G.R. No. 113003 October 17, 1997 ALBERTA YOBIDO and CRESENCIO YOBIDO, petitioners, vs.

COURT OF APPEALS, LENY TUMBOY, ARDEE TUMBOY and JASMIN TUMBOY, respondents.

ROMERO, J.: In this petition for review on certiorari of the decision of the Court of Appeals, the issue is whether or not the explosion of a newly installed tire of a passenger vehicle is a fortuitous event that exempts the carrier from liability for the death of a passenger. On April 26, 1988, spouses Tito and Leny Tumboy and their minor children named Ardee and Jasmin, bearded at Mangagoy, Surigao del Sur, a Yobido Liner bus bound for Davao City. Along Picop Road in Km. 17, Sta. Maria, Agusan del Sur, the left front tire of the bus exploded. The bus fell into a ravine around three (3) feet from the road and struck a tree. The incident resulted in the death of 28-year-old Tito Tumboy and physical injuries to other passengers. On November 21, 1988, a complaint for breach of contract of carriage, damages and attorney's fees was filed by Leny and her children against Alberta Yobido, the owner of the bus, and Cresencio Yobido, its driver, before the Regional Trial Court of Davao City. When the defendants therein filed their answer to the complaint, they raised the affirmative defense of caso fortuito. They also filed a third-party complaint against Philippine Phoenix Surety and Insurance, Inc. This third-party defendant filed an answer with compulsory counterclaim. At the pre-trial conference, the parties agreed 1 to a stipulation of facts. Upon a finding that the third party defendant was not liable under the insurance contract, the lower court dismissed the third party complaint. No amicable settlement having been arrived at by the parties, trial on the merits ensued. The plaintiffs asserted that violation of the contract of carriage between them and the defendants was brought about by the driver's failure to exercise the diligence required of the carrier in transporting passengers safely to their place of destination. According to Leny Tumboy, the bus left Mangagoy at 3:00 o'clock in the afternoon. The winding road it traversed was not cemented and was wet due to the rain; it was rough with crushed rocks. The bus which was full of passengers had cargoes on top. Since it was "running fast," she cautioned the driver to slow down but he merely stared at her through the mirror. At around 3:30 p.m., in Trento, she heard something explode and immediately, the bus fell into a ravine.

For their part, the defendants tried to establish that the accident was due to a fortuitous event. Abundio Salce, who was the bus conductor when the incident happened, testified that the 42-seater bus was not full as there were only 32 passengers, such that he himself managed to get a seat. He added that the bus was running at a speed of "60 to 50" and that it was going slow because of the zigzag road. He affirmed that the left front tire that exploded was a "brand new tire" that he mounted on the bus on April 21, 1988 or only five (5) days before the incident. The Yobido Liner secretary, Minerva Fernando, bought the new Goodyear tire from Davao Toyo Parts on April 20, 1988 and she was present when it was mounted on the bus by Salce. She stated that all driver applicants in Yobido Liner underwent actual driving tests before they were employed. Defendant Cresencio Yobido underwent such test and submitted his professional driver's license and clearances from the barangay, the fiscal and the police. On August 29, 1991, the lower court rendered a 2 decision dismissing the action for lack of merit. On the issue of whether or not the tire blowout was a caso fortuito, it found that "the falling of the bus to the cliff was a result of no other outside factor than the tire blow-out." It held that the ruling in the La Mallorca and Pampanga Bus Co. v. De 3 Jesus that a tire blowout is "a mechanical defect of the conveyance or a fault in its equipment which was easily discoverable if the bus had been subjected to a more thorough or rigid check-up before it took to the road that morning" is inapplicable to this case. It reasoned out that in said case, it was found that the blowout was caused by the established fact that the inner tube of the left front tire "was pressed between the inner circle of the left wheel and the rim which had slipped out of the wheel." In this case, however, "the cause of the explosion remains a mystery until at present." As such, the court added, the tire blowout was "a caso fortuito which is completely an extraordinary circumstance independent of the will" of the defendants who should be relieved of "whatever liability the plaintiffs may have suffered by reason of the explosion pursuant to Article 4 1174 of the Civil Code." Dissatisfied, the plaintiffs appealed to the Court of Appeals. They ascribed to the lower court the following errors: (a) finding that the tire blowout was a caso fortuito; (b) failing to hold that the defendants did not exercise utmost and/or extraordinary diligence required of carriers under Article 1755 of the Civil Code, and (c) deciding the case contrary to 5 6 the ruling in Juntilla v. Fontanar, and Necesito v. Paras. On August 23, 1993, the Court of Appeals rendered the 7 Decision reversing that of the lower court. It held that: To Our mind, the explosion of the tire is not in itself a fortuitous event. The cause of the blow-out, if due to a

