25 December 13, 1995 Trust Receipt No. 96-37908917

P92,919.00 December 13, 1995 Trust Receipt No. 96/20258118

P224,713.58

The interest rate under Promissory Note No. 96-21301 was pegged at
15.25% per annum (p.a.), with penalty charge of 3% per month in case
of default; while the twelve (12) trust receipts uniformly provided for
an interest rate of 14% p.a. and 1% penalty charge. By way of security,
the individual petitioners executed several Continuing
Guaranty/Comprehensive Surety Agreements19 in favor of Allied Bank.
Petitioners failed to settle their obligations under the aforementioned
promissory note and trust receipts, hence, Allied Bank, through
counsel, sent them demand letters,20 all dated December 10, 1998,
seeking payment of the total amount of P51,064,093.62, but to no
avail. Thus, Allied Bank was prompted to file a complaint for collection
of sum of money21 (subject complaint) against petitioners before the
RTC, docketed as Civil Case No. 00-1563. In their second22 Amended
Answer,23 petitioners admitted their indebtedness to Allied Bank but
denied liability for the interests and penalties charged, claiming to
have paid the total sum of P65,073,055.73 by way of interest charges
for the period covering 1992 to 1997.24

They also alleged that the economic reverses suffered by the Philippine
economy in 1998 as well as the devaluation of the peso against the US
dollar contributed greatly to the downfall of the steel industry, directly
affecting the business of Metro Concast and eventually leading to its
cessation. Hence, in order to settle their debts with Allied Bank,
petitioners offered the sale of Metro Concasts remaining assets,
consisting of machineries and equipment, to Allied Bank, which the
latter, however, refused. Instead, Allied Bank advised them to sell the
equipment and apply the proceeds of the sale to their outstanding
obligations. Accordingly, petitioners offered the equipment for sale, but
since there were no takers, the equipment was reduced into ferro scrap
or scrap metal over the years. In 2002, Peakstar Oil Corporation
(Peakstar), represented by one Crisanta Camiling (Camiling), expressed
interest in buying the scrap metal. During the negotiations with
Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw), a
member of Allied Banks legal department, acted as the latters agent.
Eventually, with the alleged conformity of Allied Bank, through Atty.
Saw, a Memorandum of Agreement25 dated November 8, 2002 (MoA)
was drawn between Metro Concast, represented by petitioner Jose
Dychiao, and Peakstar, through Camiling, under which Peakstar
obligated itself to purchase the scrap metal for a total consideration of
P34,000,000.00, payable as follows:

(a) P4,000,000.00 by way of earnest money P2,000,000.00 to be paid

in cash and the other P2,000,000.00 to be paid in two (2) post-dated
checks of P1,000,000.00 each;26 and

(b) the balance of P30,000,000.00 to be paid in ten (10) monthly

installments of P3,000,000.00, secured by bank guarantees from
Bankwise, Inc. (Bankwise) in the form of separate post-dated checks.27

Unfortunately, Peakstar reneged on all its obligations under the MoA. In

this regard, petitioners asseverated that:

(a) their failure to pay their outstanding loan obligations to Allied Bank
must be considered as force majeure ; and

(b) since Allied Bank was the party that accepted the terms and
conditions of payment proposed by Peakstar, petitioners must
therefore be deemed to have settled their obligations to Allied Bank. To
bolster their defense, petitioner Jose Dychiao (Jose Dychiao) testified28
during trial that it was Atty. Saw himself who drafted the MoA and
subsequently received29 the P2,000,000.00 cash and the two (2)
Bankwise post-dated checks worth P1,000,000.00 each from Camiling.
However, Atty. Saw turned over only the two (2) checks and
P1,500,000.00 in cash to the wife of Jose Dychiao.30

Claiming that the subject complaint was falsely and maliciously filed,
petitioners prayed for the award of moral damages in the amount of
P20,000,000.00 in favor of Metro Concast and at least P25,000,000.00
for each individual petitioner, P25,000,000.00 as exemplary damages,
P1,000,000.00 as attorneys fees, P500,000.00 for other litigation
expenses, including costs of suit.

The RTC Ruling

After trial on the merits, the RTC, in a Decision31 dated January 17,
2006, dismissed the subject complaint, holding that the "causes of
action sued upon had been paid or otherwise extinguished." It ruled
that since Allied Bank was duly represented by its agent, Atty. Saw, in
all the negotiations and transactions with Peakstar considering that
Atty. Saw

(a) drafted the MoA,

(b) accepted the bank guarantee issued by Bankwise, and

(c) was apprised of developments regarding the sale and disposition of

the scrap metal then it stands to reason that the MoA between Metro
Concast and Peakstar was binding upon said bank.

