Articles 1156-1177 page4

NPC v. CA
Facts:
At the height of the typhoon Kading, a flash flood covered the towns near the Angat Dam, causing
deaths and destructions to residents and their properties. Respondents blamed the tragedy to the reckless
and imprudent opening of the 3 floodgates by petitioner, without prior warning to the residents within the
vicinity of the dam. Petitioners denied the allegations and contended that they have kept the water at a
safe level, that the opening of floodgates was done gradually, that it exercises diligence in the selection of
its employees, and that written warnings were sent to the residents. It further contended that there was no
direct causal relationship between the damage and the alleged negligence on their part, that the residents
assumed the risk by living near the dam, and that what happened was a fortuitous event and are of the
nature of damnum absque injuria.
Issues:
(1) Whether the petitioner can be held liable even though the coming of the typhoon is a fortuitous event
(2) Whether a notice was sent to the residents
(3) Whether the damage suffered by respondents is one of damnum absque injuria
Held:
(1) The obligor cannot escape liability, if upon the happening of a fortuitous event or an act of God, a
corresponding fraud, negligence, delay or violation or contravention in any manner of the tenor of the
obligation as provided in Article 1170 of the Civil Code which results in loss or damage. Even if there
was no contractual relation between themselves and private respondents, they are still liable under the law
on quasi-delict. Article 2176 of the Civil Code explicitly provides "whoever by act or omission causes
damage to another there being fault or negligence is obliged to pay for the damage done." Act of God 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 principle embodied in the act of God doctrine strictly requires that the act must be occasioned
solely by the violence of nature. Human intervention is to be excluded from creating or entering into the
cause of the mischief. When the effect is found to be in part the result of the participation of man, whether
due to his active intervention or neglect or failure to act, the whole occurrence is then humanized and
removed from the rules applicable to the acts of God. In the case at bar, although the typhoon "Kading"
was an act of God, petitioners can not escape liability because their negligence was the proximate cause
of the loss and damage.
(2) The letter itself, addressed merely "TO ALL CONCERNED", would not strike one to be of serious
importance, sufficient enough to set alarm and cause people to take precautions for their safety's sake. The
notices were not delivered, or even addressed to responsible officials of the municipalities concerned who
could have disseminated the warning properly. They were delivered to ordinary employees and
policemen. As it happened, the said notices do not appear to have reached the people concerned, which
are the residents beside the Angat River. The plaintiffs in this case definitely did not receive any such
warning. Indeed, the methods by which the defendants allegedly sent the notice or warning was so

ineffectual that they cannot claim, as they do in their second assignment of error, that the sending of said
notice has absolved them from liability.
(3) We cannot give credence to petitioners' third assignment of error that the damage caused by the
opening of the dam was in the nature of damnum absque injuria, which presupposes that although there
was physical damage, there was no legal injury in view of the fortuitous events. There is no question that
petitioners have the right, duty and obligation to operate, maintain and preserve the facilities of Angat
Dam, but their negligence cannot be countenanced, however noble their intention may be. The end does
not justify the means, particularly because they could have done otherwise than simultaneously opening
the spillways to such extent. Needless to say, petitioners are not entitled to counterclaim.

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.

FGU Insurance Corporation v. CA

FACTS:

Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in
the shipping business operating two common carriers
o M/T ANCO tugboat
o

D/B Lucio barge - no engine of its own, it could not maneuver by itself and had to be
towed by a tugboat for it to move from one place to another.

September 23 1979: San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board
the D/B Lucio, for towage by M/T ANCO:
o

25,000 cases Pale Pilsen and 350 cases Cerveza Negra - consignee SMCs Beer
Marketing Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo

15,000 cases Pale Pilsen and 200 cases Cerveza Negra - consignee SMCs BMD-San Jose
Beer Sales Office, San Jose, Antique

September 30, 1979: D/B Lucio was towed by the M/T ANCO arrived and M/T ANCO left the
barge immediately
o

The clouds were dark and the waves were big so SMCs District Sales Supervisor,
Fernando Macabuag, requested ANCOs representative to transfer the barge to a safer
place but it refused so around the midnight, the barge sunk along with 29,210 cases of
Pale Pilsen and 500 cases of Cerveza Negra totalling to P1,346,197

