Victorias Planters vs. Victorias Milling Co. Inc.

G.R. No. L-6648, July 25, 1955

97 PHIL 318

FACTS:
From 1917 to 1934, the sugar cane planters Manapla and Cadiz, Negros Occidental, executed
identical milling contracts, under which the sugar central "North Negros Sugar Co. Inc." would
mill the sugar produced by the sugar cane planters of the Manapla and Cadiz districts.
The sugar cane planters of Manapla and Cadiz, Negros Occidental had executed a contract
whereby Ossorio was given a period up to December 31, 1916 within which to make a study of
and decide whether he would construct a sugar central or mill with a capacity of milling 300 tons
of sugar cane every 24 hours and setting forth the mutual obligations and undertakings of such
central and the planters and the terms and conditions under which the sugar cane produced by
said planters would be milled in the event of the construction of such sugar central by Ossorio.
Such central was in fact constructed by said Ossorio in Manapla, Negros Occidental, through the
North Negros Sugar Co., Inc., where after the standard form of milling contracts were
executed.The parties cannot stipulate as to the milling contracts executed by the planters by
Victorias, Negros Occidental, other than as follows: 1) a number of them executed such milling
contracts with the North Negros Sugar Co., Inc.; 2) while a number of them executed milling
contracts with the Victorias Milling Co., Inc., which was likewise organized by Miguel J.
Ossorio and which had constructed another Central at Victorias, Negros Occidental. Thus, after
the war, all the sugar cane produced by the planters of petitioner associations, in Manapla, Cadiz,
as well as in Victorias, who held milling contracts, were milled in only one central, that of the
respondent corporation at Victorias. Beginning with the year 1948, and in the following years,
when the planters-members of the North Negros Planters Association, Inc. considered that the
stipulated 30-year period of their milling contracts executed in the year 1918 had already expired
and terminated in the crop year 1947-1948, and the planters-members of the Victorias Planters
Association, Inc. likewise considered the stipulated 30-year period of their milling contracts, as
having likewise expired and terminated in the crop year 1948-1949, under the pertinent
provisions of the standard milling contract. Notwithstanding the repeated representations made
by the herein petitioners with the respondent corporation, the herein respondent has refused and
still refuses to accede to the same, contending that under the provisions of the milling contract.

ISSUE:
Whether or not the trial court erred in rendering its disputed decision, favoring the
petitioner.

HELD :
The fact that the contracts make reference to "first milling" does not make the period of
thirty (30) years one of thirty (30) milling years. The term "first milling" used in the contracts
under consideration was for the purpose of reckoning the thirty-year period stipulated therein.
Even if the thirty-year period provided for in the contracts be construed as milling years, the
deduction or extension of six (6) years would not be justified. At most on the last year of the
thirty-year period stipulated in the contracts the delivery of sugar cane could be extended up to a
time when all the amount of sugar cane raised and harvested should have been delivered to the
appellant's mill as agreed upon. Further, the parties stipulated that in the event of flood, typhoon,
earthquake, or other force majeure, war, insurrection, civil commotion, organized strike, etc., the
contract shall be deemed suspended during said period, does not mean that the happening of any
of those events stops the running of the period agreed upon. It only relieves the parties from the
fulfillment of their respective obligations during that time the planters from delivering sugar
cane and the central from milling it. In order that the central, the herein appellant, may be
entitled to demand from the other parties the fulfillment of their part in the contracts, the latter
must have been able to perform it but failed or refused to do so and not when they were
prevented by force majeure such as war. To require the planters to deliver the sugar cane which
they failed to deliver during the four (4) years of the Japanese occupation and the two (2) years
after liberation when the mill was being rebuilt is to demand from the obligors the fulfillment of
an obligation which was impossible of performance at the time it became due.

Philippine Communications Satellite Corporation

vs Globe Telecom, Inc.
Chester Cabalza recommends his visitors to please read the original & full text of the case cited. Xie xie!

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.

Facts:

Globe Telecom, Inc., formerly known as Globe McKay Cable and Radio Corporation installed and configured
communication facilities for the exclusive use of the US Defense Communications Agency (USDCA) in Clark Air Base
and Subic Naval Base. Globe Telecom later contracted the Philippine Communications Satellite Corporation
(Philcomsat) for the provision of the communication facilities. As both companies entered into an Agreement, Globe
obligated itself to operate and provide an IBS Standard B earth station with Cubi Point for the use of the USDCA. The
term of the contract was for 60 months, or five (5) years. In turn, Globe promised to pay Philcomsat monthly rentals
for each leased circuit involved.

As the saga continues, the Philippine Senate passed and adopted Senate Resolution No. 141 and decided not to
ratify the Treaty of Friendship, Cooperation and Security, and its Supplementary Agreements to extend the term of the
use by the US of Subic Naval Base, among others. In other words, the RP-US Military Bases Agreement was
suddenly terminated.

Because of this event, 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.

After the US military forces left Subic Naval Base, Philcomsat sent Globe a letter in 1993 demanding payment of its
outstanding obligations under the Agreement amounting to US$4,910,136.00 plus interest and attorneys fees.
However, Globe refused to heed Philcomsats demand. On the other hand, the latter with the Regional Trial Court of
Makati a Complaint against Globe, however, 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.
Four years after, the trial court its decision but both parties appealed to the Court of Appeals.

