G.R. No.

L-55300 March 15, 1990

FRANKLIN G. GACAL and CORAZON M. GACAL, the latter assisted by her husband, FRANKLIN G.
GACAL, petitioners,
vs.
PHILIPPINE AIR LINES, INC., and THE HONORABLE PEDRO SAMSON C. ANIMAS, in his capacity
as PRESIDING JUDGE of the COURT OF FIRST INSTANCE OF SOUTH COTABATO, BRANCH
I, respondents.

Vicente A. Mirabueno for petitioners.

Siguion Reyna, Montecillo & Ongsiako for private respondent.

PARAS, J.:

This is a, petition for review on certiorari of the decision of the Court of First Instance of South Cotabato,
Branch 1, * promulgated on August 26, 1980 dismissing three (3) consolidated cases for damages: Civil
Case No. 1701, Civil Case No. 1773 and Civil Case No. 1797 (Rollo, p. 35).

The facts, as found by respondent court, are as follows:

Plaintiffs Franklin G. Gacal and his wife, Corazon M. Gacal, Bonifacio S. Anislag and his
wife, Mansueta L. Anislag, and the late Elma de Guzman, were then passengers
boarding defendant's BAC 1-11 at Davao Airport for a flight to Manila, not knowing that on
the same flight, Macalinog, Taurac Pendatum known as Commander Zapata, Nasser
Omar, Liling Pusuan Radia, Dimantong Dimarosing and Mike Randa, all of Marawi City
and members of the Moro National Liberation Front (MNLF), were their co-passengers,
three (3) armed with grenades, two (2) with .45 caliber pistols, and one with a .22 caliber
pistol. Ten (10) minutes after take off at about 2:30 in the afternoon, the hijackers
brandishing their respective firearms announced the hijacking of the aircraft and directed
its pilot to fly to Libya. With the pilot explaining to them especially to its leader,
Commander Zapata, of the inherent fuel limitations of the plane and that they are not
rated for international flights, the hijackers directed the pilot to fly to Sabah. With the
same explanation, they relented and directed the aircraft to land at Zamboanga Airport,
Zamboanga City for refueling. The aircraft landed at 3:00 o'clock in the afternoon of May
21, 1976 at Zamboanga Airport. When the plane began to taxi at the runway, it was met
by two armored cars of the military with machine guns pointed at the plane, and it
stopped there. The rebels thru its commander demanded that a DC-aircraft take them to
Libya with the President of the defendant company as hostage and that they be given
$375,000 and six (6) armalites, otherwise they will blow up the plane if their demands will
not be met by the government and Philippine Air Lines. Meanwhile, the passengers were
not served any food nor water and it was only on May 23, a Sunday, at about 1:00 o'clock
in the afternoon that they were served 1/4 slice of a sandwich and 1/10 cup of PAL water.
After that, relatives of the hijackers were allowed to board the plane but immediately after
they alighted therefrom, an armored car bumped the stairs. That commenced the battle
between the military and the hijackers which led ultimately to the liberation of the
surviving crew and the passengers, with the final score of ten (10) passengers and three
(3) hijackers dead on the spot and three (3) hijackers captured.

City Fiscal Franklin G. Gacal was unhurt. Mrs. Corazon M. Gacal suffered injuries in the
course of her jumping out of the plane when it was peppered with bullets by the army and
 after two (2) hand grenades exploded inside the plane. She was hospitalized at General
Santos Doctors Hospital, General Santos City, for two (2) days, spending P245.60 for
hospital and medical expenses, Assistant City Fiscal Bonifacio S. Anislag also escaped
unhurt but Mrs. Anislag suffered a fracture at the radial bone of her left elbow for which
she was hospitalized and operated on at the San Pedro Hospital, Davao City, and
therefore, at Davao Regional Hospital, Davao City, spending P4,500.00. Elma de
Guzman died because of that battle. Hence, the action of damages instituted by the
plaintiffs demanding the following damages, to wit:

Civil Case No. 1701 —

City Fiscal Franklin G. Gacal and Mrs. Corazon M. Gacal — actual

damages: P245.60 for hospital and medical expenses of Mrs Gacal;
P8,995.00 for their personal belongings which were lost and not
recovered; P50,000.00 each for moral damages; and P5,000.00 for
attorney's fees, apart from the prayer for an award of exemplary
damages (Record, pp. 4-6, Civil Case No. 1701).

Civil Case No. 1773 —

xxx xxx xxx

Civil Case No. 1797 —

xxx xxx xxx

The trial court, on August 26, 1980, dismissed the complaints finding that all the damages sustained in the
premises were attributed to force majeure.

On September 12, 1980 the spouses Franklin G. Gacal and Corazon M. Gacal, plaintiffs in Civil Case No.
1701, filed a notice of appeal with the lower court on pure questions of law (Rollo, p. 55) and the petition
for review oncertiorari was filed with this Court on October 20, 1980 (Rollo, p. 30).

The Court gave due course to the petition (Rollo, p. 147) and both parties filed their respective briefs but
petitioner failed to file reply brief which was noted by the Court in the resolution dated May 3, 1982 (Rollo,
p. 183).

Petitioners alleged that the main cause of the unfortunate incident is the gross, wanton and inexcusable
negligence of respondent Airline personnel in their failure to frisk the passengers adequately in order to
discover hidden weapons in the bodies of the six (6) hijackers. They claimed that despite the prevalence
of skyjacking, PAL did not use a metal detector which is the most effective means of discovering potential
skyjackers among the passengers (Rollo, pp. 6-7).

Respondent Airline averred that in the performance of its obligation to safely transport passengers as far
as human care and foresight can provide, it has exercised the utmost diligence of a very cautious person
with due regard to all circumstances, but the security checks and measures and surveillance precautions
in all flights, including the inspection of baggages and cargo and frisking of passengers at the Davao
Airport were performed and rendered solely by military personnel who under appropriate authority had
assumed exclusive jurisdiction over the same in all airports in the Philippines.

Similarly, the negotiations with the hijackers were a purely government matter and a military operation,
handled by and subject to the absolute and exclusive jurisdiction of the military authorities. Hence, it
concluded that the accident that befell RP-C1161 was caused by fortuitous event, force majeure and
other causes beyond the control of the respondent Airline.

The determinative issue in this case is whether or not hijacking or air piracy during martial law and under
the circumstances obtaining herein, is a caso fortuito or force majeure which would exempt an aircraft
from payment of damages to its passengers whose lives were put in jeopardy and whose personal
belongings were lost during the incident.

Under the Civil Code, common carriers are required to exercise extraordinary diligence in their vigilance
over the goods and for the safety of passengers transported by them, according to all the circumstances
of each case (Article 1733). They are presumed at fault or to have acted negligently whenever a
passenger dies or is injured (Philippine Airlines, Inc. v. National Labor Relations Commission, 124 SCRA
583 [1983]) or for the loss, destruction or deterioration of goods in cases other than those enumerated in
Article 1734 of the Civil Code (Eastern Shipping Lines, Inc. v. Intermediate Appellate Court, 150 SCRA
463 [1987]).

The source of a common carrier's legal liability is the contract of carriage, and by entering into said
contract, it binds itself to carry the passengers safely as far as human care and foresight can provide.
There is breach of this obligation if it fails to exert extraordinary diligence according to all the
circumstances of the case in exercise of the utmost diligence of a very cautious person (Isaac v. Ammen
Transportation Co., 101 Phil. 1046 [1957]; Juntilla v. Fontanar, 136 SCRA 624 [1985]).

It is the duty of a common carrier to overcome the presumption of negligence (Philippine National
Railways v. Court of Appeals, 139 SCRA 87 [1985]) and it must be shown that the carrier had observed
the required extraordinary diligence of a very cautious person as far as human care and foresight can
provide or that the accident was caused by a fortuitous event (Estrada v. Consolacion, 71 SCRA 523
[1976]). Thus, as ruled by this Court, no person shall be responsible for those "events which could not be
foreseen or which though foreseen were inevitable. (Article 1174, Civil Code). The term is synonymous
with caso fortuito (Lasam v. Smith, 45 Phil. 657 [1924]) which is of the same sense as "force majeure"
(Words and Phrases Permanent Edition, Vol. 17, p. 362).

In order to constitute a caso fortuito or force majeure that would exempt a person from liability under
Article 1174 of the Civil Code, it is necessary that the following elements must concur: (a) the cause of the
breach of the obligation must be independent of the human will (the will of the debtor or the obligor); (b)
the event must be either unforeseeable or unavoidable; (c) the event must be such as to render it
impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from
any participation in, or aggravation of the injury to the creditor (Lasam v. Smith, 45 Phil. 657 [1924];
Austria v. Court of Appeals, 39 SCRA 527 [1971]; Estrada v. Consolacion, supra; Vasquez v. Court of
Appeals, 138 SCRA 553 [1985]; Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 [1986]). Caso
fortuito or force majeure, by definition, are extraordinary events not foreseeable or avoidable, events that
could not be foreseen, or which, though foreseen, are inevitable. It is, therefore, not enough that the event
should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same
(Republic v. Luzon Stevedoring Corporation, 21 SCRA 279 [1967]).

Applying the above guidelines to the case at bar, the failure to transport petitioners safely from Davao to
Manila was due to the skyjacking incident staged by six (6) passengers of the same plane, all members of
the Moro National Liberation Front (MNLF), without any connection with private respondent, hence,
independent of the will of either the PAL or of its passengers.

Under normal circumstances, PAL might have foreseen the skyjacking incident which could have been
avoided had there been a more thorough frisking of passengers and inspection of baggages as
authorized by R.A. No. 6235. But the incident in question occurred during Martial Law where there was a
military take-over of airport security including the frisking of passengers and the inspection of their
luggage preparatory to boarding domestic and international flights. In fact military take-over was
specifically announced on October 20, 1973 by General Jose L. Rancudo, Commanding General of the
Philippine Air Force in a letter to Brig. Gen. Jesus Singson, then Director of the Civil Aeronautics
Administration (Rollo, pp. 71-72) later confirmed shortly before the hijacking incident of May 21, 1976 by
Letter of Instruction No. 399 issued on April 28, 1976 (Rollo, p. 72).

Otherwise stated, these events rendered it impossible for PAL to perform its obligations in a nominal
manner and obviously it cannot be faulted with negligence in the performance of duty taken over by the
Armed Forces of the Philippines to the exclusion of the former.

Finally, there is no dispute that the fourth element has also been satisfied. Consequently the existence
of force majeure has been established exempting respondent PAL from the payment of damages to its
passengers who suffered death or injuries in their persons and for loss of their baggages.

PREMISES CONSIDERED, the petition is hereby DISMISSED for lack of merit and the decision of the
Court of First Instance of South Cotabato, Branch I is hereby AFFIRMED.

SO ORDERED.

G.R. No. L-82619 September 15, 1993

PHILIPPINE AIRLINES, INC., petitioner,

vs.
COURT OF APPEALS and PEDRO ZAPATOS, respondents.

Leighton R. Liazon for petitioner.

Balmes L. Ocampo for private respondent.

BELLOSILLO, J.:

This petition for review in certiorari seeks to annul and set aside the decision of the then Intermediate
Appellant Court, 1 now Court of Appeals, dated 28 February 1985, in AC-G.R. CV No. 69327 ("Pedro
Zapatos v. Philippine Airlines, Inc.") affirming the decision of the then Court of first Instance, now Regional
Trial Court, declaring Philippine Airlines, Inc., liable in damages for breach of contract.