When SMC claimed against ANCO it stated that they agreed that it would not be liable for any
losses or damages resulting to the cargoes by reason of fortuitous event and it was agreed to be
insured with FGU for 20,000 cases or P858,500

ANCO filed against FGU

o

FGU alleged that ANCO and SMC failed to exercise ordinary diligence or the diligence
of a good father of the family in the care and supervision of the cargoes

RTC: ANCO liable to SMC and FGU liable for 53% of the lost cargoes

CA affirmed

ISSUE: W/N FGU should be exempted from liability to ANCO for the lost cargoes because of a
fortuitous event and negligence of ANCO
HELD: YES. Affirmed with modification. Third-party complainant is dismissed.
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy
are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735, and
1745 Nos. 5, 6, and 7 . . .

Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:

(1)

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

. . .

Art. 1739. In order that the common carrier may be exempted from responsibility, the natural
disaster must have been the proximate and only cause of the loss. However, the common carrier
must exercise due diligence to prevent or minimize loss before, during and after the occurrence of
flood, storm, or other natural disaster in order that the common carrier may be exempted from
liability for the loss, destruction, or deterioration of the goods . . .
Caso fortuito or force majeure
o

extraordinary events not foreseeable or avoidable, events that could not be foreseen, or
which though foreseen, were inevitable

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 - not in this case

other vessels in the port of San Jose, Antique, managed to transfer to another
place

To be exempted from responsibility, the natural disaster should have been the proximate and only
cause of the loss. There must have been no contributory negligence on the part of the common
carrier.
o

there was blatant negligence on the part of M/T ANCOs crewmembers, first in leaving
the engine-less barge D/B Lucio at the mercy of the storm without the assistance of the
tugboat, and again in failing to heed the request of SMCs representatives to have the
barge transferred to a safer place

When evidence show that the insureds negligence or recklessness is so gross as to be sufficient to
constitute a willful act, the insurer must be exonerated.

ANCOs employees is of such gross character that it amounts to a wrongful act which must
exonerate FGU from liability under the insurance contract
o

both the D/B Lucio and the M/T ANCO were blatantly negligent

Schmitz Transport & Brokerage Corporation vs. Transport Venture, Inc. (458 SCRA 557)
FACTS:
Petitioner, who was in charge of securing requisite clearances, receive the cargoes from the shipside and
deliver it to the consignee Little Giant Steel Pipe Corporation warehouse at Cainta, Rizal, hired the
services of respondent Transport Venture Incorporation (TVI)s tugboat for the hot rolled steel sheets in
coil. Coils were unloaded to the barge but there was no tugboat to pull the barge to the pier. Due to strong

waves caused by approaching storm, the barge was abandoned. Later, the barge capsized washing 37 coils
into the sea. Consignee was executed a subrogation receipt by Industrial Insurance after the formers
filing of formal claim. Industrial Insurance filed a complaint against both petitioner and respondent
herein. The trial court held that petitioner and respondent TVI were jointly and severally liable for the
subrogation.
ISSUE:
Whether or not the loss of cargoes was due to fortuitous event.
RULING:
NO. In order, to be considered a fortuitous event: (1) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with his obligation, must be independent of human will;
(2) it must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen it
must be impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to
fulfill his obligation in any manner; and (4) the obligor must be free from any participation in the
aggravation of the injury resulting to the creditor.
Petitioner and respondent TVI were jointly and severally liable for the amount of paid by the consignee
plus interest computed from the date of decision of the trial court.

Philippines Free Press, Inc. vs. Court of Appeals (473 SCRA 639)
FACTS:
Petitioner, thru Teodoro Locsin, Sr., filed a case of Annulment of Sale of its building, lot and printing
machineries during the regime of Martial Law to private respondent then represented by late B/Gen.
Menzi on February 26, 1987. Petitioner contends that there was vitiated consent and gross inadequacy of
purchase price during its sale on October 23, 1973. The trial court dismissed petitioners complaint and
granted private respondents counterclaim. It was elevated to the Court of Appeals but was also dismissed
for lack of merit.
ISSUE: Whether or not the action for annulment has already prescribed.
RULING:
YES. Article 391 of the Civil Code pertinently reads The action for annulment shall be brought within
four years. This period shall begin: In cases of intimidation, violence or undue influence, from the time
the defect of consent ceases x x x.
[The Supreme Court] cannot accept the petitioners contention that the period during which authoritarian
rule was in force had interrupted prescription and that the same began to run only on February 25, 1986,
when the Aquino government took power. It is true that under Article 1154 [of the Civil Code] xxx
fortuitous events have the effect of tolling the period of prescription. However, [the Supreme Court]