Issues:

1. Whether or not 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. Whether Globe is not liable to pay the rentals for the remainder of the term of the Agreement; and

3. Whether Globe is liable to Philcomsat for exemplary damages.

Held:

Decision on Issue No. 1: Fortuitous Event under Article 1174

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 Governments Note Verbale to the US
Government, are acts, directions, or requests of the Government of the Philippines which constitute force majeure.

However, the Court of Appeals ruled that although Globe sought to terminate Philcomsats 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.

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

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:

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.

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 catastrophes 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.

The Supreme 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.

Decision on Issue No. 2: Exemption of Globe from Paying Rentals for the Facility

The Supreme 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.

The Court of Appeals was 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.

Decision on Issue No 3: No Exemplary Damages

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.

In the present case, it was not shown that Globe acted wantonly or oppressively in not heeding Philcomsats
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.

Ruling:

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

PEDRO D. DIOQUINO VS. LAUREANO

G.R. No. L-25906 May 28, 1970
FACTS:
Attorney Pedro Dioquino is the owner of a car. He
went to the office of the MVO, Masbate, to register the
same where he met the defendant Federico Laureano, a
patrol officer of said MVO office. Dioquino requested
Laureano to introduce him to one of the clerks in the MVO
Office, who could facilitate the registration of his car and
the request was attended to. Laureano rode on the car of
Atty. Dioquino on his way to the P.C. Barracks at Masbate.
While about to reach their destination, the car driven by
plaintiff's driver and with Laureano as the sole passenger
was stoned by some 'mischievous boys,' and its windshield
was broken. Laureano chased the boys and he was able to
catch one of them. The plaintiff and Laureano with the boy
returned to the P.C. barracks and the father of the boy was
called, but no satisfactory arrangements were made about
the damage to the windshield.
It was likewise noted in the decision now on
appeal: "The defendant Federico Laureano refused to file
any charges against the boy and his parents because he
thought that the stone-throwing was merely accidental and
that it was due to force majeure. So he did not want to take any action and after delaying the
settlement, after perhaps
consulting a lawyer, the defendant Federico Laureano
refused to pay the windshield himself and challenged that
the case be brought to court for judicial adjudication.
There is no question that the plaintiff tried to convince the
defendant Federico Laureano just to pay the value of the
windshield and he even came to the extent of asking the
wife to convince her husband to settle the matter amicably
but the defendant Federico Laureano refused to make any
settlement, clinging [to] the belief that he could not be held
liable because a minor child threw a stone accidentally on
the windshield and therefore, the same was due to force
majeure."

ISSUE:
Is Federico Laureano liable for the payment of the
windshield of Atty Dioquino?

RULING:
No. The law being what it is, such a belief on the
part of defendant Federico Laureano was justified. The
express language of Art. 1174 of the present Civil Code
which is a restatement of Art. 1105 of the Old Civil Code,
except for the addition of the nature of an obligation
requiring the assumption of risk, compels such a
conclusion. It reads thus: "Except in cases expressly
specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible for
those events which could not be, foreseen, or which,
though foreseen were inevitable." Even under the old Civil
Code then, as stressed by us in the first decision dating
back to 1908, in an opinion by Justice Mapa, the rule was
well-settled that in the absence of a legal provision or an
express covenant, "no one should be held to account
for fortuitous cases." Its basis, as Justice Moreland
stressed, is the Roman law principle major casus est,
cui humana infirmitas resistere non potest.
Authorities of repute are in agreement, more specifically
concerning an obligation arising from contract "that some
extraordinary circumstance independent of the will of the
obligor, or of his employees, is an essential element of a
caso fortuito." If it could be shown that such indeed was
the case, liability is ruled out. There is no requirement of
"diligence beyond what human care and foresight can
provide."
The error committed by the lower court in holding
defendant Federico Laureano liable appears to be thus
obvious. Its own findings of fact repel the motion that he
should be made to respond in damages to the plaintiff for
the broken windshield. What happened was clearly
unforeseen. It was a fortuitous event resulting in a loss
which must be borne by the owner of the car. It was
misled, apparently, by the inclusion of the exemption from
the operation of such a provision of a party assuming the
risk, considering the nature of the obligation undertaken.
A more careful analysis would have led the lower court to a
different and correct interpretation. The very wording of
the law dispels any doubt that what is therein
contemplated is the resulting liability even if caused by a
fortuitous event where the party charged may be
considered as having assumed the risk incident in the
nature of the obligation to be performed. It would be an
affront, not only to the logic but to the realities of the
situation, if in the light of what transpired, as found by the
lower court, defendant Federico Laureano could be held as
bound to assume a risk of this nature. There was no such
obligation on his part.
The decision of the lower court of November 2, 1965
insofar as it orders defendant Federico Laureano to pay
plaintiff the amount of P30,000.00 as damages plus the
payment of costs, is hereby reversed. It is affirmed insofar
as it dismissed the case against the other two defendants, Juanita Laureano and Aida de
Laureano, and declared that
no moral damages should be awarded the parties.

AUSTRIA VS. COURT OF APPEALS

39 SCRA 527
FACTS:
Maria G. Abad received from Guillermo Austria a
pendant with diamonds to be sold on a commission basis
or to be returned on demand. While walking home, the
purse containing the jewelry and cash was snatched by two
men. A complaint of the incident was filed in the Court of
First Instance against certain persons.
Abad failed to return the jewelry or pay for its
value despite demands made by Austria. Austria brought
an action against the Abad spouses for the recovery of the
pendant or of its value and damages. Abad spouses set up
the defense that the alleged robbery had extinguished their
obligation.