On 25 November 1976, private respondent filed a complaint for damages for breach of contract of
carriage 2against Philippine Airlines, Inc. (PAL), before the then Court of First Instance, now Regional Trial
Court, of Misamis Occidental, at Ozamiz City. According to him, on 2 August 1976, he was among the
twenty-one (21) passengers of PAL Flight 477 that took off from Cebu bound for Ozamiz City. The routing
of this flight was Cebu-Ozamiz-Cotabato. While on flight and just about fifteen (15) minutes before landing
at Ozamiz City, the pilot received a radio message that the airport was closed due to heavy rains and
inclement weather and that he should proceed to Cotabato City instead.
Upon arrival at Cotabato City, the PAL Station Agent informed the passengers of their options to return to
Cebu on flight 560 of the same day and thence to Ozamiz City on 4 August 1975, or take the next flight to
Cebu the following day, or remain at Cotabato and take the next available flight to Ozamiz City on 5
August 1975. 3 The Station Agent likewise informed them that Flight 560 bound for Manila would make a
stop-over at Cebu to bring some of the diverted passengers; that there were only six (6) seats available
as there were already confirmed passengers for Manila; and, that the basis for priority would be the
check-in sequence at Cebu.

Private respondent chose to return to Cebu but was not accommodated because he checked-in as
passenger No. 9 on Flight 477. He insisted on being given priority over the confirmed passengers in the
accommodation, but the Station Agent refused private respondent's demand explaining that the latter's
predicament was not due to PAL's own doing but to be a force majeure. 4

Private respondent tried to stop the departure of Flight 560 as his personal belongings, including a
package containing a camera which a certain Miwa from Japan asked him to deliver to Mrs. Fe Obid of
Gingoog City, were still on board. His plea fell on deaf ears. PAL then issued to private respondent a free
ticket to Iligan city, which the latter received under protest. 5 Private respondent was left at the airport and
could not even hitch a ride in the Ford Fiera loaded with PAL personnel. 6 PAL neither provided private
respondent with transportation from the airport to the city proper nor food and accommodation for his stay
in Cotabato City.

The following day, private respondent purchased a PAL ticket to Iligan City. He informed PAL personnel
that he would not use the free ticket because he was filing a case against PAL. 7 In Iligan City, private
respondent hired a car from the airport to Kolambugan, Lanao del Norte, reaching Ozamiz City by
crossing the bay in a launch. 8 His personal effects including the camera, which were valued at P2,000.00
were no longer recovered.

On 13 January 1977, PAL filed its answer denying that it unjustifiably refused to accommodate private
respondent. 9 It alleged that there was simply no more seat for private respondent on Flight 560 since
there were only six (6) seats available and the priority of accommodation on Flight 560 was based on the
check-in sequence in Cebu; that the first six (6) priority passengers on Flight 477 chose to take Flight 560;
that its Station Agent explained in a courteous and polite manner to all passengers the reason for PAL's
inability to transport all of them back to Cebu; that the stranded passengers agreed to avail of the options
and had their respective tickets exchanged for their onward trips; that it was
only the private respondent who insisted on being given priority in the accommodation; that pieces of
checked-in baggage and had carried items of the Ozamiz City passengers were removed from the
aircraft; that the reason for their pilot's inability to land at Ozamis City airport was because the runway
was wet due to rains thus posing a threat to the safety of both passengers and aircraft; and, that such
reason of force majeure was a valid justification for the pilot to bypass Ozamiz City and proceed directly
to Cotabato City.

On 4 June 1981, the trial court rendered its decision 10 the dispositive portion of which states:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant Philippine AirLines, Inc. ordering the latter to pay:

(1) As actual damages, the sum of Two Hundred Pesos (P200.00) representing plaintiff's
expenses for transportation, food and accommodation during his stranded stay at
Cotabato City; the sum of Forty-Eight Pesos (P48.00) representing his flight fare from
Cotabato City to Iligan city; the sum of Five Hundred Pesos (P500.00) representing
plaintiff's transportation expenses from Iligan City to Ozamiz City; and the sum of Five
Thousand Pesos (P5,000.00) as loss of business opportunities during his stranded stay
in Cotabato City;
 (2) As moral damages, the sum of Fifty Thousand Pesos (P50,000.00) for plaintiff's hurt
feelings, serious anxiety, mental anguish and unkind and discourteous treatment
perpetrated by defendant's employees during his stay as stranded passenger in Cotabato
City;

(3) As exemplary damages, the sum of Ten Thousand Pesos (P10,000.00) to set a
precedent to the defendant airline that it shall provide means to give comfort and
convenience to stranded passengers;

(4) The sum of Three Thousand Pesos (P3,000.00) as attorney's fees;

(5) To pay the costs of this suit.

PAL appealed to the Court of Appeals which on 28 February 1985, finding no reversible error, affirmed the
judgment of the court a quo. 11

PAL then sought recourse to this Court by way of a petition for review on certiorari 12 upon the following
issues: (1) Can the Court of Appeals render a decision finding petitioner (then defendant-appellant in the
court below) negligent and, consequently, liable for damages on a question of substance which was
neither raised on a question nor proved at the trial? (2) Can the Court of Appeals award actual and moral
damages contrary to the evidence and established jurisprudence? 13

An assiduous examination of the records yields no valid reason for reversal of the judgment on appeal;
only a modification of its disposition.

In its petition, PAL vigorously maintains that private respondent's principal cause of action was its alleged
denial of private respondent's demand for priority over the confirmed passengers on Flight 560. Likewise,
PAL points out that the complaint did not impute to PAL neglect in failing to attend to the needs of the
diverted passengers; and, that the question of negligence was not and never put in issue by the pleadings
or proved at the trial.

Contrary to the above arguments, private respondent's amended complaint touched on PAL's indifference
and inattention to his predicament. The pertinent portion of the amended complaint 14 reads:

10. That by virtue of the refusal of the defendant through its agent in Cotabato to
accommodate (sic) and allow the plaintiff to take and board the plane back to Cebu, and
by accomodating (sic) and allowing passengers from Cotabato for Cebu in his stead and
place, thus forcing the plaintiff against his will, to be left and stranded in Cotabato,
exposed to the peril and danger of muslim rebels plundering at the time, the plaintiff, as a
consequence, (have) suffered mental anguish, mental torture, social humiliation,
bismirched reputation and wounded feeling, all amounting to a conservative amount of
thirty thousand (P30,000.00) Pesos.

15
To substantiate this aspect of apathy, private respondent testified

A I did not even notice that I was I think the last passenger or the last
person out of the PAL employees and army personnel that were left
there. I did not notice that when I was already outside of the building after
our conversation.

Q What did you do next?

 A I banished (sic) because it seems that there was a war not far from the
airport. The sound of guns and the soldiers were plenty.

Q After that what did you do?

A I tried to look for a transportation that could bring me down to the City
of Cotabato.

Q Were you able to go there?

A I was at about 7:00 o'clock in the evening more or less and it was a
private jeep that I boarded. I was even questioned why I and who am
(sic) I then. Then I explained my side that I am (sic) stranded passenger.
Then they brought me downtown at Cotabato.

Q During your conversation with the Manager were you not offered any
vehicle or transportation to Cotabato airport downtown?

A In fact I told him (Manager) now I am by-passed passenger here which

is not my destination what can you offer me. Then they answered, "it is
not my fault. Let us forget that."

Q In other words when the Manager told you that offer was there a
vehicle ready?

A Not yet. Not long after that the Ford Fiera loaded with PAL personnel
was passing by going to the City of Cotabato and I stopped it to take me
a ride because there was no more available transportation but I was not
accommodated.

Significantly, PAL did not seem to mind the introduction of evidence which focused on its alleged
negligence in caring for its stranded passengers. Well-settled is the rule in evidence that the protest or
objection against the admission of evidence should be presented at the time the evidence is offered, and
that the proper time to make protest or objection to the admissibility of evidence is when the question is
presented to the witness or at the time the answer thereto is given. 16 There being no objection, such
evidence becomes property of the case and all the parties are amenable to any favorable or unfavorable
effects resulting from the evidence. 17

PAL instead attempted to rebut the aforequoted testimony. In the process, it failed to substantiate its
counter allegation for want of concrete proof 18 —

Atty. Rubin O. Rivera — PAL's counsel:

Q You said PAL refused to help you when you were in Cotabato, is that
right?

Private respondent:

A Yes.

Q Did you ask them to help you regarding any offer of transportation or of
any other matter asked of them?
 A Yes, he (PAL PERSONNEL) said what is? It is not our fault.

Q Are you not aware that one fellow passenger even claimed that he was
given Hotel accommodation because they have no money?

xxx xxx xxx

A No, sir, that was never offered to me. I said, I tried to stop them but
they were already riding that PAL pick-up jeep, and I was not
accommodated.

Having joined in the issue over the alleged lack of care it exhibited towards its passengers, PAL cannot
now turn around and feign surprise at the outcome of the case. When issues not raised by the pleadings
are tried by express or implied consent of the parties, they shall be treated in all respects as if they had
been raised in the pleadings. 19

With regard to the award of damages affirmed by the appellate court, PAL argues that the same is
unfounded. It asserts that it should not be charged with the task of looking after the passengers' comfort
and convenience because the diversion of the flight was due to a fortuitous event, and that if made liable,
an added burden is given to PAL which is over and beyond its duties under the contract of carriage. It
submits that granting arguendo that negligence exists, PAL cannot be liable in damages in the absence of
fraud or bad faith; that private respondent failed to apprise PAL of the nature of his trip and possible
business losses; and, that private respondent himself is to be blamed for unreasonably refusing to use the
free ticket which PAL issued.

The contract of air carriage is a peculiar one. Being imbued with public interest, the law requires common
carriers to carry the passengers safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for all the circumstances. 20 In Air France
v. Carrascoso, 21 we held that —

A contract to transport passengers is quite different in kind and degree from any other
contractual relation. And this, because of the relation which an air carrier sustains with
the public. Its business is mainly with the travelling public. It invites people to avail of the
comforts and advantages it offers. The contract of air carriage, therefore, generates a
relation attended with a public duty . . . . ( emphasis supplied).

The position taken by PAL in this case clearly illustrates its failure to grasp the exacting standard required
by law. Undisputably, PAL's diversion of its flight due to inclement weather was a fortuitous event.
Nonetheless, such occurrence did not terminate PAL's contract with its passengers. Being in the business
of air carriage and the sole one to operate in the country, PAL is deemed equipped to deal with situations
as in the case at bar. What we said in one case once again must be stressed, i.e., the relation of carrier
and passenger continues until the latter has been landed at the port of destination and has left the
carrier's premises. 22 Hence, PAL necessarily would still have to exercise extraordinary diligence in
safeguarding the comfort, convenience and safety of its stranded passengers until they have reached
their final destination. On this score, PAL grossly failed considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City and the fact that the private respondent was a
stranger to the place. As the appellate court correctly ruled —

While the failure of plaintiff in the first instance to reach his destination at Ozamis City in
accordance with the contract of carriage was due to the closure of the airport on account
of rain and inclement weather which was radioed to defendant 15 minutes before landing,
it has not been disputed by defendant airline that Ozamis City has no all-weather airport
and has to cancel its flight to Ozamis City or by-pass it in the event of inclement weather.
Knowing this fact, it becomes the duty of defendant to provide all means of comfort and
 convenience to its passengers when they would have to be left in a strange place in case
of such by-passing. The steps taken by defendant airline company towards this end has
not been put in evidence, especially for those 7 others who were not accommodated in
the return trip to Cebu, only 6 of the 21 having been so accommodated. It appears that
plaintiff had to leave on the next flight 2 days later. If the cause of non-fulfillment of the
contract is due to a fortuitous event, it has to be the sole and only cause (Art. 1755 CC.,
Art. 1733 C.C.) Since part of the failure to comply with the obligation of common carrier to
deliver its passengers safely to their destination lay in the defendant's failure to provide
comfort and convenience to its stranded passengers using extra-ordinary diligence, the
cause of non-fulfillment is not solely and exclusively due to fortuitous event, but due to
something which defendant airline could have prevented, defendant becomes liable to
plaintiff. 23

While we find PAL remiss in its duty of extending utmost care to private respondent while being stranded
in Cotabato City, there is no sufficient basis to conclude that PAL failed to inform him about his non-
accommodation on Flight 560, or that it was inattentive to his queries relative thereto.