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factory defect, improper mounting, excessive tire pressure, is not an unavoidable event. On the other hand, there may have been adverse conditions on the road that were unforeseeable and/or inevitable, which could make the blow-out a caso fortuito. The fact that the cause of the blow-out was not known does not relieve the carrier of liability. Owing to the statutory presumption of negligence against the carrier and its obligation to exercise the utmost diligence of very cautious persons to carry the passenger safely as far as human care and foresight can provide, it is the burden of the defendants to prove that the cause of the blow-out was a fortuitous event. It is not incumbent upon the plaintiff to prove that the cause of the blow-out is not caso-fortuito. Proving that the tire that exploded is a new Goodyear tire is not sufficient to discharge defendants' burden. As enunciated in Necesito vs. Paras, the passenger has neither choice nor control over the carrier in the selection and use of its equipment, and the good repute of the manufacturer will not necessarily relieve the carrier from liability. Moreover, there is evidence that the bus was moving fast, and the road was wet and rough. The driver could have explained that the blow-out that precipitated the accident that caused the death of Toto Tumboy could not have been prevented even if he had exercised due care to avoid the same, but he was not presented as witness. The Court of Appeals thus disposed of the appeal as follows: WHEREFORE, the judgment of the court a quo is set aside and another one entered ordering defendants to pay plaintiffs the sum of P50,000.00 for the death of Tito Tumboy, P30,000.00 in moral damages, and P7,000.00 for funeral and burial expenses. SO ORDERED. The defendants filed a motion for reconsideration of said decision which was denied on November 4, 1993 by the Court of Appeals. Hence, the instant petition asserting the position that the tire blowout that caused the death of Tito Tumboy was a caso fortuito. Petitioners claim further that the Court of Appeals, in ruling contrary to that of the lower court, misapprehended facts and, therefore, its findings of fact cannot be considered final which shall bind this Court. Hence, they pray that this Court review the facts of the case. The Court did re-examine the facts and evidence in this case because of the inapplicability of the established principle that the factual findings of the Court of Appeals are final and may not be reviewed on appeal by this Court. This general principle is subject to exceptions such as the one present in this case, namely, that the lower court and the Court of 8 Appeals arrived at diverse factual findings. However, upon

such re-examination, we found no reason to overturn the findings and conclusions of the Court of Appeals. As a rule, when a passenger boards a common carrier, he takes the risks incidental to the mode of travel he has taken. After all, a carrier is not an insurer of the safety of its passengers and is not bound absolutely and at all events to 9 carry them safely and without injury. However, when a passenger is injured or dies while travelling, the law presumes that the common carrier is negligent. Thus, the Civil Code provides: Art. 1756. In case of death or injuries to passengers, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in articles 1733 and 1755. Article 1755 provides that "(a) common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances." Accordingly, in culpa contractual, once a passenger dies or is injured, the carrier is presumed to have been at fault or to have acted negligently. This disputable presumption may only be overcome by evidence that the carrier had observed 10 extraordinary diligence as prescribed by Articles 1733, 1755 and 1756 of the Civil Code or that the death or injury of the 11 passenger was due to a fortuitous event. Consequently, the court need not make an express finding of fault or negligence on the part of the carrier to hold it responsible for damages 12 sought by the passenger. In view of the foregoing, petitioners' contention that they should be exempt from liability because the tire blowout was no more than a fortuitous event that could not have been foreseen, must fail. A fortuitous event is possessed of the following characteristics: (a) the cause of the unforeseen and unexpected occurrence, or the failure of the debtor to comply with his obligations, must be independent of human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obliger must be free from any participation in the aggravation of the injury resulting to the 13 creditor. As Article 1174 provides, no person shall be responsible for a fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. In other words, there must be an entire exclusion of human agency 14 from the cause of injury or loss. Under the circumstances of this case, the explosion of the new tire may not be considered a fortuitous event. There are human factors involved in the situation. The fact that the tire