ISSUE:
Should the Abad spouse be held liable for the loss
of the pendant?

RULING:
No. The Court ruled that the exempting provision
of Article 1174 of the Civil Code is applicable in the case. It
is a recognized jurisdiction that to constitute a caso
fortuito that would exempt a person from responsibility, it
is necessary that the event must be independent of the
human will or of the obligors will; the occurrence must
render it impossible for the debtor to fulfill the obligation
in a normal manner; and that the obligor must be free of
participation in, or aggravation of, the injury to the
creditor. To avail of the exemption granted, it is not
necessary that the persons responsible for the event should
be found or punished. It is sufficient that to unforeseeable
event which is the robbery took place without concurrent
fault or negligence on the part of the obligor which can be
proven by preponderant evidence. It was held that the act
of Maria Abad in walking home alone carrying the jewelry
was not negligent for at that time the incidence of crimes
was not high.

JIMMY CO, doing business under the name & style DRAGON METAL
MANUFACTURING, Petitioner, vs. COURT OF APPEALS and
BROADWAY MOTOR SALES CORPORATION, Respondents.

DECISION
MARTINEZ, J.:

On July 18, 1990, petitioner entrusted his Nissan pick-up car 1988 model [1] to private
respondent - which is engaged in the sale, distribution and repair of motor vehicles - for
the following job repair services and supply of parts:

- Bleed injection pump and all nozzles;

- Adjust valve tappet;

- Change oil and filter;

- Open up and service four wheel brakes, clean and adjust;

- Lubricate accelerator linkages;

- Replace aircon belt; and

- Replace battery[2]

Private respondent undertook to return the vehicle on July 21, 1990 fully serviced
and supplied in accordance with the job contract. After petitioner paid in full the repair
bill in the amount of P1,397.00,[3] private respondent issued to him a gate pass for the
release of the vehicle on said date. But came July 21, 1990, the latter could not release
the vehicle as its battery was weak and was not yet replaced. Left with no option,
petitioner himself bought a new battery nearby and delivered it to private respondent for
installation on the same day. However, the battery was not installed and the delivery of
the car was rescheduled to July 24, 1990 or three (3) days later. When petitioner sought
to reclaim his car in the afternoon of July 24, 1990, he was told that it was carnapped
earlier that morning while being road-tested by private respondents employee along
Pedro Gil and Perez Streets in Paco, Manila. Private respondent said that the incident
was reported to the police.
 Having failed to recover his car and its accessories or the value thereof, petitioner
filed a suit for damages against private respondent anchoring his claim on the latters
alleged negligence. For its part, private respondent contended that it has no liability
because the car was lost as a result of a fortuitous event - the carnapping. During pre-
trial, the parties agreed that:

(T)he cost of the Nissan Pick-up four (4) door when the plaintiff purchased it from the
defendant is P332,500.00 excluding accessories which were installed in the vehicle by
the plaintiff consisting of four (4) brand new tires, magwheels, stereo speaker, amplifier
which amount all in all to P20,000.00. It is agreed that the vehicle was lost on July 24,
1990 `approximately two (2) years and five (5) months from the date of the purchase. It
was agreed that the plaintiff paid the defendant the cost of service and repairs as early
as July 21, 1990 in the amount of P1,397.00 which amount was received and duly
receipted by the defendant company. It was also agreed that the present value of a
brand new vehicle of the same type at this time is P425,000.00 without accessories.[4]

They likewise agreed that the sole issue for trial was who between the parties shall
bear the loss of the vehicle which necessitates the resolution of whether private
respondent was indeed negligent. [5] After trial, the court a quofound private respondent
guilty of delay in the performance of its obligation and held it liable to petitioner for the
value of the lost vehicle and its accessories plus interest and attorneys fees. [6] On
appeal, the Court of Appeals (CA) reversed the ruling of the lower court and ordered the
dismissal of petitioners damage suit. [7] The CA ruled that: (1) the trial court was limited to
resolving the issue of negligence as agreed during pre-trial; hence it cannot pass on the
issue of delay; and (2) the vehicle was lost due to a fortuitous event.

In a petition for review to this Court, the principal query raised is whether a repair
shop can be held liable for the loss of a customers vehicle while the same is in its
custody for repair or other job services?

The Court resolves the query in favor of the customer. First, on the technical aspect
involved. Contrary to the CAs pronouncement, the rule that the determination of issues
at a pre-trial conference bars the consideration of other issues on appeal, except those
that may involve privilege or impeaching matter,[8] is inapplicable to this case. The
question of delay, though not specifically mentioned as an issue at the pre-trial may be
tackled by the court considering that it is necessarily intertwined and intimately
connected with the principal issue agreed upon by the parties, i.e. who will bear the loss
and whether there was negligence. Petitioners imputation of negligence to private
respondent is premised on delay which is the very basis of the formers complaint. Thus,
it was unavoidable for the court to resolve the case, particularly the question of
negligence without considering whether private respondent was guilty of delay in the
performance of its obligation.

On the merits. It is a 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 anothers 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 anothers 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. [9] 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[10]- 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
established 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.