On 3 August 1975, the Station Agent reported to his Branch Manager in Cotabato City that —

3. Of the fifteen stranded passengers two pax elected to take F478 on August 05, three
pax opted to take F442 August 03. The remaining ten (10) including subject requested
that they be instead accommodated (sic) on F446 CBO-IGN the following day where they
intended to take the surface transportation to OZC. Mr. Pedro Zapatos had by then been
very vocal and boiceterous (sic) at the counter and we tactfully managed to steer him
inside the Station Agent's office. Mr. Pedro Zapatos then adamantly insisted that all the
diverted passengers should have been given priority over the originating passengers of
F560 whether confirmed or otherwise. We explained our policies and after awhile he
seemed pacified and thereafter took his ticket (in-lieued (sic) to CBO-IGN, COCON
basis), at the counter in the presence of five other passengers who were waiting for their
tickets too. The rest of the diverted pax had left earlier after being assured their tickets
will be ready the following day. 24

Aforesaid Report being an entry in the course of business is prima facie evidence of the facts therein
stated. Private respondent, apart from his testimony, did not offer any controverting evidence. If indeed
PAL omitted to give information about the options available to its diverted passengers, it would have been
deluged with complaints. But, only private respondent complained —

Atty. Rivera (for PAL)

Q I understand from you Mr. Zapatos that at the time you were waiting at
Cotabato Airport for the decision of PAL, you were not informed of the
decision until after the airplane left is that correct?

A Yes.

COURT:

Q What do you mean by "yes"? You meant you were not informed?

A Yes, I was not informed of their decision, that they will only
accommodate few passengers.

Q Aside from you there were many other stranded passengers?

 A I believed, yes.

Q And you want us to believe that PAL did not explain (to) any of these
passengers about the decision regarding those who will board the aircraft
back to Cebu?

A No, Sir.

Q Despite these facts Mr. Zapatos did any of the other passengers
complained (sic) regarding that incident?

xxx xxx xxx

A There were plenty of argument and I was one of those talking about my
case.

Q Did you hear anybody complained (sic) that he has not been informed
of the decision before the plane left for Cebu?

A No. 25

Admittedly, private respondent's insistence on being given priority in accommodation was unreasonable
considering the fortuitous event and that there was a sequence to be observed in the booking, i.e., in the
order the passengers checked-in at their port of origin. His intransigence in fact was the main cause for
his having to stay at the airport longer than was necessary.

Atty. Rivera:

Q And, you were saying that despite the fact that according to your
testimony there were at least 16 passengers who were stranded there in
Cotabato airport according to your testimony, and later you said that
there were no other people left there at that time, is that correct?

A Yes, I did not see anyone there around. I think I was the only civilian
who was left there.

Q Why is it that it took you long time to leave that place?

26
A Because I was arguing with the PAL personnel.

Anent the plaint that PAL employees were disrespectful and inattentive toward private respondent, the
records are bereft of evidence to support the same. Thus, the ruling of respondent Court of Appeals in this
regard is without basis. 27 On the contrary, private respondent was attended to not only by the personnel
of PAL but also by its Manager." 28

In the light of these findings, we find the award of moral damages of Fifty Thousand Pesos (P50,000.00)
unreasonably excessive; hence, we reduce the same to Ten Thousand Pesos (P10,000.00). Conformably
herewith, the award of exemplary damages is also reduced to five Thousand Pesos (5,000.00). Moral
damages are not intended to enrich the private respondent. They are awarded only to enable the injured
party to obtain means, diversion or amusements that will serve to alleviate the moral suffering he has
undergone by reason of the defendant's culpable action. 29
With regard to the award of actual damages in the amount of P5,000.00 representing private respondent's
alleged business losses occasioned by his stay at Cotabato City, we find the same unwarranted. Private
respondent's testimony that he had a scheduled business "transaction of shark liver oil supposedly to
have been consummated on August 3, 1975 in the morning" and that "since (private respondent) was out
for nearly two weeks I missed to buy about 10 barrels of shark liver oil," 30 are purely speculative. Actual or
compensatory damages cannot be presumed but must be duly proved with reasonable degree of
certainty. A court cannot rely on speculation, conjecture or guesswork as to the fact and amount of
damages, but must depend upon competent proof that they have suffered and on evidence of the actual
amount thereof. 31

WHEREFORE the decision appealed from is AFFIRMED with modification however that the award of
moral damages of Fifty Thousand Pesos (P50,000.00) is reduced to Ten Thousand Pesos (P10,000.00)
while the exemplary damages of Ten Thousand Pesos (P10,000.00) is also reduced to Five Thousand
Pesos (P5,000.00). The award of actual damages in the amount Five Thousand Pesos (P5,000.00)
representing business losses occasioned by private respondent's being stranded in Cotabato City is
deleted.

SO ORDERED.

[G.R. No. 126389. July 10, 1998]

SOUTHEASTERN COLLEGE, INC., petitioner, vs. COURT OF APPEALS, JUANITA DE JESUS VDA.
DE DIMAANO, EMERITA DIMAANO, REMEDIOS DIMAANO, CONSOLACION DIMAANO and
MILAGROS DIMAANO, respondents.

DECISION
PURISIMA, J.:

Petition for review under Rule 45 of the Rules of Court seeking to set aside the
Decision[1] promulgated on July 31, 1996, and Resolution [2] dated September 12, 1996 of the Court of
Appeals[3] in CA-G.R. No. 41422, entitled “Juanita de Jesus vda. de Dimaano, et al. vs. Southeastern
College, Inc.”, which reduced the moral damages awarded below from P1,000,000.00 to P200,000.00.
[4]
The Resolution under attack denied petitioner’s motion for reconsideration.
Private respondents are owners of a house at 326 College Road, Pasay City, while petitioner owns a
four-storey school building along the same College Road. On October 11, 1989, at about 6:30 in the
morning, a powerful typhoon “Saling” hit Metro Manila. Buffeted by very strong winds, the roof of
petitioner’s building was partly ripped off and blown away, landing on and destroying portions of the
roofing of private respondents’ house. After the typhoon had passed, an ocular inspection of the
destroyed buildings was conducted by a team of engineers headed by the city building official, Engr.
Jesus L. Reyna. Pertinent aspects of the latter’s Report[5] dated October 18, 1989 stated, as follows:

“5. One of the factors that may have led to this calamitous event is the formation of the buildings in the
area and the general direction of the wind. Situated in the peripheral lot is an almost U-shaped formation
of 4-storey building. Thus, with the strong winds having a westerly direction, the general formation of the
buildings becomes a big funnel-like structure, the one situated along College Road, receiving the heaviest
impact of the strong winds. Hence, there are portions of the roofing, those located on both ends of the
building, which remained intact after the storm.

6. Another factor and perhaps the most likely reason for the dislodging of the roofings structural trusses
is the improper anchorage of the said trusses to the roof beams. The 1/2” diameter steel bars embedded
on the concrete roof beams which serve as truss anchorage are not bolted nor nailed to the trusses. Still,
there are other steel bars which were not even bent to the trusses, thus, those trusses are not anchored
at all to the roof beams.”

It then recommended that “to avoid any further loss and damage to lives, limbs and property of persons
living in the vicinity,” the fourth floor of subject school building be declared as a “structural hazard.”
In their Complaint[6] before the Regional Trial Court of Pasay City, Branch 117, for damages based
on culpa aquiliana, private respondents alleged that the damage to their house rendered the same
uninhabitable, forcing them to stay temporarily in others’ houses. And so they sought to recover from
petitioner P117,116.00, as actual damages, P1,000,000.00, as moral damages, P300,000.00, as
exemplary damages and P100,000.00, for and as attorney’s fees; plus costs.
In its Answer, petitioner averred that subject school building had withstood several devastating
typhoons and other calamities in the past, without its roofing or any portion thereof giving way; that it has
not been remiss in its responsibility to see to it that said school building, which houses school children,
faculty members, and employees, is “in tip-top condition”; and furthermore, typhoon “Saling” was “an act
of God and therefore beyond human control” such that petitioner cannot be answerable for the damages
wrought thereby, absent any negligence on its part.
The trial court, giving credence to the ocular inspection report to the effect that subject school
building had a “defective roofing structure,” found that, while typhoon “Saling” was accompanied by strong
winds, the damage to private respondents’ house “could have been avoided if the construction of the roof
of [petitioner’s] building was not faulty.” The dispositive portion of the lower court’s decision[7] reads thus:

“WHEREFORE, in view of the foregoing, the Court renders judgment (sic) in favor of the plaintiff (sic) and
against the defendants, (sic) ordering the latter to pay jointly and severally the former as follows:

a) P117,116.00, as actual damages, plus litigation expenses;

b) P1,000,000.00 as moral damages;

c) P100,000.00 as attorney’s fees;

d) Costs of the instant suit.

The claim for exemplary damages is denied for the reason that the defendants (sic) did not act in a
wanton fraudulent, reckless, oppressive or malevolent manner.”

In its appeal to the Court of Appeals, petitioner assigned as errors, [8] that:
I
THE TRIAL COURT ERRED IN HOLDING THAT TYPHOON “SALING”, AS AN ACT OF
GOD, IS NOT “THE SOLE AND ABSOLUTE REASON” FOR THE RIPPING-OFF OF THE
SMALL PORTION OF THE ROOF OF SOUTHEASTERN’S FOUR (4) STOREY SCHOOL
BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING THAT “THE CONSTRUCTION OF THE ROOF
OF DEFENDANT’S SCHOOL BUILDING WAS FAULTY” NOTWITHSTANDING THE
 ADMISSION THAT THERE WERE TYPHOONS BEFORE BUT NOT AS GRAVE AS TYPHOON
“SALING” WHICH IS THE DIRECT AND PROXIMATE CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING ACTUAL AND MORAL DAMAGES AS WELL
AS ATTORNEY’S FEES AND LITIGATION EXPENSES AND COSTS OF SUIT TO DIMAANOS
WHEN THEY HAVE NOT INCURRED ACTUAL DAMAGES AT ALL AS DIMAANOS HAVE
ALREADY SOLD THEIR PROPERTY, AN INTERVENING EVENT THAT RENDERS THIS
CASE MOOT AND ACADEMIC.
IV
THE TRIAL COURT ERRED IN ORDERING THE ISSUANCE OF THE WRIT OF
EXECUTION INSPITE OF THE PERFECTION OF SOUTHEASTERN’S APPEAL WHEN
THERE IS NO COMPELLING REASON FOR THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of Appeals affirmed with modification the trial court’s
disposition by reducing the award of moral damages from P1,000,000.00 to P200,000.00. Hence,
petitioner’s resort to this Court, raising for resolution the issues of:

“1. Whether or not the award of actual damage [sic] to respondent Dimaanos on the basis of speculation
or conjecture, without proof or receipts of actual damage, [sic] legally feasible or justified.

2. Whether or not the award of moral damages to respondent Dimaanos, without the latter having
suffered, actual damage has legal basis.

3. Whether or not respondent Dimaanos who are no longer the owner of the property, subject matter of
the case, during its pendency, has the right to pursue their complaint against petitioner when the case
was already rendered moot and academic by the sale of the property to third party.

4. Whether or not the award of attorney’s fees when the case was already moot and
academic [sic] legally justified.

5. Whether or not petitioner is liable for damage caused to others by typhoon “Saling” being an act of
God.

6. Whether or not the issuance of a writ of execution pending appeal, ex-parte or without hearing, has
support in law.”

The pivot of inquiry here, determinative of the other issues, is whether the damage on the roof of the
building of private respondents resulting from the impact of the falling portions of the school building’s roof
ripped off by the strong winds of typhoon “Saling”, was, within legal contemplation, due to fortuitous
event? If so, petitioner cannot be held liable for the damages suffered by the private respondents. This
conclusion finds support in Article 1174 of the Civil Code, which provides:

“Art 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation,
or when the nature of the obligation requires the assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which, though foreseen, were inevitable.”