The CA Ruling

Allied Bank appealed to the CA which, in a Decision32 dated February

12, 2007, reversed and set aside the ruling of the RTC, ratiocinating
that there was "no legal basis in fact and in law to declare that when
Bankwise reneged its guarantee under the [MoA], herein [petitioners]
should be deemed to be discharged from their obligations lawfully
incurred in favor of [Allied Bank]."33

The CA examined the MoA executed between Metro Concast, as seller

of the ferro scrap, and Peakstar, as the buyer thereof, and found that
the same did not indicate that Allied Bank intervened or was a party
thereto. It also pointed out the fact that the post-dated checks
pursuant to the MoA were issued in favor of Jose Dychiao. Likewise, the
CA found no sufficient evidence on record showing that Atty. Saw was
duly and legally authorized to act for and on behalf of Allied Bank,
opining that the RTC was "indulging in hypothesis and speculation"34
when it made a contrary pronouncement. While Atty. Saw received the
earnest money from Peakstar, the receipt was signed by him on behalf
of Jose Dychiao.35

It also added that "[i]n the final analysis, the aforesaid checks and
receipts were signed by [Atty.] Saw either as representative of
[petitioners] or as partner of the latters legal counsel, and not in
anyway as representative of [Allied Bank]."36

Consequently, the CA granted the appeal and directed petitioners to

solidarily pay Allied Bank their corresponding obligations under the
aforementioned promissory note and trust receipts, plus interests,
penalty charges and attorneys fees. Petitioners sought
reconsideration37 which was, however, denied in a Resolution38 dated
May 10, 2007. Hence, this petition.

The Issue Before the Court

At the core of the present controversy is the sole issue of whether or

not the loan obligations incurred by the petitioners under the subject
promissory note and various trust receipts have already been
extinguished.

The Courts Ruling

Article 1231 of the Civil Code states that obligations are extinguished
either by payment or performance, the loss of the thing due, the
condonation or remission of the debt, the confusion or merger of the
rights of creditor and debtor, compensation or novation.

In the present case, petitioners essentially argue that their loan

obligations to Allied Bank had already been extinguished due to
Peakstars failure to perform its own obligations to Metro Concast
pursuant to the MoA. Petitioners classify Peakstars default as a form of
force majeure in the sense that they have, beyond their control, lost
the funds they expected to have received from the Peakstar (due to
the MoA) which they would, in turn, use to pay their own loan
obligations to Allied Bank. They further state that Allied Bank was
equally bound by Metro Concasts MoA with Peakstar since its agent,
Atty. Saw, actively represented it during the negotiations and execution
of the said agreement. Petitioners arguments are untenable. At the
outset, the Court must dispel the notion that the MoA would have any
relevance to the performance of petitioners obligations to Allied Bank.
The MoA is a sale of assets contract, while petitioners obligations to
Allied Bank arose from various loan transactions. Absent any showing
that the terms and conditions of the latter transactions have been, in
any way, modified or novated by the terms and conditions in the MoA,
said contracts should be treated separately and distinctly from each
other, such that the existence, performance or breach of one would not
depend on the existence, performance or breach of the other. In the
foregoing respect, the issue on whether or not Allied Bank expressed
its conformity to the assets sale transaction between Metro Concast
and Peakstar (as evidenced by the MoA) is actually irrelevant to the
issues related to petitioners loan obligations to the bank. Besides, as
the CA pointed out, the fact of Allied Banks representation has not
been proven in this case and hence, cannot be deemed as a
sustainable defense to exculpate petitioners from their loan obligations
to Allied Bank. Now, anent petitioners reliance on force majeure,
suffice it to state that Peakstars breach of its obligations to Metro
Concast arising from the MoA cannot be classified as a fortuitous event
under jurisprudential formulation. As discussed in Sicam v. Jorge:39

Fortuitous events by definition are extraordinary events not

foreseeable or avoidable. It is therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly believed
but it must be one impossible to foresee or to avoid. The mere
difficulty to foresee the happening is not impossibility to foresee the
same. To constitute a fortuitous event, the following elements must
concur: (a) the cause of the unforeseen and unexpected occurrence or
of the failure of the debtor to comply with obligations must be
independent of human will; (b) it must be impossible to foresee the
event that constitutes the caso fortuito or, if it can be foreseen, it must
be impossible to avoid; (c) the occurrence must be such as to render it
impossible for the debtor to fulfill obligations in a normal manner; and
(d) the obligor must be free from any participation in the aggravation
of the injury or loss.40 (Emphases supplied)

While it may be argued that Peakstars breach of the MoA was

unforseen by petitioners, the same us clearly not "impossible"to
foresee or even an event which is independent of human will." Neither
has it been shown that said occurrence rendered it impossible for
petitioners to pay their loan obligations to Allied Bank and thus,
negates the formers force majeure theory altogether. In any case, as
earlier stated, the performance or breach of the MoA bears no relation
to the performance or breach of the subject loan transactions, they
being separate and distinct sources of obligations. The fact of the
matter is that petitioners loan obligations to Allied Bank remain
subsisting for the basic reason that the former has not been able to
prove that the same had already been paid41 or, in any way,
extinguished. In this regard, petitioners liability, as adjudged by the
CA, must perforce stand. Considering, however, that Allied Banks
extra-judicial demand on petitioners appears to have been made only
on December 10, 1998, the computation of the applicable interests
and penalty charges should be reckoned only from such date.

WHEREFORE, the petition is DENIED. The Decision dated February 12,

2007 and Resolution dated May 10, 2007 of the Court of Appeals in CA-
G.R. CV No. 86896 are hereby AFFIRMED with MODIFICATION reckoning
the applicable interests and penalty charges from the date of the
extrajudicial demand or on December 10, 1998. The rest of the
appellate courts dispositions stand.