Even assuming arguendo that carnapping was duly established as a fortuitous

event, still private respondent cannot escape liability. Article 1165 [11] of the New Civil
Code makes an obligor who is guilty of delay responsible even for a fortuitous event
until he has effected the delivery. In this case, private respondent was already in delay
as it was supposed to deliver petitioners car three (3) days before it was lost. Petitioners
agreement to the rescheduled delivery does not defeat his claim as private respondent
had already breached its obligation. Moreover, such accession cannot be construed as
waiver of petitioners right to hold private respondent liable because the car was
unusable and thus, petitioner had no option but to leave it.

Assuming further that there was no delay, still working against private respondent is
the legal presumption under Article 1265 that its possession of the thing at the time it
was lost was due to its fault. [12] This presumption is reasonable since he who has the
custody and care of the thing can easily explain the circumstances of the loss. The
vehicle owner has no duty to show that the repair shop was at fault. All that petitioner
needs to prove, as claimant, is the simple fact that private respondent was in
possession of the vehicle at the time it was lost. In this case, private respondents
possession at the time of the loss is undisputed. Consequently, the burden shifts to the
possessor who needs to present controverting evidence sufficient enough to overcome
that presumption. Moreover, the exempting circumstances - earthquake, flood, storm or
other natural calamity - when the presumption of fault is not applicable [13]do not concur in
this case. Accordingly, having failed to rebut the presumption and since the case does
not fall under the exceptions, private respondent is answerable for the loss.

It must likewise be emphasized that pursuant to Articles 1174 and 1262 of the New
Civil Code, liability attaches even if the loss was due to a fortuitous event if the nature of
the obligation requires the assumption of risk. [14]Carnapping is a normal business risk for
those engaged in the repair of motor vehicles. For just as the owner is exposed to that
risk so is the repair shop since the car was entrusted to it. That is why, repair shops are
required to first register with the Department of Trade and Industry (DTI) [15] and to secure
an insurance policy for the shop covering the property entrusted by its customer
for repair, service or maintenance as a pre-requisite for such registration/accreditation.
[16]
Violation of this statutory duty constitutes negligence per se.[17] Having taken custody
of the vehicle, private respondent is obliged not only to repair the vehicle but must also
provide the customer with some form of security for his property over which he loses
immediate control. An owner who cannot exercise the seven (7) juses or attributes of
ownership the right to possess, to use and enjoy, to abuse or consume, to accessories,
to dispose or alienate, to recover or vindicate and to the fruits - [18] is a crippled owner.
Failure of the repair shop to provide security to a motor vehicle owner would leave the
latter at the mercy of the former. Moreover, on the assumption that private respondents
repair business is duly registered, it presupposes that its shop is covered by insurance
from which it may recover the loss. If private respondent can recover from its insurer,
then it would be unjustly enriched if it will not compensate petitioner to whom no fault
can be attributed. Otherwise, if the shop is not registered, then the presumption of
negligence applies.

One last thing. With respect to the value of the lost vehicle and its accessories for
which the repair shop is liable, it should be based on the fair market value that the
property would command at the time it was entrusted to it or such other value as agreed
upon by the parties subsequent to the loss. Such recoverable value is fair and
reasonable considering that the value of the vehicle depreciates. This value may be
recovered without prejudice to such other damages that a claimant is entitled under
applicable laws.

WHEREFORE, premises considered, the decision of the Court Appeals is

REVERSED and SET ASIDE and the decision of the court a quo is REINSTATED.

SO ORDERED.

Regalado (Chairman), Melo, Puno and Mendoza, JJ. concur.

LEA MER INDUSTRIES INC VS MALAYAN INSURANCE CO, INC.

GR No. 161745, SEPTEMBER 30, 2005

FACTS:

Ilian Silica Mining entered into a contract of carriage with the petitioner, Lea Mer Industries Inc. for the
shipment of 900 metric tons of silica sand worth P565,000. The cargo was consigned to Vulcan
Industrial and Mining Corporation and was to be shipped from Palawan to Manila. The silica sand was
boarded to Judy VII, the vessel leased by Lea Mer. However, during the course of its voyage, the vessel
sank which led to the loss of the cargo.

Consequently, the respondent, as the insurer, paid Vulcan the value of the lost cargo. Malayan
Insurance Co., Inc. then collected from the petitioner the amount it paid to Vulcan as reimbursement
and as its exercise on the right of subrogation. Lea Mer refused to pay which led Malayan to institute a
complaint with the RTC. The RTC dismissed the complaint stating that the loss was due to a fortuitous
event, Typhoon Trining. Petitioner did not know that a typhoon was coming and that it has been cleared
by the Philippine Coast Guard to travel from Palawan to Manila. The CA reversed the ruling of the trial
court for the reason that said vessel was not seaworthy when it sailed to Manila.
ISSUE:
Whether or not the petitioner is liable for the loss of the cargo.

HELD:

CA reversed. Common carriers are persons, corporations, firms or associations engaged in the business
of carrying or transporting passengers or goods, or both by land, water, or air when this service is
offered to the public for compensation. Petitioner is clearly a common carrier, because it offers to the
public its business of transporting goods through its vessels. Thus, the Court corrects the trial court's
finding that petitioner became a private carrier when Vulcan chartered it. Charter parties are classified
as contracts of demise (or bareboat) and affreightment, which are distinguished as follows:

"Under the demise or bareboat charter of the vessel, the charterer will generally be considered as
owner for the voyage or service stipulated. The charterer mans the vessel with his own people and
becomes, in effect, the owner pro hac vice, subject to liability to others for damages caused by
negligence. To create a demise, the owner of a vessel must completely and exclusively relinquish
possession, command and navigation thereof to the charterer; anything short of such a complete
transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all."