The antecedent of fortuitous event or caso fortuito is found in the Partidas which defines it as “an
event which takes place by accident and could not have been foreseen.” [9] Escriche elaborates it as “an
unexpected event or act of God which could neither be foreseen nor resisted.” [10] Civilist Arturo M.
Tolentino adds that “[f]ortuitous events may be produced by two general causes: (1) by nature, such as
earthquakes, storms, floods, epidemics, fires, etc. and (2) by the act of man, such as an armed invasion,
attack by bandits, governmental prohibitions, robbery, etc.” [11]
 In order that a fortuitous event may exempt a person from liability, it is necessary that he be free from
any previous negligence or misconduct by reason of which the loss may have been occasioned. [12] An act
of God cannot be invoked for the protection of a person who has been guilty of gross negligence in not
trying to forestall its possible adverse consequences. When a person’s negligence concurs with an act of
God in producing damage or injury to another, such person is not exempt from liability by showing that the
immediate or proximate cause of the damage or injury was a fortuitous event. When the effect is found
to be partly the result of the participation of man – whether it be from active intervention, or neglect, or
failure to act – the whole occurrence is hereby humanized, and removed from the rules applicable to acts
of God.[13]
In the case under consideration, the lower court accorded full credence to the finding of the
investigating team that subject school building’s roofing had “no sufficient anchorage to hold it in position
especially when battered by strong winds.” Based on such finding, the trial court imputed negligence to
petitioner and adjudged it liable for damages to private respondents.
After a thorough study and evaluation of the evidence on record, this Court believes otherwise,
notwithstanding the general rule that factual findings by the trial court, especially when affirmed by the
appellate court, are binding and conclusive upon this Court. [14] After a careful scrutiny of the records and
the pleadings submitted by the parties, we find exception to this rule and hold that the lower courts
misappreciated the evidence proffered.
There is no question that a typhoon or storm is a fortuitous event, a natural occurrence which may be
foreseen but is unavoidable despite any amount of foresight, diligence or care .[15]In order to be exempt
from liability arising from any adverse consequence engendered thereby, there should have been no
human participation amounting to a negligent act. [16] In other words, the person seeking exoneration from
liability must not be guilty of negligence. Negligence, as commonly understood, is conduct which
naturally or reasonably creates undue risk or harm to others. It may be the failure to observe that degree
of care, precaution, and vigilance which the circumstances justly demand, [17] or the omission to do
something which a prudent and reasonable man, guided by considerations which ordinarily regulate the
conduct of human affairs, would do. [18] From these premises, we proceed to determine whether petitioner
was negligent, such that if it were not, the damage caused to private respondents’ house could have been
avoided?
At the outset, it bears emphasizing that a person claiming damages for the negligence of another
has the burden of proving the existence of fault or negligence causative of his injury or loss. The facts
constitutive of negligence must be affirmatively established by competent evidence,[19] not merely by
presumptions and conclusions without basis in fact. Private respondents, in establishing the culpability of
petitioner, merely relied on the aforementioned report submitted by a team which made an
ocular inspection of petitioner’s school building after the typhoon. As the term imparts, an ocular
inspection is one by means of actual sight or viewing. [20] What is visual to the eye though, is not always
reflective of the real cause behind. For instance, one who hears a gunshot and then sees a wounded
person, cannot always definitely conclude that a third person shot the victim. It could have been self-
inflicted or caused accidentally by a stray bullet. The relationship of cause and effect must be clearly
shown.
In the present case, other than the said ocular inspection, no investigation was conducted to
determine the real cause of the partial unroofing of petitioner’s school building . Private respondents did
not even show that the plans, specifications and design of said school building were deficient and
defective. Neither did they prove any substantial deviation from the approved plans and
specifications. Nor did they conclusively establish that the construction of such building was basically
flawed.[21]
On the other hand, petitioner elicited from one of the witnesses of private respondents, city building
official Jesus Reyna, that the original plans and design of petitioner’s school building were approved prior
to its construction. Engr. Reyna admitted that it was a legal requirement before the construction of any
building to obtain a permit from the city building official (city engineer, prior to the passage of the Building
Act of 1977). In like manner, after construction of the building, a certification must be secured from the
same official attesting to the readiness for occupancy of the edifice. Having obtained both building permit
and certificate of occupancy, these are, at the very least, prima facie evidence of the regular and proper
construction of subject school building.[22]
Furthermore, when part of its roof needed repairs of the damage inflicted by typhoon “Saling”, the
same city official gave the go-signal for such repairs – without any deviation from the original design –
and subsequently, authorized the use of the entire fourth floor of the same building. These only prove
that subject building suffers from no structural defect, contrary to the report that its ”U-shaped” form was
“structurally defective.” Having given his unqualified imprimatur, the city building official is presumed to
have properly performed his duties[23] in connection therewith.
In addition, petitioner presented its vice president for finance and administration who testified that an
annual maintenance inspection and repair of subject school building were regularly
undertaken. Petitioner was even willing to present its maintenance supervisor to attest to the extent of
such regular inspection but private respondents agreed to dispense with his testimony and simply
stipulated that it would be corroborative of the vice president’s narration.
Moreover, the city building official, who has been in the city government service since 1974, admitted
in open court that no complaint regarding any defect on the same structure has ever been lodged before
his office prior to the institution of the case at bench. It is a matter of judicial notice that typhoons are
common occurrences in this country. If subject school building’s roofing was not firmly anchored to its
trusses, obviously, it could not have withstood long years and several typhoons even stronger than
“Saling.”
In light of the foregoing, we find no clear and convincing evidence to sustain the judgment of the
appellate court. We thus hold that petitioner has not been shown negligent or at fault regarding the
construction and maintenance of its school building in question and that typhoon “Saling” was the
proximate cause of the damage suffered by private respondents’ house.
With this disposition on the pivotal issue, private respondents’ claim for actual and moral damages as
well as attorney’s fees must fail. [24] Petitioner cannot be made to answer for a purely fortuitous event.
[25]
More so because no bad faith or willful act to cause damage was alleged and proven to warrant moral
damages.
Private respondents failed to adduce adequate and competent proof of the pecuniary loss they
actually incurred.[26] It is not enough that the damage be capable of proof but must be actually proved with
a reasonable degree of certainty, pointing out specific facts that afford a basis for measuring whatever
compensatory damages are borne.[27] Private respondents merely submitted an estimated amount needed
for the repair of the roof of their subject building. What is more, whether the “necessary repairs” were
caused ONLY by petitioner’s alleged negligence in the maintenance of its school building, or included the
ordinary wear and tear of the house itself, is an essential question that remains indeterminable.
The Court deems unnecessary to resolve the other issues posed by petitioner.
As regards the sixth issue, however, the writ of execution issued on April 1, 1993 by the trial court is
hereby nullified and set aside. Private respondents are ordered to reimburse any amount or return to
petitioner any property which they may have received by virtue of the enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged Decision is REVERSED. The
complaint of private respondents in Civil Case No. 7314 before the trial court a quo is ordered
DISMISSED and the writ of execution issued on April 1, 1993 in said case is SET ASIDE. Accordingly,
private respondents are ORDERED to return to petitioner any amount or property received by them by
virtue of said writ. Costs against the private respondents.
SO ORDERED.
G.R. No. 147324 May 25, 2004

PHILIPPINE COMMUNICATIONS SATELLITE CORPORATION, petitioner,

vs.
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Radio Corporation), respondents.

x-----------------------------x

GLOBE TELECOM, INC., petitioner,

vs.
PHILIPPINE COMMUNICATION SATELLITE CORPORATION, respondent.

DECISION

TINGA, J.:

Before the Court are two Petitions for Review assailing the Decision of the Court of Appeals, dated 27
February 2001, in CA-G.R. CV No. 63619.1

The facts of the case are undisputed.

For several years prior to 1991, Globe Mckay Cable and Radio Corporation, now Globe Telecom, Inc.
(Globe), had been engaged in the coordination of the provision of various communication facilities for the
military bases of the United States of America (US) in Clark Air Base, Angeles, Pampanga and Subic
Naval Base in Cubi Point, Zambales. The said communication facilities were installed and configured for
the exclusive use of the US Defense Communications Agency (USDCA), and for security reasons, were
operated only by its personnel or those of American companies contracted by it to operate said facilities.
The USDCA contracted with said American companies, and the latter, in turn, contracted with Globe for
the use of the communication facilities. Globe, on the other hand, contracted with local service providers
such as the Philippine Communications Satellite Corporation (Philcomsat) for the provision of the
communication facilities.

On 07 May 1991, Philcomsat and Globe entered into an Agreement whereby Philcomsat obligated itself to
establish, operate and provide an IBS Standard B earth station (earth station) within Cubi Point for the
exclusive use of the USDCA.2 The term of the contract was for 60 months, or five (5) years.3 In turn,
Globe promised to pay Philcomsat monthly rentals for each leased circuit involved. 4

At the time of the execution of the Agreement, both parties knew that the Military Bases Agreement
between the Republic of the Philippines and the US (RP-US Military Bases Agreement), which was the
basis for the occupancy of the Clark Air Base and Subic Naval Base in Cubi Point, was to expire in 1991.
Under Section 25, Article XVIII of the 1987 Constitution, foreign military bases, troops or facilities, which
include those located at the US Naval Facility in Cubi Point, shall not be allowed in the Philippines unless
a new treaty is duly concurred in by the Senate and ratified by a majority of the votes cast by the people
in a national referendum when the Congress so requires, and such new treaty is recognized as such by
the US Government.

Subsequently, Philcomsat installed and established the earth station at Cubi Point and the USDCA made
use of the same.

On 16 September 1991, the Senate passed and adopted Senate Resolution No. 141, expressing its
decision not to concur in the ratification of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements that was supposed to extend the term of the use by the US of Subic Naval
Base, among others.5 The last two paragraphs of the Resolution state:
 FINDING that the Treaty constitutes a defective framework for the continuing relationship
between the two countries in the spirit of friendship, cooperation and sovereign equality: Now,
therefore, be it Resolved by the Senate, as it is hereby resolved, To express its decision not to
concur in the ratification of the Treaty of Friendship, Cooperation and Security and its
Supplementary Agreements, at the same time reaffirming its desire to continue friendly relations
with the government and people of the United States of America. 6

On 31 December 1991, the Philippine Government sent a Note Verbale to the US Government through
the US Embassy, notifying it of the Philippines’ termination of the RP-US Military Bases Agreement.
The Note Verbalestated that since the RP-US Military Bases Agreement, as amended, shall terminate on
31 December 1992, the withdrawal of all US military forces from Subic Naval Base should be completed
by said date.

In a letter dated 06 August 1992, Globe notified Philcomsat of its intention to discontinue the use of the
earth station effective 08 November 1992 in view of the withdrawal of US military personnel from Subic
Naval Base after the termination of the RP-US Military Bases Agreement. Globe invoked as basis for the
letter of termination Section 8 (Default) of the Agreement, which provides:

Neither party shall be held liable or deemed to be in default for any failure to perform its obligation
under this Agreement if such failure results directly or indirectly from force majeure or fortuitous
event. Either party is thus precluded from performing its obligation until such force majeure or
fortuitous event shall terminate. For the purpose of this paragraph, force majeure shall mean
circumstances beyond the control of the party involved including, but not limited to, any law,
order, regulation, direction or request of the Government of the Philippines, strikes or other labor
difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God.