cannot say, as a universal rule, that the period from September 21, 1972 through February 25, 1986
involves a force majeure. Plainly, [the Supreme Court] can not box in the dictatorial period within the
term without distinction, and without, by necessity, suspending all liabilities, however demandable,
incurred during that period, including perhaps those ordered by this Court to be paid.

Eastern Shipping vs CA
GR No. 97412, 12 July 1994
234 SCRA 78
FACTS:
Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured
with a marine policy. Upon arrival in Manila unto the custody of metro Port Service, which excepted to
one drum, said to be in bad order and which damage was unknown the Mercantile Insurance Company.
Allied Brokerage Corporation received the shipment from Metro, one drum opened and without seal.
Allied delivered the shipment to the consignees warehouse. The latter excepted to one drum which
contained spillages while the rest of the contents was adulterated/fake. As consequence of the loss, the
insurance company paid the consignee, so that it became subrogated to all the rights of action of
consignee against the defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance
company filed before the trial court. The trial court ruled in favor of plaintiff an ordered defendants to pay
the former with present legal interest of 12% per annum from the date of the filing of the complaint. On
appeal by defendants, the appellate court denied the same and affirmed in toto the decision of the trial
court.
ISSUE:
(1) Whether the applicable rate of legal interest is 12% or 6%.
(2) Whether the payment of legal interest on the award for loss or damage is to be computed from the time
the complaint is filed from the date the decision appealed from is rendered.
HELD:
(1)The Court held that the legal interest is 6% computed from the decision of the court a quo.
When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damaes awarded may be imposed at the discretion of the court at the rate of 6% per annum. No
interest shall be adjudged on unliquidated claims or damages except when or until the demand can be
established with reasonable certainty.
When the judgment of the court awarding a sum of money becomes final and executor, the
rate of legal interest shall be 12% per annum from such finality until satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of money.
The interest due shall be 12% PA to be computed fro default, J or EJD.
(2) From the date the judgment is made. Where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or EJ but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shll begin to run
only from the date of judgment of the court is made.
(3) The Court held that it should be computed from the decision rendered by the court a quo.

SAMPAGUITA BUILDERS v PNB

Mini digest:
Sampaguita loaned money from PNB. PNB unilaterally increased rates of interest in the
loan w/o informing Sampaguita. PNB c l a i m e d t h e y w e r e a u t h o r i z e d t o d o i t a s t h e r e
w a s a c l a u s e i n t h e agreement that they may do so. Besides, Usury law was no longer in force= SC
said NO! PNB cannot do so; it will violate mutuality of contracts under1 3 0 8 . B e s i d e s , S C
m a y i n t e r v e n e w h e n a m o u n t o f i n t e r e s t i s unconscionable.
Facts: Sampaguita secured a loan from PNB in an aggregate amount of 8M pesos, mortgaging the
properties of Sampaguitas president and chairman of the b o a r d . S a m p a g u i t a a l s o e x e c u t e d
s e v e r a l p r o m i s s o r y n o t e s d u e o n different dates (payment dates). The first promissory
note had 19.5%interest rate. The 2nd and 3rd had 21.5%. a uniform clause therein permitted PNB to
increase the rate within the limits allowed by law at any time depending on whatever
policy it may adopt in the future x x x, without even giving prior notice to petitioners.
There was also a clause in the promissory note that stated that if the same is not paid 2
years after release then it shall be converted to a medium term loan and the interest rate for such loan
would apply. Later on, Sampaguita defaulted on its payments and failed to comply with obligations on
promissory notes. Sampaguita thus requested for a 90 day extension to pay the loan. Again they
defaulted, so they asked for loan restructuring. It partly paid the loan and promised to pay the
balance later o n . A G A I N t h e y f a i l e d t o p a y s o P N B e x t r a j u d i c i a l l y f o r e c l o s e d t h e
mortgaged properties. It was sold for 10M. PNB claimed that Sampaguita owed it 12M so they filed a
case in court asking sampaguita to pay for deficiency.RTC found that Sampaguita was
automatically entitled to the debt relief package of PNB and ruled that the latter had no cause of
action against the former. CA reversed, saying Sampaguita was not entitled, thus ordered
them to pay the deficiency Appeal = Went to SC. Sampaguita claims the loan was bloated s o t h e y
d o n t r e a l l y o w e P N B a n y m o r e , b u t i t j u s t overcharged them!