The distinction is significant, because a demise or bareboat charter indicates a business undertaking
that is private in character. Consequently, the rights and obligations of the parties to a contract of
private carriage are governed principally by their stipulations, not by the law on common carriers. The
Contract in the present case was one of affreightment, as shown by the fact that it was petitioner's
crew that manned the tugboat M/V Ayalit and controlled the barge Judy VII.

Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and
the safety of the passengers they transport, as required by the nature of their business and for reasons
of public policy. Extraordinary diligence requires rendering service with the greatest skill and foresight
to avoid damage and destruction to the goods entrusted for carriage and delivery.

Common carriers are presumed to have been at fault or to have acted negligently for loss or damage
to the goods that they have transported. This presumption can be rebutted only by proof that they
observed extraordinary diligence, or that the loss or damage was occasioned by any of the following
causes:
"(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
"(2) Act of the public enemy in war, whether international or civil;
"(3) Act or omission of the shipper or owner of the goods;
"(4) The character of the goods or defects in the packing or in the containers;
"(5) Order or act of competent public authority."

Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen
and unexpected occurrence, or the failure of the debtors to comply with their obligations, must have
been independent of human will; (b) the event that constituted the caso fortuito must have been
impossible to foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such
as to render it impossible for the debtors to fulfill their obligation in a normal manner; and (d) the
obligor must have been free from any participation in the aggravation of the resulting injury to the
creditor. To excuse the common carrier fully of any liability, the fortuitous event must have been the
proximate and only cause of the loss. Moreover, it should have exercised due diligence to prevent or
minimize the loss before, during and after the occurrence of the fortuitous event. As required by the
pertinent law, it was not enough for the common carrier to show that there was an unforeseen or
unexpected occurrence. It had to show that it was free from any fault a fact it miserably failed to
prove.

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC. versus LULU V. JORGE and
CESAR JORGE
G.R. NO. 159617 August 8, 2007
FACTS:

On different dates from September to October 1987, Lulu V. Jorge pawned several pieces of
jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Paraaque,
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. 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 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. However, petitioner Sicam contends 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. After trial ,the RTC rendered its Decision dismissing respondents complaint as well
as petitioners counterclaim. The RTC held that robbery is a fortuitous event which exempts the
victim from liability for the loss and under Art. 1174 of the Civil Code. It 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 and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop
business are expected to foresee.

ISSUE:
Whether petitioners are liable for the loss of the pawned articles in their possession.

RULING:
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.
 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. The presentation of the police report of
the Paraaque Police Station on the robbery committed based on the report of petitioners'
employees is not sufficient to establish robbery. Such report also does not prove that petitioners
were not at fault. Also, 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. Thus, petitioners are negligent in securing their pawnshop.

Ireports.
1
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(13
vice-
projects,
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unexpectedprices
other
LCDC
to
its
working
P36M
agent,was
96.43%
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completed,
by
Civil
was
responsibility
in
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onof is
in 2
LCDC AND
had
PRHC
decision
the
amended
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the LCDC
its
to
Tektite
the
reports
monthly
Santos
for
assured
wouldworking
P36Mwas
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corrective
or
LCDC
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agent,
under Corp.,
works.
Civil
was
responsibility
of
RTC
ruled in
Appeals
on
with
applied is
in had
PRHC
completed,
its
the decision
the
amended
Organization
the
signature
of Abcede,
LCDC. PRHC
Joselito
condition
allow
prohibition
the
The PRHC
but
LCDC
the
price
LCDCs
the
name.
the
reports
monthly
Santos
assured the
Tektite
extensionhim
sub-
Makati
Abcede,
signature
with LCDC.
principles its
Article to
to
why
not
PRHC
Joselito
vice-
projects,
Tektite
unanticipated
Abcede
condition
allow
prohibition
Theto PRHC
but
the
price
LCDCs
the
name.
the
extension
with to
repair
by as of
it
on
liability.
corrective
or Corp.,
works. to
repair
as the
into
as
I, It
Art.
given
(CA)
topic I,
to
to
why
him
notof
it
on
the
liability.
into
as
Art.
given
sub-
Makati
its
Article
principles
bar. (CA)
topic It
E. DAEZ Atty. Linatoc, Page 1 of 2 Business Organization I under PHILIPPINE
REALTY AND HOLDINGS CORPORATION (PRHC) vs. LEY CONSTRUCTION AND
DEVELOPMENT (LCDC) CORPORATION G. R. No. 165548 & G. R. No. 167879 (13 June 2011)