Philcomsat sent a reply letter dated 10 August 1992 to Globe, stating that "we expect [Globe] to know its
commitment to pay the stipulated rentals for the remaining terms of the Agreement even after [Globe]
shall have discontinue[d] the use of the earth station after November 08, 1992."7 Philcomsat referred to
Section 7 of the Agreement, stating as follows:

7. DISCONTINUANCE OF SERVICE

Should [Globe] decide to discontinue with the use of the earth station after it has been put into
operation, a written notice shall be served to PHILCOMSAT at least sixty (60) days prior to the
expected date of termination. Notwithstanding the non-use of the earth station, [Globe] shall
continue to pay PHILCOMSAT for the rental of the actual number of T1 circuits in use, but in no
case shall be less than the first two (2) T1 circuits, for the remaining life of the agreement.
However, should PHILCOMSAT make use or sell the earth station subject to this agreement, the
obligation of [Globe] to pay the rental for the remaining life of the agreement shall be at such
monthly rate as may be agreed upon by the parties. 8

After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter dated 24 November
1993 demanding payment of its outstanding obligations under the Agreement amounting to
US$4,910,136.00 plus interest and attorney’s fees. However, Globe refused to heed Philcomsat’s
demand.

On 27 January 1995, Philcomsat filed with the Regional Trial Court of Makati a Complaint against Globe,
praying that the latter be ordered to pay liquidated damages under the Agreement, with legal interest,
exemplary damages, attorney’s fees and costs of suit. The case was raffled to Branch 59 of said court.

Globe filed an Answer to the Complaint, insisting that it was constrained to end the Agreement due to the
termination of the RP-US Military Bases Agreement and the non-ratification by the Senate of the Treaty of
Friendship and Cooperation, which events constituted force majeure under the Agreement. Globe
explained that the occurrence of said events exempted it from paying rentals for the remaining period of
the Agreement.

On 05 January 1999, the trial court rendered its Decision, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. Ordering the defendant to pay the plaintiff the amount of Ninety Two Thousand Two
Hundred Thirty Eight US Dollars (US$92,238.00) or its equivalent in Philippine Currency
(computed at the exchange rate prevailing at the time of compliance or payment)
representing rentals for the month of December 1992 with interest thereon at the legal
rate of twelve percent (12%) per annum starting December 1992 until the amount is fully
paid;

2. Ordering the defendant to pay the plaintiff the amount of Three Hundred Thousand
(P300,000.00) Pesos as and for attorney’s fees;

3. Ordering the DISMISSAL of defendant’s counterclaim for lack of merit; and

4. With costs against the defendant.

SO ORDERED.9

Both parties appealed the trial court’s Decision to the Court of Appeals.

Philcomsat claimed that the trial court erred in ruling that: (1) the non-ratification by the Senate of the
Treaty of Friendship, Cooperation and Security and its Supplementary Agreements constitutes force
majeure which exempts Globe from complying with its obligations under the Agreement; (2) Globe is not
liable to pay the rentals for the remainder of the term of the Agreement; and (3) Globe is not liable to
Philcomsat for exemplary damages.

Globe, on the other hand, contended that the RTC erred in holding it liable for payment of rent of the earth
station for December 1992 and of attorney’s fees. It explained that it terminated Philcomsat’s services on
08 November 1992; hence, it had no reason to pay for rentals beyond that date.

On 27 February 2001, the Court of Appeals promulgated its Decision dismissing Philcomsat’s appeal for
lack of merit and affirming the trial court’s finding that certain events constituting force majeure under
Section 8 the Agreement occurred and justified the non-payment by Globe of rentals for the remainder of
the term of the Agreement.

The appellate court ruled that the non-ratification by the Senate of the Treaty of Friendship, Cooperation
and Security, and its Supplementary Agreements, and the termination by the Philippine Government of
the RP-US Military Bases Agreement effective 31 December 1991 as stated in the Philippine
Government’s Note Verbale to the US Government, are acts, directions, or requests of the Government of
the Philippines which constitute force majeure. In addition, there were circumstances beyond the control
of the parties, such as the issuance of a formal order by Cdr. Walter Corliss of the US Navy, the issuance
of the letter notification from ATT and the complete withdrawal of all US military forces and personnel from
Cubi Point, which prevented further use of the earth station under the Agreement.

However, the Court of Appeals ruled that although Globe sought to terminate Philcomsat’s services by 08
November 1992, it is still liable to pay rentals for the December 1992, amounting to US$92,238.00 plus
interest, considering that the US military forces and personnel completely withdrew from Cubi Point only
on 31 December 1992.10

Both parties filed their respective Petitions for Review assailing the Decision of the Court of Appeals.

In G.R. No. 147324,11 petitioner Philcomsat raises the following assignments of error:

A. THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING A DEFINITION OF FORCE

MAJEUREDIFFERENT FROM WHAT ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF
THE CIVIL CODE, PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM COMPLYING
WITH ITS OBLIGATIONS UNDER THE SUBJECT AGREEMENT.

B. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS

NOT LIABLE TO PHILCOMSAT FOR RENTALS FOR THE REMAINING TERM OF THE
AGREEMENT, DESPITE THE CLEAR TENOR OF SECTION 7 OF THE AGREEMENT.

C. THE HONORABLE OCURT OF APPEALS ERRED IN DELETING THE TRIAL COURT’S

AWARD OF ATTORNEY’S FEES IN FAVOR OF PHILCOMSAT.

D. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT GLOBE TELECOM IS

NOT LIABLE TO PHILCOMSAT FOR EXEMPLARY DAMAGES.12

Philcomsat argues that the termination of the RP-US Military Bases Agreement cannot be considered a
fortuitous event because the happening thereof was foreseeable. Although the Agreement was freely
entered into by both parties, Section 8 should be deemed ineffective because it is contrary to Article 1174
of the Civil Code. Philcomsat posits the view that the validity of the parties’ definition of force majeure in
Section 8 of the Agreement as "circumstances beyond the control of the party involved including, but not
limited to, any law, order, regulation, direction or request of the Government of the Philippines, strikes or
other labor difficulties, insurrection riots, national emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God," should be deemed subject to Article 1174 which defines
fortuitous events as events which could not be foreseen, or which, though foreseen, were inevitable. 13

Philcomsat further claims that the Court of Appeals erred in holding that Globe is not liable to pay for the
rental of the earth station for the entire term of the Agreement because it runs counter to what was plainly
stipulated by the parties in Section 7 thereof. Moreover, said ruling is inconsistent with the appellate
court’s pronouncement that Globe is liable to pay rentals for December 1992 even though it terminated
Philcomsat’s services effective 08 November 1992, because the US military and personnel completely
withdrew from Cubi Point only in December 1992. Philcomsat points out that it was Globe which proposed
the five-year term of the Agreement, and that the other provisions of the Agreement, such as Section
4.114 thereof, evince the intent of Globe to be bound to pay rentals for the entire five-year term. 15

Philcomsat also maintains that contrary to the appellate court’s findings, it is entitled to attorney’s fees
and exemplary damages.16

In its Comment to Philcomsat’s Petition, Globe asserts that Section 8 of the Agreement is not contrary to
Article 1174 of the Civil Code because said provision does not prohibit parties to a contract from providing
for other instances when they would be exempt from fulfilling their contractual obligations. Globe also
claims that the termination of the RP-US Military Bases Agreement constitutes force majeure and
exempts it from complying with its obligations under the Agreement. 17 On the issue of the propriety of
awarding attorney’s fees and exemplary damages to Philcomsat, Globe maintains that Philcomsat is not
entitled thereto because in refusing to pay rentals for the remainder of the term of the Agreement, Globe
only acted in accordance with its rights.18
In G.R. No. 147334,19 Globe, the petitioner therein, contends that the Court of Appeals erred in finding it
liable for the amount of US$92,238.00, representing rentals for December 1992, since Philcomsat’s
services were actually terminated on 08 November 1992.20

In its Comment, Philcomsat claims that Globe’s petition should be dismissed as it raises a factual issue
which is not cognizable by the Court in a petition for review on certiorari.21

On 15 August 2001, the Court issued a Resolution giving due course to Philcomsat’s Petition in G.R. No.

147324 and required the parties to submit their respective memoranda. 22

Similarly, on 20 August 2001, the Court issued a Resolution giving due course to the Petition filed by
Globe inG.R. No. 147334 and required both parties to submit their memoranda. 23

Philcomsat and Globe thereafter filed their respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective petitions.

The Court is tasked to resolve the following issues: (1) whether the termination of the RP-US Military
Bases Agreement, the non-ratification of the Treaty of Friendship, Cooperation and Security, and the
consequent withdrawal of US military forces and personnel from Cubi Point constitute force
majeure which would exempt Globe from complying with its obligation to pay rentals under its Agreement
with Philcomsat; (2) whether Globe is liable to pay rentals under the Agreement for the month of
December 1992; and (3) whether Philcomsat is entitled to attorney’s fees and exemplary damages.

No reversible error was committed by the Court of Appeals in issuing the assailed Decision; hence the
petitions are denied.

There is no merit is Philcomsat’s argument that Section 8 of the Agreement cannot be given effect
because the enumeration of events constituting force majeure therein unduly expands the concept of a
fortuitous event under Article 1174 of the Civil Code and is therefore invalid.

In support of its position, Philcomsat contends that under Article 1174 of the Civil Code, an event must be
unforeseen in order to exempt a party to a contract from complying with its obligations therein. It insists
that since the expiration of the RP-US Military Bases Agreement, the non-ratification of the Treaty of
Friendship, Cooperation and Security and the withdrawal of US military forces and personnel from Cubi
Point were not unforeseeable, but were possibilities known to it and Globe at the time they entered into
the Agreement, such events cannot exempt Globe from performing its obligation of paying rentals for the
entire five-year term thereof.

However, Article 1174, which exempts an obligor from liability on account of fortuitous events or force
majeure, refers not only to events that are unforeseeable, but also to those which are foreseeable, but
inevitable:

Art. 1174. Except in cases specified by the law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the assumption of risk, no person shall be responsible
for those events which, could not be foreseen, or which, though foreseen were inevitable.

A fortuitous event under Article 1174 may either be an "act of God," or natural occurrences such as floods
or typhoons,24 or an "act of man," such as riots, strikes or wars.25

Philcomsat and Globe agreed in Section 8 of the Agreement that the following events shall be deemed
events constituting force majeure:
 1. Any law, order, regulation, direction or request of the Philippine Government;

2. Strikes or other labor difficulties;

3. Insurrection;

4. Riots;

5. National emergencies;

6. War;

7. Acts of public enemies;

8. Fire, floods, typhoons or other catastrophies or acts of God;

9. Other circumstances beyond the control of the parties.

Clearly, the foregoing are either unforeseeable, or foreseeable but beyond the control of the parties.
There is nothing in the enumeration that runs contrary to, or expands, the concept of a fortuitous event
under Article 1174.