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was new did not imply that it was entirely free from manufacturing defects or that it was properly mounted on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a brand name noted for quality, resulting in the conclusion that it could not explode within five days' use. Be that as it may, it is settled that an accident caused either by defects in the automobile or through the negligence of its driver is not a caso fortuito that would 15 exempt the carrier from liability for damages. Moreover, a common carrier may not be absolved from liability in case of force majeure or fortuitous event alone. The common carrier must still prove that it was not negligent in causing the death or injury resulting from an 16 accident. This Court has had occasion to state: While it may be true that the tire that blew-up was still good because the grooves of the tire were still visible, this fact alone does not make the explosion of the tire a fortuitous event. No evidence was presented to show that the accident was due to adverse road conditions or that precautions were taken by the jeepney driver to compensate for any conditions liable to cause accidents. The sudden blowing-up, therefore, could have been caused by too much air pressure injected into the tire coupled by the fact that the jeepney was 17 overloaded and speeding at the time of the accident. It is interesting to note that petitioners proved through the bus conductor, Salce, that the bus was running at "60-50" kilometers per hour only or within the prescribed lawful speed limit. However, they failed to rebut the testimony of Leny Tumboy that the bus was running so fast that she cautioned the driver to slow down. These contradictory facts must, therefore, be resolved in favor of liability in view of the presumption of negligence of the carrier in the law. Coupled with this is the established condition of the road rough, winding and wet due to the rain. It was incumbent upon the defense to establish that it took precautionary measures considering partially dangerous condition of the road. As stated above, proof that the tire was new and of good quality is not sufficient proof that it was not negligent. Petitioners should have shown that it undertook extraordinary diligence in the care of its carrier, such as conducting daily routinary check-ups of the vehicle's parts. As the late Justice J.B.L. Reyes said: It may be impracticable, as appellee argues, to require of carriers to test the strength of each and every part of its vehicles before each trip; but we are of the opinion that a due regard for the carrier's obligations toward the traveling public demands adequate periodical tests to determine the condition and strength of those vehicle portions the failure of 18 which may endanger the safety of the passengers.

Having failed to discharge its duty to overthrow the presumption of negligence with clear and convincing evidence, petitioners are hereby held liable for damages. 19 20 Article 1764 in relation to Article 2206 of the Civil Code prescribes the amount of at least three thousand pesos as damages for the death of a passenger. Under prevailing jurisprudence, the award of damages under Article 2206 has 21 been increased to fifty thousand pesos (P50,000.00). Moral damages are generally not recoverable in culpa contractual except when bad faith had been proven. However, the same damages may be recovered when breach of contract of carriage results in the death of a 22 passenger, as in this case. Exemplary damages, awarded by way of example or correction for the public good when moral 23 damages are awarded, may likewise be recovered in contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent 24 manner. Because petitioners failed to exercise the extraordinary diligence required of a common carrier, which resulted in the death of Tito Tumboy, it is deemed to have 25 acted recklessly. As such, private respondents shall be entitled to exemplary damages. WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED subject to the modification that petitioners shall, in addition to the monetary awards therein, be liable for the award of exemplary damages in the amount of P20,000.00. Costs against petitioners. SO ORDERED.

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G.R. No. 119121 August 14, 1998 NATIONAL POWER CORPORATION, petitioner, vs. COURT OF APPEALS, Fifteenth Division and PHESCO INCORPORATED, respondents.