Issues/Ruling:
W/N the loan accounts are bloated: YES. There is no deficiency; there is actually an
overpayment of more than 3M based on the computation of the SC. Whether PNB could unilaterally
increase interest rates: NO
Ratio:
Sampaguitas accessory duty to pay interest did not give PNB unrestrained freedom to charge any rate
other than that which was agreed upon. No interest shall be due, unless expressly stipulated in writing. It
would be the z e n i t h o f f a r c i c a l i t y t o s p e c i f y a n d a g r e e u p o n r a t e s t h a t c o u l d b e
subsequently upgraded at whim by only one party to the agreement. T h e u n i l a t e r a l
d e t e r m i n a t i o n a n d i m p o s i t i o n o f i n c r e a s e d r a t e s i s violative of the principle of
mutuality of contracts ordained in Article 1308of the Civil Code. One-sided impositions do not

have the force of law between the parties, because such impositions are not based on the
parties essential equality. Although escalation clauses are valid in maintaining fiscal stability
and retaining the value of money on long-term contracts, giving respondent an unbridled right to adjust
the interest independently and upwardly would completely take away from petitioners the right to assent
to an important modification in their agreement and would also negate the element
of mutuality in their contracts. The clause cited earlier made the fulfillment of the contracts
dependent exclusively upon the uncontrolled will of respondent and was therefore void.
Besides, the pro forma promissory notes have the character of a contract d adhesion, where the
parties do n o t b a r g a i n o n e q u a l f o o t i n g , t h e w e a k e r p a r t y s [ t h e
d e b t o r s ] participation being reduced to the alternative to take it or leave it.C i r c u l a r t h a t
l i f t e d t h e c e i l i n g o f i n t e r e s t r a t e s o f u s u r y l a w d i d n o t authorize either party to
unilaterally raise the interest rate without the others consent. the interest ranging from 26
percent to 35 percent in the statements of account -- must be equitably reduced for being
iniquitous, unconscionable and exorbitant. Rates found to be iniquitous or unconscionable are void, as if
it there were no express contract thereon. Above all, it is undoubtedly against public policy to charge
excessively for the use of money.

Lilibeth Sunga-Chan vs Lamberto Chua and Honorable Court of Appeals

FACTS: In 1977, Chua and Jacinto Sunga verbally agreed to form a partnership for the sale and
distribution of Shellane LPGs. Their business was very profitable but in 1989 Jacinto died. Upon Jacintos
death, his daughter Lilibeth took over the business as well as the business assets. Chua then demanded for
an accounting but Lilibeth kept on evading him. In 1992 however, Lilibeth gave Chua P200k. She said
that the same represents a partial payment; that the rest will come after she finally made an accounting.
She never made an accounting so in 1992, Chua filed a complaint for Winding Up of Partnership Affairs,
Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment
against Lilibeth.
Lilibeth in her defense argued among others that Chuas action has prescribed.
ISSUE: Whether or not Chuas claim is barred by prescription.
HELD: No. The action for accounting filed by Chua three (3) years after Jacintos death was well within
the prescribed period. The Civil Code provides that an action to enforce an oral contract prescribes in six
(6) years while the right to demand an accounting for a partners interest as against the person continuing
the business accrues at the date of dissolution, in the absence of any contrary agreement. Considering that
the death of a partner results in the dissolution of the partnership, in this case, it was after Jacintos death
that Chua as the surviving partner had the right to an account of his interest as against Lilibeth. It bears
stressing that while Jacintos death dissolved the partnership, the dissolution did not immediately
terminate the partnership. The Civil Code expressly provides that upon dissolution, the partnership
continues and its legal personality is retained until the complete winding up of its business, culminating in
its termination.