FACTS:
Project contractor LCDC and project owner PRHC (with Engr. Dennis Abcede as its project
construction manager, and Joselito Santos, its general manager and vice-president for operations)
entered into several construction projects, including the Tektite Building. LCDC president, Manuel
Ley, met with Abcede to discuss the unanticipated delay in construction due to sudden, unexpected
hike in the prices of cement and other construction materials. Abcede asked LCDC to advance the
amount necessary to complete construction. Ley acceded on condition that PRHC would allow
escalation of contract price and disregard the prohibition contained in the agreements. The PRHC
board of directors turned down the request, but it gave no notice to LCDC of said denial. Instead,
Abcede signed a letter and sent it to LCDC, asking for its conformity, to the effect that should it
infuse P36M into the project, a contract price escalation for the same amount would be granted in
LCDCs favor. However, the letteragreement revealed no signature above PRHCs name.
Notwithstanding the absence of said signature, LCDC proceeded with the construction of Tektite
Building. It infused amounts totalling P38.2M, and religiously submitted to PRHC monthly reports on
the same. But PRHC never replied to any of these monthly reports. When Ley inquired from Abcede
and Santos why its requests for extension of time were not granted in full, the two assured him that
LCDC would not be penalized with damages because the fact that it was working hard on the Tektite
Building project was known to PRHC. However, when 96.43% of Tektite Building had been
completed and LCDC requested the release of the P36M escalation price, PRHC did not reply. After
the construction of the building was completed, it conveyed its decision to set off, in the form of
liquidated damages, its claim to the supposed LCDCs liability. LCDCs alleged liability included the
corrective works to redo or repair the defective waterproofing in one of the projects. LCDC denied
the same by alleging that PRHC, as the principal, forced LCDC, as the agent, into hiring Vulchem
Corp., as sub-agent or substitute, for the waterproofing works. It argued that under Art. 1892 of the
Civil Code 1, an agent is responsible for the acts of the substitute if he was given the power to
appoint a substitute. Conversely, if it is the principal and not the agent who appointed the substitute,
the agent bears no responsibility for the acts of the sub-agent. LCDC filed a Complaint before the
RTC in Makati City which ruled in its favor. PRHC filed a Notice of Appeal. The Court of Appeals
(CA) reversed RTCs amended Decision. 1 Art. 1892. The agent may appoint a substitute if the
principal has not prohibited him from doing so; but he shall be responsible for the acts of the
substitute: (1) When he was not given the power to appoint one; (2) When he was given such power,
but without designating the person, and the person appointed was notoriously incompetent or
insolvent.

ISSUES (related to Business Organization I, particularly on the topic of Agency)

1. Whether or not the signed letter of Abcede, without the signature above PRHCs name, could bind
PRHC to the escalation agreement with LCDC.
2. Whether or not LCDC correctly applied Article 1892 on the principles of agency to the case at bar.

HELD
1. SC ruled that the signature of Abcede, as PRHC construction manager, on the letter-agreement
(contract) is sufficient to bind PRHC because it indicated authority to make such representation on
behalf of PRHC. SC further agreed with LCDC that the actions of Abcede and Santos, assuming
they were beyond the authority given to them by PRHC which they were representing, still bound
PRHC under the doctrine of apparent authority2. Thus, the lack of authority on their part should not
be used to prejudice it, considering that the two were clothed with apparent authority to execute such
agreements.

2. SC ruled that LCDCs reliance on Art. 1892 was misplaced. The principles of agency could not to
be applied to this case, since the legal relationship between PRHC and LCDC was not one of
agency, but was rather that between the owner of the project and an independent contractor under a
contract of service. Thus, it is the agreement between the parties and not the Civil Code provisions
on agency that should be applied to resolve this issue. SC set aside CAs decision and ruled to set
off the respective liabilities of the parties against each other, and PRHC was directed to pay LCDC
the net amount due. 2 [a]lthough an officer or agent acts without, or in excess of, his actual authority
if he acts within the scope of an apparent authority with which the corporation has clothed him by
holding him out or permitting him to appear as having such authority, the corporation is bound
thereby in favor of a person who deals with him in good faith in reliance on such apparent authority,
as where an officer is allowed to exercise a particular authority with respect to the business, or a
particular branch of it, continuously and publicly, for a considerable time. Also, if a private
corporation intentionally or negligently clothes its officers or agents with apparent power to perform
acts for it, the corporation will be estopped to deny that such apparent authority is real, as to
innocent third persons dealing in good faith with such officers or agents. (Yao Ka Sin Trading v.
Court of Appeals, et al. G.R. No. 53820, 15 June 1992, 209 SCRA 763)
NAKPIL & SONS v. CA
To be exempt from liability due to an act of God, the engineer/architect/contractor must not have
been negligent in the construction of the building.

FACTS:
Private respondents Philippine Bar Association (PBA) a non-profit organization formed under the
corporation law decided to put up a building in Intramuros, Manila. Hired to plan the specifications of
the building were Juan Nakpil & Sons, while United Construction was hired to construct it. The
proposal was approved by the Board of Directors and signed by the President, Ramon Ozaeta. The
building was completed in 1966.

In 1968, there was an unusually strong earthquake which caused the building heavy damage, which
led the building to tilt forward, leading the tenants to vacate the premises. United Construction took
remedial measures to sustain the building.

PBA filed a suit for damages against United Construction, but United Construction subsequently filed
a suit against Nakpil and Sons, alleging defects in the plans and specifications.

Technical Issues in the case were referred to Mr. Hizon, as a court appointed Commissioner. PBA
moved for the demolition of the building, but was opposed. PBA eventually paid for the demolition
after the building suffered more damages in 1970 due to previous earthquakes. The Commissioner
found that there were deviations in the specifications and plans, as well as defects in the
construction of the building.

ISSUE:
Whether or not an act of God (fortuitous event) exempts from liability parties who would otherwise be
due to negligence?
HELD:
Art. 1723 dictates that the engineer/architect and contractor are liable for damages should the
building collapse within 15 years from completion.