A "labor only" contractor is considered merely as an agent of the employer (Deferia vs. National Labor Relations Commission, 194 SCRA 525). A finding that a contractor is a "labor only" contractor is equivalent to a finding that there is an employer-employee relationship between the owner of the project and the employees of the "labor only" contractor (Industrial Timer Corporation vs. National Labor Relations Commission, 202 SCRA 465). So, even if Phesco hired driver Gavino Ilumba, as Phesco is admittedly a "labor only" contractor of Napocor the statute itself establishes an employer-employee relationship between the employer (Napocor) and the employee (driver Ilumba) of the labor only contractor (Phesco). (Ecal vs. National Labor Relations Commission, 195 SCRA 224). Consequently, we hold Phesco not liable for the tort of driver Gavino Ilumba, as there was no employment relationship between Phesco and driver Gavino Ilumba. Under Article 2180 of the Civil Code, to hold the employer liable for torts committed by his employees within the scope of their assigned task, there must exist an employer-employee relationship. (Martin vs. Court of Appeals, 205 SCRA 591). WHEREFORE, we REVERSE the appealed decision. In lieu thereof, the Court renders judgment sentencing defendant National Power Corporation to pay plaintiffs the sum of P174,889.20 plus P20,000.00 as attorney's fees and costs. SO ORDERED. Chagrined by the sudden turnaround, NPC filed a motion for reconsideration of said decision which was, however, denied 1 on February 9, 1995. Hence, this petition. The principal query to be resolved is, as between NPC and PHESCO, who is the employer of Ilumba, driver of the dumptruck which figured in the accident and which should, therefore, would be liable for damages to the victims. Specifically, NPC assigns the sole error that: THE COURT OF APPEALS DECISION FINDING THAT PETITIONER NPC AS THE EMPLOYER OF THE DRIVER GAVINO ILUMBA, AND CONSEQUENTLY SENTENCING IT TO PAY THE ACTUAL AND COMPENSATORY DAMAGES SUSTAINED BY COMPLAINTS, IS NOT IN ACCORD WITH THE LAW OR WITH 2 THE APPLICABLE RULINGS OF THIS HONORABLE COURT. As earlier stated, NPC denies that the driver of the dump truck was its employee. It alleges that it did not have the power of selection and dismissal nor the power of control 3 over Ilumba. PHESCO, meanwhile, argues that it merely acted as a "recruiter" of the necessary workers for and in 4 behalf of NPC.

ROMERO, J.: On July 22, 1979, a convoy of four (4) dump trucks owned by the National Power Corporation (NPC) left Marawi city bound for Iligan city. Unfortunately, enroute to its destination, one of the trucks with plate no RFT-9-6-673 driven by a certain Gavino Ilumba figured in a head-on-collision with a Toyota Tamaraw. The incident resulted in the death of three (3) persons riding in the Toyota Tamaraw, as well as physical injuries to seventeen other passengers. On June 10, 1980, the heirs of the victims filed a complaint for damages against National Power Corporation (NPC) and PHESCO Incorporated (PHESCO) before the then Court of First Instance of Lanao del Norte, Marawi City. When defendant PHESCO filed its answer to the complaint it contended that it was not the owner of the dump truck which collided with the Toyota Tamaraw but NPC. Moreover, it asserted that it was merely a contractor of NPC with the main duty of supplying workers and technicians for the latter's projects. On the other hand, NPC denied any liability and countered that the driver of the dump truck was the employee of PHESCO. After trial on the merits, the trial court rendered a decision dated July 25, 1988 absolving NPC of any liability. The dispositive portion reads: Consequently, in view of the foregoing consideration, judgment is hereby rendered ordering PHESCO, Inc. and Gavino Ilumba upon receipt hereof: 1. To pay jointly and severally the plaintiffs thru the Dansalan College the sum of P954,154.55 representing the actual or compensatory damages incurred by the plaintiffs; and 2. To pay the sum of P50,000.00 representing Attorney's fees. SO ORDERED. Dissatisfied, PHESCO appealed to the Court of Appeals, which on November 10, 1994 reversed the trial court's judgment. We quote the pertinent portion of the decision:

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Before we decide who is the employer of Ilumba, it is evidently necessary to ascertain the contractual relationship

between NPC and PHESCO. Was the relationship one of employer and job (independent) contractor or one of employer and "labor only" contractor? Job (independent) contracting is present if the following conditions are met: (a) the contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except to the result thereof; and (b) the contractor has substantial capital or investments in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of his 5 business. Absent these requisites, what exists is a "labor only" contract under which the person acting as contractor is considered merely as an agent or intermediary of the principal who is responsible to the workers in the same manner and to the same extent as if they had been directly 6 employed by him. Taking into consideration the above distinction and the provisions of the "Memorandum of Understanding" entered into by PHESCO and NPC, we are convinced that PHESCO was engaged in "labor only" contracting. It must be noted that under the Memorandum, NPC had mandate to approve the "critical path network and rate of 7 expenditure to be undertaken by PHESCO. Likewise, the manning schedule and pay scale of the workers hired by 8 PHESCO were subject to confirmation by NPC. Then too, it cannot be ignored that if PHESCO enters into any subcontract or lease, again NPC's concurrence is 9 needed. Another consideration is that even in the procurement of tools and equipment that will be used by PHESCO, NPC's favorable recommendation is still necessary before these tools and equipment can be 10 purchased. Notably, it is NPC that will provide the money or funding that will be used by PHESCO to undertake the 11 project. Furthermore, it must be emphasized that the project being undertaken by PHESCO, i.e., construction of power energy facilities, is related to NPC's principal business of power generation. In sum, NPC's control over PHESCO in matters concerning the performance of the latter's work is evident. It is enough that NPC has the right to wield such 12 power to be considered as the employer. Under this factual milieu, there is no doubt that PHESCO was engaged in "labor-only" contracting vis--vis NPC and as such, it is considered merely an agent of the latter. In labor-only contracting, an employer-employee relationship between the principal employer and the employees of the "labor-only" contractor is created. Accordingly, the principal employer is responsible to the employees of the "labor-only" contractor as if such employees had been directly employed by the

principal employer. Since PHESCO is only a "labor-only" contractor, the workers it supplied to NPC, including the driver of the ill-fated truck, should be considered as 14 employees of NPC. After all, it is axiomatic that any person (the principal employer) who enters into an agreement with a job contractor, either for the performance of a specified work or for the supply of manpower, assumes responsibility over 15 the employees of the latter. However, NPC maintains that even assuming that a "labor only" contract exists between it and PHESCO, its liability will not extend to third persons who are injured due to the tortious acts of the employee of the "labor-only" 16 contractor. Stated otherwise, its liability shall only be limited to violations of the Labor Code and not quasi-delicts. To bolster its position, NPC cites Section 9(b), Rule VII, Book III of the Omnibus Rules Implementing the Labor Code which reads: (b) Labor only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. In other words, NPC posits the theory that its liability is limited only to compliance with the substantive labor provisions on working conditions, rest periods, and wages and shall not extend to liabilities suffered by third parties, viz.: Consequently, the responsibilities of the employer contemplated in a "labor only" contract, should, consistent with the terms expressed in the rule, be restricted "to the workers." The same can not be expanded to cover liabilities for damages to third persons resulting from the employees' 17 tortious acts under Article 2180 of the Civil Code. The reliance is misplaced. It bears stressing that the action was premised on the recovery of damages as a result of quasi-delict against both NPC and PHESCO, hence, it is the Civil Code and not the Labor Code which is the applicable law in resolving this case. To be sure, the pronouncement of this Court in Filamer 18 Christian Institute v. IAC, is most instructive: The present case does not deal with a labor dispute on conditions of employment between an alleged employee and an alleged employer. It invokes a claim brought by one for damages for injury caused by the patently negligent acts of a person, against both doer-employee and his employer. Hence, the reliance on the implementing rule on labor to disregard the primary liability of an employer under Article