Furthermore, under Article 130626 of the Civil Code, parties to a contract may establish such stipulations,
clauses, terms and conditions as they may deem fit, as long as the same do not run counter to the law,
morals, good customs, public order or public policy.27

Article 1159 of the Civil Code also provides that "[o]bligations arising from contracts have the force of law
between the contracting parties and should be complied with in good faith." 28 Courts cannot stipulate for
the parties nor amend their agreement where the same does not contravene law, morals, good customs,
public order or public policy, for to do so would be to alter the real intent of the parties, and would run
contrary to the function of the courts to give force and effect thereto. 29

Not being contrary to law, morals, good customs, public order, or public policy, Section 8 of the Agreement
which Philcomsat and Globe freely agreed upon has the force of law between them. 30

In order that Globe may be exempt from non-compliance with its obligation to pay rentals under Section 8,
the concurrence of the following elements must be established: (1) the event must be independent of the
human will; (2) the occurrence must render it impossible for the debtor to fulfill the obligation in a normal
manner; and (3) the obligor must be free of participation in, or aggravation of, the injury to the creditor. 31

The Court agrees with the Court of Appeals and the trial court that the abovementioned requisites are
present in the instant case. Philcomsat and Globe had no control over the non-renewal of the term of the
RP-US Military Bases Agreement when the same expired in 1991, because the prerogative to ratify the
treaty extending the life thereof belonged to the Senate. Neither did the parties have control over the
subsequent withdrawal of the US military forces and personnel from Cubi Point in December 1992:

Obviously the non-ratification by the Senate of the RP-US Military Bases Agreement (and its
Supplemental Agreements) under its Resolution No. 141. (Exhibit "2") on September 16, 1991 is
beyond the control of the parties. This resolution was followed by the sending on December 31,
1991 o[f] a "Note Verbale" (Exhibit "3") by the Philippine Government to the US Government
notifying the latter of the former’s termination of the RP-US Military Bases Agreement (as
amended) on 31 December 1992 and that accordingly, the withdrawal of all U.S. military forces
from Subic Naval Base should be completed by said date. Subsequently, defendant [Globe]
 received a formal order from Cdr. Walter F. Corliss II Commander USN dated July 31, 1992 and a
notification from ATT dated July 29, 1992 to terminate the provision of T1s services (via an IBS
Standard B Earth Station) effective November 08, 1992. Plaintiff [Philcomsat] was furnished with
copies of the said order and letter by the defendant on August 06, 1992.

Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine Government
to the US Government are acts, direction or request of the Government of the Philippines and
circumstances beyond the control of the defendant. The formal order from Cdr. Walter Corliss of
the USN, the letter notification from ATT and the complete withdrawal of all the military forces and
personnel from Cubi Point in the year-end 1992 are also acts and circumstances beyond the
control of the defendant.

Considering the foregoing, the Court finds and so holds that the afore-narrated circumstances
constitute "force majeure or fortuitous event(s) as defined under paragraph 8 of the Agreement.

From the foregoing, the Court finds that the defendant is exempted from paying the rentals for the
facility for the remaining term of the contract.

As a consequence of the termination of the RP-US Military Bases Agreement (as amended) the
continued stay of all US Military forces and personnel from Subic Naval Base would no longer be
allowed, hence, plaintiff would no longer be in any position to render the service it was obligated
under the Agreement. To put it blantly (sic), since the US military forces and personnel left or
withdrew from Cubi Point in the year end December 1992, there was no longer any necessity for
the plaintiff to continue maintaining the IBS facility…. 32 (Emphasis in the original.)

The aforementioned events made impossible the continuation of the Agreement until the end of its five-
year term without fault on the part of either party. The Court of Appeals was thus correct in ruling that the
happening of such fortuitous events rendered Globe exempt from payment of rentals for the remainder of
the term of the Agreement.

Moreover, it would be unjust to require Globe to continue paying rentals even though Philcomsat cannot
be compelled to perform its corresponding obligation under the Agreement. As noted by the appellate
court:

We also point out the sheer inequity of PHILCOMSAT’s position. PHILCOMSAT would like to
charge GLOBE rentals for the balance of the lease term without there being any corresponding
telecommunications service subject of the lease. It will be grossly unfair and iniquitous to hold
GLOBE liable for lease charges for a service that was not and could not have been rendered due
to an act of the government which was clearly beyond GLOBE’s control. The binding effect of a
contract on both parties is based on the principle that the obligations arising from contracts have
the force of law between the contracting parties, and there must be mutuality between them
based essentially on their equality under which it is repugnant to have one party bound by the
contract while leaving the other party free therefrom (Allied Banking Corporation v. Court of
Appeals, 284 SCRA 357)….33

With respect to the issue of whether Globe is liable for payment of rentals for the month of December
1992, the Court likewise affirms the appellate court’s ruling that Globe should pay the same.

Although Globe alleged that it terminated the Agreement with Philcomsat effective 08 November 1992
pursuant to the formal order issued by Cdr. Corliss of the US Navy, the date when they actually ceased
using the earth station subject of the Agreement was not established during the trial. 34 However, the trial
court found that the US military forces and personnel completely withdrew from Cubi Point only on 31
December 1992.35 Thus, until that date, the USDCA had control over the earth station and had the option
of using the same. Furthermore, Philcomsat could not have removed or rendered ineffective said
communication facility until after 31 December 1992 because Cubi Point was accessible only to US naval
personnel up to that time. Hence, the Court of Appeals did not err when it affirmed the trial court’s ruling
that Globe is liable for payment of rentals until December 1992.

Neither did the appellate court commit any error in holding that Philcomsat is not entitled to attorney’s
fees and exemplary damages.

The award of attorney’s fees is the exception rather than the rule, and must be supported by factual, legal
and equitable justifications.36 In previously decided cases, the Court awarded attorney’s fees where a
party acted in gross and evident bad faith in refusing to satisfy the other party’s claims and compelled the
former to litigate to protect his rights;37 when the action filed is clearly unfounded,38 or where moral or
exemplary damages are awarded.39 However, in cases where both parties have legitimate claims against
each other and no party actually prevailed, such as in the present case where the claims of both parties
were sustained in part, an award of attorney’s fees would not be warranted. 40

Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the erring party
acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 41 In the present case, it was
not shown that Globe acted wantonly or oppressively in not heeding Philcomsat’s demands for payment
of rentals. It was established during the trial of the case before the trial court that Globe had valid grounds
for refusing to comply with its contractual obligations after 1992.

WHEREFORE, the Petitions are DENIED for lack of merit. The assailed Decision of the Court of Appeals
in CA-G.R. CV No. 63619 is AFFIRMED.

SO ORDERED.

G.R. No. 147839 June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000 of the Court
of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the
Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action
for damages of Insurance Company of North America (respondent) against Gaisano Cagayan, Inc.
(petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's motion for
reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI
separately obtained from respondent fire insurance policies with book debt endorsements. The insurance
policies provide for coverage on "book debts in connection with ready-made clothing materials which
have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines."2 The policies defined book debts as the "unpaid account still appearing in the Book of
Account of the Insured 45 days after the time of the loss covered under this Policy."3 The policies also
provide for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the
merchandise sold and delivered by the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the covering invoice or actual delivery of the
merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close
of every calendar month all amount shown in their books of accounts as unpaid and thus become
receivable item from their customers and dealers. x x x4

xxxx

Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano
Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the
items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC
and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and
LSPI filed with respondent their claims under their respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of
ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that
respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their
rights against petitioner; that respondent made several demands for payment upon petitioner but these
went unheeded.5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable
because the property covered by the insurance policies were destroyed due to fortuities event or force
majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of contract
committed by it since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI
never communicated to it that they insured their properties; that it never consented to paying the claim of
the insured.6

At the pre-trial conference the parties failed to arrive at an amicable settlement. 7 Thus, trial on the merits
ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It held that the
fire was purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner;
that it has not been established that petitioner is the debtor of IMC and LSPI; that since the sales invoices
state that "it is further agreed that merely for purpose of securing the payment of purchase price, the
above-described merchandise remains the property of the vendor until the purchase price is fully paid",
IMC and LSPI retained ownership of the delivered goods and must bear the loss.

Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting
aside the decision of the RTC. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new
one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
 1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the
insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until fully
paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the
insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.

With costs against the defendant-appellee.

SO ORDERED.10

The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity
and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner since
the proviso contained in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to the
general rule that if the thing is lost by a fortuitous event, the risk is borne by the owner of the thing at the
time the loss under the principle of res perit domino; that petitioner's obligation to IMC and LSPI is not the
delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right
to go against petitioner; that, being a fire insurance with book debt endorsements, what was insured was
the vendor's interest as a creditor.11

Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April 11,
2001.13

Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE
WAS ONE OVER CREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN
THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION
UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT. 14

Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be
over credit since an insurance "on credit" belies not only the nature of fire insurance but the express
terms of the policies; that it was not credit that was insured since respondent paid on the occasion of the
loss of the insured goods to fire and not because of the non-payment by petitioner of any obligation; that,
even if the insurance is deemed as one over credit, there was no loss as the accounts were not yet due
since no prior demands were made by IMC and LSPI against petitioner for payment of the debt and such
demands came from respondent only after it had already paid IMC and LSPI under the fire insurance
policies.15

As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI
assumed the risk of loss when they secured fire insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no
valid insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner
upon delivery of the goods; that petitioner was not privy to the insurance contract or the payment between
respondent and its insured nor was its consent or approval ever secured; that this lack of privity
forecloses any real interest on the part of respondent in the obligation to pay, limiting its interest to
keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made clothing materials was
transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors
who stand to suffer direct pecuniary loss from its destruction by fire; that petitioner is liable for loss of the
ready-made clothing materials since it failed to overcome the presumption of liability under Article
126516 of the Civil Code; that the fire was caused through petitioner's negligence in failing to provide
stringent measures of caution, care and maintenance on its property because electric wires do not usually
short circuit unless there are defects in their installation or when there is lack of proper maintenance and
supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing to pay
respondent's valid claim and should be liable to respondent for contracted lawyer's fees, litigation
expenses and cost of suit.17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the
CA is limited to reviewing questions of law which involves no examination of the probative value of the
evidence presented by the litigants or any of them. 18 The Supreme Court is not a trier of facts; it is not its
function to analyze or weigh evidence all over again. 19 Accordingly, findings of fact of the appellate court
are generally conclusive on the Supreme Court.20

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved
by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of facts are conflicting; (6) when in making its findings the CA went beyond the issues of the
case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the
findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on
the supposed absence of evidence and contradicted by the evidence on record; and (11) when the CA
manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition.

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred
in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI
since such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner.

The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no room for
construction.22 In this case, the questioned insurance policies provide coverage for "book debts in
connection with ready-made clothing materials which have been sold or delivered to various customers
and dealers of the Insured anywhere in the Philippines." 23 ; and defined book debts as the "unpaid
account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered
under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the
insurance is the goods sold and delivered to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read
into it any alleged intention of the parties, the terms are to be understood literally just as they appear on
the face of the contract.25 Thus, what were insured against were the accounts of IMC and LSPI with
petitioner which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the
goods delivered.

Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by
stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment
of the purchase price the above described merchandise remains the property of the vendor until the
purchase price thereof is fully paid."26
The Court is not persuaded.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of
the contract and the ownership in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the
time of such delivery; (Emphasis supplied)

xxxx

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is
borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest
is not determined by concept of title, but whether insured has substantial economic interest in the
property.28

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien
upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest, it is sufficient that the insured is so situated with reference to
the property that he would be liable to loss should it be injured or destroyed by the peril against which it is
insured.29 Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction.30Indeed, a vendor or seller retains an insurable interest in the property
sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction,
as where he has a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain to the
unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the
policies.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of the
Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly,
petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor to make the payment even by reason of a
fortuitous event shall not relieve him of his liability. 33 The rationale for this is that the rule that an obligor
should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the
obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even
in case of fortuitous event. It does not apply when the obligation is pecuniary in nature. 34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that
the object thereof is designated merely by its class or genus without any particular designation or physical
segregation from all others of the same class, the loss or destruction of anything of the same kind even
without the debtor's fault and before he has incurred in delay will not have the effect of extinguishing the
obligation.35This rule is based on the principle that the genus of a thing can never perish. Genus nunquan
perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific
property of the debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case.
What is relevant here is whether it has been established that petitioner has outstanding accounts with
IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22" 38 show
that petitioner has an outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"39 is the
check voucher evidencing payment to IMC. Exhibit "F" 40 is the subrogation receipt executed by IMC in
favor of respondent upon receipt of the insurance proceeds. All these documents have been properly
identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to
establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim.41Respondent's action against petitioner is squarely sanctioned by Article
2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. x x x

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary
weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General
Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It
only confirms the loss of Levi's products in the amount of P535,613.00 in the fire that razed petitioner's
building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was
offered in evidence. Thus, there is no evidence that respondent has been subrogated to any right which
LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's
case for recovery of the amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATIONthat the order to pay the amount of P535,613.00 to respondent is DELETED for lack
of factual basis.