Art. 1174 of the NCC, however, states that no person shall be responsible for events, which could not
be foreseen. But to be exempt from liability due to an act of God, the ff must occur:

1) cause of breach must be independent of the will of the debtor

2) event must be unforeseeable or unavoidable
3) event must be such that it would render it impossible for the debtor to fulfill the obligation
4) debtor must be free from any participation or aggravation of the industry to the creditor.

In the case at bar, although the damage was ultimately caused by the earthquake which was an act
of God, the defects in the construction, as well as the deviations in the specifications and plans
aggravated the damage, and lessened the preventive measures that the building would otherwise
have had.

PEDRO VASQUEZ v. THE COURT OF APPEALS

G.R. No. L-42926 1985 Sep 13

FACTS:

MV 'Pioneer Cebu' was owned and operated by the defendant and used in the transportation
of goods and passengers in the interisland shipping. It had a passenger capacity of three hundred
twenty-two including the crew. It undertook the said voyage on a special permit issued by the
Collector of Customs inasmuch as, upon inspection, it was found to be without an emergency
electrical power system. The special permit authorized the vessel to carry only two hundred sixty
passengers due to the said deficiency and for lack of safety devices for 322 passengers. A
headcount was made of the passengers on board, resulting on the tallying of 168 adults and 20
minors, although the passengers manifest only listed 106 passengers. It has been admitted,
however, that the headcount is not reliable. When the vessel left Manila, its officers were already
aware of the typhoon Klaring building up somewhere in Mindanao. Plaintiffs seek the recovery
of damages due to the loss of Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez
during said voyage.

ISSUE:
 Whether or not the respondent would be exempt from responsibility due to its defense of
fortuitous event.

RULING:

To constitute a caso fortuito that would exempt a person from responsibility, it is necessary
that (1) the event must be independent of the human will; (2) the occurrence must render it
impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the obligor
must be free of participation in, or aggravation of, the injury to the creditor. The event must have
been impossible to foresee, or if it could be foreseen, must have been impossible to avoid. There
must be an entire exclusion of human agency from the cause of injury or loss.

Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet,
having been kept posted on the course of the typhoon by weather bulletins at intervals of six
hours, the captain and crew were well aware of the risk they were taking as they hopped from
island to island from Romblon up to Tanguingui. They held frequent conferences, and oblivious
of the utmost diligence required of very cautious persons, they decided to take a calculated risk.
In so doing, they failed to observe that extraordinary diligence required of them explicitly by law
for the safety of the passengers transported by them with due regard for all circumstances and
unnecessarily exposed the vessel and passengers to the tragic mishap. They failed to overcome
that presumption of fault or negligence that arises in cases of death or injuries to passengers.

With regard to the contention that the total loss of the vessel extinguished its liability
pursuant to Article 587 of the Code of Commerce, it was held that the liability of a shipowner is
limited to the value of the vessel or to the insurance thereon. Despite the total loss of the vessel
therefore, its insurance answers for the damages that a shipowner or agent may be held liable for
by reason of the death of its passengers.

MEGAWORLD GLOBUS ASIA, INC. v .MILA S. TANSECO

G.R. No. 181206 October 9, 2009

FACTS:

On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and respondent Mila S.
Tanseco (Tanseco) entered into a Contract to Buy and Sell1 a 224 square-meter (more or less)
condominium unit at a pre-selling project. The purchase price was P16,802,037.32, to be paid as
follows: (1) 30% less the reservation fee of P100,000, or P4,940,611.19, by postdated check
payable on July 14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of
P308,037.35 from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 on
October 31, 1998, the stipulated delivery date of the unit; provided that if the construction is
completed earlier, Tanseco would pay the balance within seven days from receipt of a notice of
turnover. Tanseco paid all installments due up to January, 1998, leaving unpaid the balance of
P2,520,305.63 pending delivery of the unit. Megaworld, however, failed to deliver the unit
within the stipulated period on October 31, 1998 or April 30, 1999, the last day of the six-month
grace period.
A few days shy of three years later, Megaworld, by notice dated April 23, 2002 (notice of
turnover), informed Tanseco that the unit was ready for inspection preparatory to delivery.
Tanseco replied through counsel, by letter of May 6, 2002, that in view of Megaworlds failure to
deliver the unit on time, she was demanding the return of P14,281,731.70 representing the total
installment payment she had made, with interest at 12% per annum from April 30, 1999, the
expiration of the six-month grace period. Tanseco pointed out that none of the excepted causes of
delay existed.

ISSUE:

Whether or not there was a fortuitous event in the case at bar

RULING:

The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to complete and
deliver the condominium unit on October 31, 1998 or six months thereafter on the part of
Megaworld, and to pay the balance of the purchase price at or about the time of delivery on the
part of Tanseco. Compliance by Megaworld with its obligation is determinative of compliance by
Tanseco with her obligation to pay the balance of the purchase price. Megaworld having failed to
comply with its obligation under the contract, it is liable therefor.

That Megaworlds sending of a notice of turnover preceded Tansecos demand for refund does
not abate her cause. For demand would have been useless, Megaworld admittedly having failed
in its obligation to deliver the unit on the agreed date.

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.

The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable and beyond the
control of a business corporation. A real estate enterprise engaged in the pre-selling of
condominium units is concededly a master in projections on commodities and currency
movements, as well as business risks. The fluctuating movement of the Philippine peso in the
foreign exchange market is an everyday occurrence, hence, not an instance of caso fortuito.
Megaworlds excuse for its delay does not thus lie.

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 certiorari are the Decision dated February 12, 2007 and the
1 2

Resolution dated May 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896 which
3

reversed and set aside the Decision dated January 17, 2006 of the Regional Trial Court of Makati,
4

Branch 57 (RTC) in Civil Case No. 00-1563, thereby ordering petitioners Metro Concast Steel
Corporation (Metro Concast), Spouses Jose S. Dychiao and Tiu Oh Yan, Spouses Guillermo and
Mercedes Dychiao, and Spouses Vicente and Filomena Duchiao (individual petitioners) to solidarily
pay respondent Allied Bank Corporation (Allied Bank) the aggregate amount of P51,064,094.28, with
applicable interests and penalty charges.

The Facts

On various dates and for different amounts, Metro Concast, a corporation duly organized and
existing under and by virtue of Philippine laws and engaged in the business of manufacturing
steel, through its officers, herein individual petitioners, obtained several loans from Allied Bank.
5

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. 96-21301 6

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 in favor of 19

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, all dated
20

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 money (subject complaint)
21

against petitioners before the RTC, docketed as Civil Case No. 00-1563. In their second Amended 22

Answer, petitioners admitted their indebtedness to Allied Bank but denied liability for the interests
23

and penalties charged, claiming to have paid the total sum of P65,073,055.73 by way of interest
charges for the period covering 1992 to 1997. 24

They also alleged that the economic reverses suffered by the Philippine economy in 1998 as well as
the devaluation of the peso against the US dollar contributed greatly to the downfall of the steel
industry, directly affecting the business of Metro Concast and eventually leading to its cessation.
Hence, in order to settle their debts with Allied Bank, petitioners offered the sale of Metro Concasts
remaining assets, consisting of machineries and equipment, to Allied Bank, which the latter,
however, refused. Instead, Allied Bank advised them to sell the equipment and apply the proceeds of
the sale to their outstanding obligations. Accordingly, petitioners offered the equipment for sale, but
since there were no takers, the equipment was reduced into ferro scrap or scrap metal over the
years. In 2002, Peakstar Oil Corporation (Peakstar), represented by one Crisanta Camiling
(Camiling), expressed interest in buying the scrap metal. During the negotiations with Peakstar,
petitioners claimed that Atty. Peter Saw (Atty. Saw), a member of Allied Banks legal department,
acted as the latters agent. Eventually, with the alleged conformity of Allied Bank, through Atty. Saw,
a Memorandum of Agreement dated November 8, 2002 (MoA) was drawn between Metro Concast,
25

represented by petitioner Jose Dychiao, and Peakstar, through Camiling, under which Peakstar
obligated itself to purchase the scrap metal for a total consideration of P34,000,000.00, payable as
follows:

(a) P4,000,000.00 by way of earnest money P2,000,000.00 to be paid in cash and the
other P2,000,000.00 to be paid in two (2) post-dated checks of P1,000,000.00 each; and 26

(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 during trial that it was Atty.
28

Saw himself who drafted the MoA and subsequently received the P2,000,000.00 cash and the two
29

(2) Bankwise post-dated checks worth P1,000,000.00 each from Camiling. However, Atty. Saw
turned over only the two (2) checks and P1,500,000.00 in cash to the wife of Jose Dychiao. 30

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

The RTC Ruling

After trial on the merits, the RTC, in a Decision dated January 17, 2006, dismissed the subject
31

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 Decision dated February 12, 2007, reversed and set
32

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" when it made a contrary
34

pronouncement. While Atty. Saw received the earnest money from Peakstar, the receipt was signed
by him on behalf of Jose Dychiao. 35

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

Consequently, the CA granted the appeal and directed petitioners to solidarily pay Allied Bank their
corresponding obligations under the aforementioned promissory note and trust receipts, plus
interests, penalty charges and attorneys fees. Petitioners sought reconsideration which was,
37

however, denied in a Resolution dated May 10, 2007. Hence, this petition.
38

The Issue Before the Court

At the core of the present controversy is the sole issue of whether or not the loan obligations
incurred by the petitioners under the subject promissory note and various trust receipts have already
been extinguished.

The Courts Ruling

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

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

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

While it may be argued that Peakstars breach of the MoA was unforseen by petitioners, the same us
clearly not "impossible"to foresee or even an event which is independent of human will." Neither has
it been shown that said occurrence rendered it impossible for petitioners to pay their loan obligations
to Allied Bank and thus, negates the formers force majeure theory altogether. In any case, as earlier
stated, the performance or breach of the MoA bears no relation to the performance or breach of the
subject loan transactions, they being separate and distinct sources of obligations. The fact of the
matter is that petitioners loan obligations to Allied Bank remain subsisting for the basic reason that
the former has not been able to prove that the same had already been paid or, in any way,
41

extinguished. In this regard, petitioners liability, as adjudged by the CA, must perforce stand.
Considering, however, that Allied Banks extra-judicial demand on petitioners appears to have been
made only on December 10, 1998, the computation of the applicable interests and penalty charges
should be reckoned only from such date.

WHEREFORE, the petition is DENIED. The Decision dated February 12, 2007 and Resolution dated
May 10, 2007 of the Court of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED with
MODIFICATION reckoning the applicable interests and penalty charges from the date of the
extrajudicial demand or on December 10, 1998. The rest of the appellate courts dispositions stand.

SO ORDERED.