No pronouncement as to costs.

SO ORDERED.
 G.R. NO. 159617

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., Petitioners,

versus

LULU V. JORGE and CESAR JORGE, Respondents.

August 8, 2007

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam)
and Agencia de R.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision [1] of the Court of
Appeals dated March 31, 2003, and its Resolution[2] dated August 8, 2003, in CA G.R. CV No. 56633.

It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent
Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF
Homes Parañaque, Metro Manila, to secure a loan in the total amount of P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and
jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of the
Southern Police District, Parañaque Police Station as follows:

Investigation shows that at above TDPO, while victims were inside the office, two
(2) male unidentified persons entered into the said office with guns
drawn. Suspects(sic) (1) went straight inside and poked his gun toward
Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his
gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on
the floor. Suspects asked forcibly the case and assorted pawned jewelries items
mentioned above.

Suspects after taking the money and jewelries fled on board a Marson Toyota
unidentified plate number.[3]

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of
her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then
wrote a letter[4] to petitioner Sicam expressing disbelief stating that when the robbery happened, all
jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that
before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the
jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry
for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint
against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of
pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees. The
case was docketed as Civil Case No. 88-2035.

Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the
pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C.Sicam, Inc; that petitioner
corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and
could not be made liable for an event that is fortuitous.

Respondents subsequently filed an Amended Complaint to include petitioner corporation.

Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he
is not the real party-in-interest. Respondents opposed the same. The RTC denied the motion in an Order
dated November 8, 1989.[5]

After trial on the merits, the RTC rendered its Decision[6] dated January 12, 1993, dismissing
respondents’ complaint as well as petitioners’ counterclaim. The RTC held that petitioner Sicam could not
be made personally liable for a claim arising out of a corporate transaction; that in the Amended
Complaint of respondents, they asserted that “plaintiff pawned assorted jewelries in defendants'
pawnshop”; and that as a consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of a stockholder.

The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned
jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the
possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous event which
exempts the victim from liability for the loss, citing the case of Austria v. Court of Appeals;[7] and that the
parties’ transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the
pawnshop as a pledgee is not responsible for those events which could not be foreseen.
 Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003,
the CA reversed the RTC, the dispositive portion of which reads as follows:

WHEREFORE, premises considered, the instant Appeal is GRANTED, and the

Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is
hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the actual
value of the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.[8]

In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine
of piercing the veil of corporate entity reasoning that respondents were misled into thinking that they were
dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them bear the
words “Agencia de R.C. Sicam”; and that there was no indication on the pawnshop tickets that it was the
petitioner corporation that owned the pawnshop which explained why respondents had to amend their
complaint impleading petitioner corporation.

The CA further held that the corresponding diligence required of a pawnshop is that it should take
steps to secure and protect the pledged items and should take steps to insure itself against the loss
of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which
petitioners failed to do; that Austria is not applicable to this case since the robbery incident happened in
1961 when the criminality had not as yet reached the levels attained in the present day; that they are at
least guilty of contributory negligence and should be held liable for the loss of jewelries; and that
robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are
expected to foresee.

The CA concluded that both petitioners should be jointly and severally held liable to respondents for
the loss of the pawned jewelry.

Petitioners’ motion for reconsideration was denied in a Resolution dated August 8, 2003.

Hence, the instant petition for review with the following assignment of errors:

THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO

REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS
OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE
RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY
UNSUSTAINABLE.

THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO

REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED
UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE
 RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO
DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD
NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD. [9]

Anent the first assigned error, petitioners point out that the CA’s finding that petitioner Sicam is
personally liable for the loss of the pawned jewelries is “a virtual and uncritical reproduction of the
arguments set out on pp. 5-6 of the Appellants’ brief.” [10]

Petitioners argue that the reproduced arguments of respondents in their Appellants’ Brief suffer from
infirmities, as follows:

(1) Respondents conclusively asserted in paragraph 2

of their Amended Complaint that Agencia de R.C. Sicam, Inc. is the present owner
of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said
conclusive assertion of respondents;

(2) The issue resolved against petitioner Sicam was not among those raised and
litigated in the trial court; and

(3) By reason of the above infirmities, it was error for the CA to have pierced the
corporate veil since a corporation has a personality distinct and separate from its
individual stockholders or members.

Anent the second error, petitioners point out that the CA finding on their negligence is likewise an
unedited reproduction of respondents’ brief which had the following defects:

(1) There were unrebutted evidence on record that petitioners had observed
the diligence required of them, i.e, they wanted to open a vault with a nearby bank for
purposes of safekeeping the pawned articles but was discouraged by the Central Bank
(CB) since CB rules provide that they can only store the pawned articles in a vault inside
the pawnshop premises and no other place;

(2) Petitioners were adjudged negligent as they did not take insurance against
the loss of the pledged jelweries, but it is judicial notice that due to high incidence of
crimes, insurance companies refused to cover pawnshops and banks because of high
probability of losses due to robberies;

(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46),

the victim of robbery was exonerated from liability for the sum of money belonging to
others and lost by him to robbers.

Respondents filed their Comment and petitioners filed their Reply thereto. The parties
subsequently submitted their respective Memoranda.
 We find no merit in the petition.

To begin with, although it is true that indeed the CA findings were exact reproductions of the
arguments raised in respondents’ (appellants’) brief filed with the CA, we find the same to be not fatally
infirmed. Upon examination of the Decision, we find that it expressed clearly and distinctly the facts and
the law on which it is based as required by Section 8, Article VIII of the Constitution. The discretion to
decide a case one way or another is broad enough to justify the adoption of the arguments put forth by
one of the parties, as long as these are legally tenable and supported by law and the facts on records. [11]

Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law
committed by the appellate court. Generally, the findings of fact of the appellate court are deemed
conclusive and we are not duty-bound to analyze and calibrate all over again the evidence adduced by
the parties in the court a quo.[12] This rule, however, is not without exceptions, such as where the factual
findings of the Court of Appeals and the trial court are conflicting or contradictory [13] as is obtaining in the
instant case.

However, after a careful examination of the records, we find no justification to absolve

petitioner Sicam from liability.

The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable
together with petitioner corporation. The rule is that the veil of corporate fiction may be pierced when
[14]
made as a shield to perpetrate fraud and/or confuse legitimate issues. The theory of corporate entity
was not meant to promote unfair objectives or otherwise to shield them. [15]

Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the
pawnshop was owned by petitioner Sicam himself. As correctly observed by the CA, in all the pawnshop
receipts issued to respondent Lulu in September 1987, all bear the words “Agencia de R. C. Sicam,”
notwithstanding that the pawnshop was allegedly incorporated in April 1987. The receipts issued after
such alleged incorporation were still in the name of “Agencia de R. C. Sicam,” thus inevitably misleading,
or at the very least, creating the wrong impression to respondents and the public as well, that the
pawnshop was owned solely by petitioner Sicam and not by a corporation.
 Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter[16] dated October 15, 1987 addressed

to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop

notwithstanding the alleged incorporation in April 1987.

We also find no merit in petitioners' argument that since respondents had alleged in their Amended
Complaint that petitioner corporation is the present owner of the pawnshop, the CA is bound to decide the
case on that basis.

Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a
party in the course of the proceedings in the same case, does not require proof. The admission may be
contradicted only by showing that it was made through palpable mistake or that no such admission was
made.
Thus, the general rule that a judicial admission is conclusive upon the party making it and does not
require proof, admits of two exceptions, to wit: (1) when it is shown that such admission was made
through palpable mistake, and (2) when it is shown that no such admission was in fact made. The latter
exception allows one to contradict an admission by denying that he made such an admission. [17]

The Committee on the Revision of the Rules of Court explained the second exception in this wise:

x x x if a party invokes an “admission” by an adverse party, but cites the admission “out of
context,” then the one making the “admission” may show that he made no “such”
admission, or that his admission was taken out of context.

x x x that the party can also show that he made no “such admission”, i.e., not in
the sense in which the admission is made to appear.

That is the reason for the modifier “such” because if the rule simply states that the
admission may be contradicted by showing that “no admission was made,” the rule would
not really be providing for a contradiction of the admission but just a denial. [18] (Emphasis
supplied).

While it is true that respondents alleged in their Amended Complaint that petitioner corporation is
the present owner of the pawnshop, they did so only because petitionerSicam alleged in his Answer to the
original complaint filed against him that he was not the real party-in-interest as the pawnshop was
incorporated in April 1987. Moreover, a reading of the Amended Complaint in its entirety shows that
respondents referred to both petitioner Sicam and petitioner corporation where they (respondents)
pawned their assorted pieces of jewelry and ascribed to both the failure to observe due diligence
commensurate with the business which resulted in the loss of their pawned jewelry.
 Markedly, respondents, in their Opposition to petitioners’ Motion to Dismiss Amended Complaint,
insofar as petitioner Sicam is concerned, averred as follows:

Roberto C. Sicam was named the defendant in the original complaint because the
pawnshop tickets involved in this case did not show that the R.C. Sicam Pawnshop was a
corporation. In paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and
2 of the Complaint. He merely added “that defendant is not now the real party in interest
in this case.”

It was defendant Sicam's omission to correct the pawnshop tickets used in the
subject transactions in this case which was the cause of the instant action. He cannot
now ask for the dismissal of the complaint against him simply on the mere allegation that
his pawnshop business is now incorporated. It is a matter of defense, the merit of which
can only be reached after consideration of the evidence to be presented in due course. [19]

Unmistakably, the alleged admission made in respondents' Amended Complaint was taken “out of
context” by petitioner Sicam to suit his own purpose. Ineluctably, the fact that petitioner Sicam continued
to issue pawnshop receipts under his name and not under the corporation's name militates for the
piercing of the corporate veil.

We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of
corporate fiction of petitioner corporation, as it was not an issue raised and litigated before the RTC.

Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-
interest because since April 20, 1987, the pawnshop business initiated by him was incorporated and
known as Agencia de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted that as far
as he was concerned, the basic issue was whether he is the real party in interest against whom the
complaint should be directed.[20] In fact, he subsequently moved for the dismissal of the complaint as to
him but was not favorably acted upon by the trial court. Moreover, the issue was squarely passed upon,
although erroneously, by the trial court in its Decision in this manner:

x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is

concerned for the reason that he cannot be made personally liable for a claim arising
from a corporate transaction.

This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The
amended complaint itself asserts that “plaintiff pawned assorted jewelries in defendant's
pawnshop.” It has been held that “ as a consequence of the separate juridical personality
of a corporation, the corporate debt or credit is not the debt or credit of the stockholder,
nor is the stockholder's debt or credit that of a corporation. [21]
 Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether
petitioner Sicam is personally liable is inextricably connected with the determination of the question
whether the doctrine of piercing the corporate veil should or should not apply to the case.

The next question is whether petitioners are liable for the loss of the pawned articles in their
possession.

Petitioners insist that they are not liable since robbery is a fortuitous event and they are not
negligent at all.

We are not persuaded.

Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen or
which, though foreseen, were inevitable.

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. [22]

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
[23]
in the aggravation of the injury or loss.

The burden of proving that the loss was due to a fortuitous event rests on him who invokes it.
[24]
And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed
no negligence or misconduct that may have occasioned the loss. [25]
 It has been held that 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. [26]

Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the
robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of opening
a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the
Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very
measures which petitioners had allegedly adopted show that to them the possibility of robbery was not
only foreseeable, but actually foreseen and anticipated. Petitioner Sicam’s testimony, in effect,
contradicts petitioners’ defense of fortuitous event.

Moreover, petitioners failed to show that they were free from any negligence by which the loss of the
pawned jewelry may have been occasioned.

Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of
negligence on the part of herein petitioners. In Co v. Court of Appeals,[27] the Court held:

It is not a defense for a repair shop of motor vehicles to escape liability simply
because the damage or loss of a thing lawfully placed in its possession was due
to carnapping.Carnapping per se cannot be considered as a fortuitous event. The fact
that a thing was unlawfully and forcefully taken from another's rightful
possession, as in cases of carnapping, does not automatically give rise to a
fortuitous event. To be considered as such, carnapping entails more than the
mere forceful taking of another's property. It must be proved and established that
the event was an act of God or was done solely by third parties and that neither
the claimant nor the person alleged to be negligent has any participation. In
accordance with the Rules of Evidence, the burden of proving that the loss was
due to a fortuitous event rests on him who invokes it — which in this case is the
private respondent.However, other than the police report of the
alleged carnapping incident, no other evidence was presented by private respondent to
the effect that the incident was not due to its fault. A police report of an alleged crime, to
which only private respondent is privy, does not suffice to establish the carnapping.
Neither does it prove that there was no fault on the part of private respondent
notwithstanding the parties' agreement at the pre-trial that the car
was carnapped. Carnapping does not foreclose the possibility of fault or negligence on
the part of private respondent.[28]
 Just like in Co, petitioners merely presented the police report of the Parañaque Police Station on
the robbery committed based on the report of petitioners' employees which is not sufficient to establish
robbery. Such report also does not prove that petitioners were not at fault.

On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are
guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the tenor thereof,
are liable for damages.[29]

Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments
which are engaged in making loans secured by pledges, the special laws and regulations concerning
them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall
take care of the thing pledged with the diligence of a good father of a family. This means that petitioners
must take care of the pawns the way a prudent person would as to his own property.

In this connection, Article 1173 of the Civil Code further provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of
that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the persons, of time and of the place. When negligence shows bad faith,
the provisions of Articles 1171 and 2201, paragraph 2 shall apply.

If the law or contract does not state the diligence which is to be observed in the
performance, that which is expected of a good father of a family shall be required.
We expounded in Cruz v. Gangan[30] that negligence is the omission to do something which a
reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs,
would do; or the doing of something which a prudent and reasonable man would not do. [31] It is want of
care required by the circumstances.

A review of the records clearly shows that petitioners failed to exercise reasonable care and caution
that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of
negligence in the operation of their pawnshop business. Petitioner Sicam testified, thus:

Court:
 Q. Do you have security guards in your pawnshop?
A. Yes, your honor.

Q. Then how come that the robbers were able to enter the premises when according to
you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.

Q. I am asking you how were the robbers able to enter despite the fact that there was
a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the
afternoon and it happened on a Saturday and everything was quiet in the area BF
Homes Parañaque they pretended to pawn an article in the pawnshop, so one of my
employees allowed him to come in and it was only when it was announced that it was
a hold up.

Q. Did you come to know how the vault was opened?

A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The
combination is off.

Q. No one open (sic) the vault for the robbers?

A. No one your honor it was open at the time of the robbery.

Q. It is clear now that at the time of the robbery the vault was open the reason why the
robbers were able to get all the items pawned to you inside the vault.
A. Yes sir.[32]

revealing that there were no security measures adopted by petitioners in the operation of the pawnshop.
Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from
unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there was
one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged
security guard exercised all that was necessary to prevent any untoward incident or to ensure that no
suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a
security guard, since it is quite impossible that he would not have noticed that the robbers were armed
with caliber .45 pistols each, which were allegedly poked at the employees. [33] Significantly, the alleged
security guard was not presented at all to corroborate petitioner Sicam's claim; not
one of petitioners' employees who were present during the robbery incident testified in court.

Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a
proof of petitioners' failure to observe the care, precaution and vigilance that the circumstances justly
demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was already
off. Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the
area in BF Homes Parañaque at that time was quiet, there was more reason for petitioners to have
exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the
precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the
pawned articles.

We, however, do not agree with the CA when it found petitioners negligent for not taking steps to
insure themselves against loss of the pawned jewelries.

Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which
took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114,
Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit:

Sec. 17. Insurance of Office Building and Pawns- The place of business of a
pawnshop and the pawns pledged to it must be insured against fire and against
burglary as well as for thelatter(sic), by an insurance company accredited by the
Insurance Commissioner.

However, this Section was subsequently amended by CB Circular No. 764 which took effect
on October 1, 1980, to wit:

Sec. 17 Insurance of Office Building and Pawns – The office building/premises and
pawns of a pawnshop must be insured against fire. (emphasis supplied).

where the requirement that insurance against burglary was deleted. Obviously, the Central Bank
considered it not feasible to require insurance of pawned articles against burglary.

The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment,
there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error
for the CA to consider it as a factor in concluding that petitioners were negligent.

Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence
required of them under the Civil Code.

The diligence with which the law requires the individual at all times to govern his conduct varies with
the nature of the situation in which he is placed and the importance of the act which he is to perform .
[34]
Thus, the cases of Austria v. Court of Appeals,[35] Hernandez v. Chairman, Commission on
Audit[36] and Cruz v. Gangan[37] cited by petitioners in their pleadings, where the victims of robbery were
exonerated from liability, find no application to the present case.
 In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on
commission basis, but which Abad failed to subsequently return because of a robbery committed upon
her in 1961. The incident became the subject of a criminal case filed against several
persons. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its
value, but the Abads set up the defense that the robbery extinguished their obligation. The RTC ruled in
favor of Austria, as the Abadsfailed to prove robbery; or, if committed, that Maria Abad was guilty of
negligence. The CA, however, reversed the RTC decision holding that the fact of robbery was duly
established and declared the Abads not responsible for the loss of the jewelry on account of a fortuitous
event. We held that for the Abads to be relieved from the civil liability of returning the pendant under Art.
1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery, took place
without any concurrent fault on the debtor’s part, and this can be done by preponderance of evidence;
that to be free from liability for reason of fortuitous event, the debtor must, in addition to the casus itself,
be free of any concurrent or contributory fault or negligence. [38]

We found in Austria that under the circumstances prevailing at the time the Decision was
promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against persons
and property that rendered travel after nightfall a matter to be sedulously avoided without suitable
precaution and protection; that the conduct of MariaAbad in returning alone to her house in the evening
carrying jewelry of considerable value would have been negligence per se and would not exempt her from
responsibility in the case of robbery. However we did not hold Abad liable for negligence since, the
robbery happened ten years previously; i.e., 1961, when criminality had not reached the level of incidence
obtaining in 1971.

In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and
petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for
safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found petitioners
negligent in securing their pawnshop as earlier discussed.

In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach
Project of the Philippine Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went
to Manila to encash two checks covering the wages of the employees and the operating expenses of the
project. However for some reason, the processing of the check was delayed and was completed at
about 3 p.m. Nevertheless, he decided to encash the check because the project employees would be
waiting for their pay the following day; otherwise, the workers would have to wait until July 5, the earliest
time, when the main office would open. At that time, he had two choices: (1) return to Ternate,Cavite that
same afternoon and arrive early evening; or (2) take the money with him to his house in Marilao, Bulacan,
spend the night there, and leave for Ternate the following day. He chose the second option, thinking it was
the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was
on Epifanio de losSantos Avenue, the jeep was held up and the money kept by Hernandez was taken,
and the robbers jumped out of the jeep and ran. Hernandez chased the robbers and caught up with one
robber who was subsequently charged with robbery and pleaded guilty. The other robber who held the
stolen money escaped. The Commission on Audit found Hernandez negligent because he had not
brought the cash proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the
normal procedure in the handling of funds. We held that Hernandez was not negligent in deciding
to encash the check and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to the
lateness of the hour for the following reasons: (1) he was moved by unselfish motive for his co-employees
to collect their wages and salaries the following day, a Saturday, a non-working, because to encash the
check on July 5, the next working day after July 1, would have caused discomfort to laborers who were
dependent on their wages for sustenance; and (2) that choosing Marilao as a safer destination, being
nearer, and in view of the comparative hazards in the trips to the two places, said decision seemed logical
at that time. We further held that the fact that two robbers attacked him in broad daylight in the jeep while
it was on a busy highway and in the presence of other passengers could not be said to be a result of his
imprudence and negligence.

Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took
place in the pawnshop which is under the control of petitioners. Petitioners had the means to screen the
persons who were allowed entrance to the premises and to protect itself from unlawful intrusion .
Petitioners had failed to exercise precautionary measures in ensuring that the robbers were prevented
from entering the pawnshop and for keeping the vault open for the day, which paved the way for the
robbers to easily cart away the pawned articles.

In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills
Development Authority (TESDA), boarded the Light Rail Transit (LRT)
from Sen. Puyat Avenue to Monumento when her handbag was slashed and the contents were stolen by
an unidentified person. Among those stolen were her wallet and the government-issued cellular phone.
She then reported the incident to the police authorities; however, the thief was not located, and
the cellphone was not recovered. She also reported the loss to the Regional Director of TESDA, and she
requested that she be freed from accountability for the cellphone. The Resident Auditor denied her
request on the ground that she lacked the diligence required in the custody of government property and
was ordered to pay the purchase value in the total amount of P4,238.00. The COA found no sufficient
justification to grant the request for relief from accountability. We reversed the ruling and found that riding
the LRT cannot per se be denounced as a negligent act more so because Cruz’s mode of transit was
influenced by time and money considerations; that she boarded the LRT to be able to arrive
in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar circumstance
can reasonably be expected to do the same; that possession of a cellphone should not hinder one from
boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus, the risk of theft
would have also been present; that because of her relatively low position and pay, she was not expected
to have her own vehicle or to ride a taxicab; she did not have a government assigned vehicle; that placing
the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily
sufficient care of a cellphone while traveling on board the LRT; that the records did not show any specific
act of negligence on her part and negligence can never be presumed.

Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they

were negligent in not exercising the precautions justly demanded of a pawnshop.

WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals

dated March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED.

Costs against petitioners.

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
Resolution3dated 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 ofP51,064,094.28, 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. 96-202365 7

P608,603.04 May 13, 1996 Trust Receipt No. 96-960522 8

P3,753,777.40 May 24, 1996 Trust Receipt No. 96-960524 9

P4,602,648.08 March 21, 1997 Trust Receipt No. 97-204724 10

P7,289,757.79 June 7, 1996 Trust Receipt No. 96-203280 11

P17,340,360.73 July 26, 1995 Trust Receipt No. 95-201943 12

P670,709.24 August 31, 1995 Trust Receipt No. 95-202053 13

P313,797.41 November 16, 1995 Trust Receipt No. 96-202439 14

P13,015,109.87 July 3, 1996 Trust Receipt No. 96-203552 15

P401,608.89 June 20, 1995 Trust Receipt No. 95-201710 16

P750,089.25 December 13, 1995 Trust Receipt No. 96-379089 17

P92,919.00 December 13, 1995 Trust Receipt No. 96/202581 18

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 Agreements 19 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,23petitioners 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 Concast’s 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 Bank’s legal department, acted as the latter’s agent. Eventually, with the alleged
conformity of Allied Bank, through Atty. Saw, a Memorandum of Agreement 25 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 ofP34,000,000.00, 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) testified 28 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 worthP1,000,000.00 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 attorney’s
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 latter’s 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 attorney’s fees. Petitioners sought reconsideration 37 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 Court’s 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 Peakstar’s failure to perform its own obligations to Metro Concast pursuant to
the MoA. Petitioners classify Peakstar’s 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 Concast’s 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 Bank’s 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 Peakstar’s 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 Peakstar’s 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 former’s 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 paid 41 or, in any way, extinguished. In this regard,
petitioners’ liability, as adjudged by the CA, must perforce stand. Considering, however, that Allied Bank’s
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 court’s dispositions stand.

SO ORDERED.