13

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2180 of the Civil Code is misplaced. An implementing rule on labor cannot be used by an employer as a shield to avoid liability under the substantive provisions of the Civil Code. Corollarily from the above doctrine, the ruling in Cuison v. 19 Norton & Harrison Co., finds applicability in the instant case, viz.: It is well to repeat that under the civil law an employer is only liable for the negligence of his employees in the discharge of their respective duties. The defense of independent contractor would be a valid one in the Philippines just as it would be in the United States. Here Ora was a contractor, but it does not necessarily follow that he was an independent contractor. The reason for this distinction is that the employer retained the power of directing and controlling the work. The chauffeur and the two persons on the truck were the employees of Ora, the contractor, but Ora, the contractor, was an employee of Norton & Harrison Co., charged with the duty of directing the loading and transportation of the lumber. And it was the negligence in loading the lumber and the use of minors on the truck which caused the death of the unfortunate boy. On the facts and the law, Ora was not an independent contractor, but was the servant of the defendant, and for his negligence defendant was responsible. Given the above considerations, it is apparent that Article 2180 of the Civil Code and not the Labor Code will determine the liability of NPC in a civil suit for damages instituted by an injured person for any negligent act of the employees of the "labor only" contractor. This is consistent with the ruling that a finding that a contractor was a "labor-only" contractor is equivalent to a finding that an employer-employee relationship existed between the owner (principal contractor) and the "labor-only" contractor, including the latter's 20 workers. With respect to the liability of NPC as the direct employer, Article 2180 of the Civil Code explicitly provides: Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. In this regard, NPC's liability is direct, primary and solidary 21 with PHESCO and the driver. Of course, NPC, if the judgment for damages is satisfied by it, shall have recourse against PHESCO and the driver who committed the 22 negligence which gave rise to the action. Finally, NPC, even if it truly believed that it was not the employer of the driver, could still have disclaimed any liability had it raised the defense of due diligence in the selection or 23 supervision of PHESCO and Ilumba. However, for some

reason or another, NPC did not invoke said defense. Hence, by opting not to present any evidence that it exercised due diligence in the supervision of the activities of PHESCO and Ilumba, NPC has foreclosed its right to interpose the same on appeal in conformity with the rule that points of law, theories, issues of facts and arguments not raised in the proceedings below cannot be ventilated for the first time on 24 appeal. Consequently, its liability stands. WHEREFORE, in view of the foregoing, the assailed decision of the Court of Appeals dated November 10, 1994 and its accompanying resolution dated February 9, 1995 are AFFIRMED without prejudice to the right of NPC to demand from PHESCO and Ilumba reimbursement of the damages it would be adjudged to pay to complainants. No costs. SO ORDERED.

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was resent on February 2, 1991, and the second messenger finally found the address on February 15, 1991. Edithas husband Alfonso Verchez (Verchez), by letter of 5 March 5, 1991, demanded an explanation from the manager of the Service Quality Control Department of the RCPI, Mrs. 6 Lorna D. Fabian, who replied, by letter of March 13, 1991, as follows: Our investigation on this matter disclosed that subject telegram was duly processed in accordance with our standard operating procedure. However, delivery was not immediately effected due to the occurrence of circumstances which were beyond the control and foresight of RCPI. Among others, during the transmission process, the radio link connecting the points of communication involved encountered radio noise and interferences such that subject telegram did not initially registered (sic) in the receiving teleprinter machine. Our internal message monitoring led to the discovery of the above. Thus, a repeat transmission was made and subsequent delivery was effected. (Underscoring supplied) Verchezs lawyer thereupon wrote RCPIs manager Fabian, by 7 letter of July 23, 1991, requesting for a conference on a specified date and time, but no representative of RCPI showed up at said date and time. On April 17, 1992, Editha died. On September 8, 1993, Verchez, along with his daughters Grace and Zenaida and their respective spouses, filed a complaint against RCPI before the Regional Trial Court (RTC) of Sorsogon for damages. In their complaint, the plaintiffs alleged that, inter alia, the delay in delivering the telegram contributed to the early demise of the late Editha to their 8 damage and prejudice, for which they prayed for the award 9 10 of moral and exemplary damages and attorneys fees. After its motion to dismiss the complaint for improper 11 12 venue was denied by Branch 5 of the RTC of Sorsogon, RCPI filed its answer, alleging that except with respect to 13 Grace, the other plaintiffs had no privity of contract with it; any delay in the sending of the telegram was due to force majeure, "specifically, but not limited to, radio noise and interferences which adversely affected the transmission 14 and/or reception of the telegraphic message"; the clause in the Telegram Transmission Form signed by Grace absolved it from liability for any damage arising from the transmission 15 other than the refund of telegram tolls; it observed due diligence in the selection and supervision of its employees; and at all events, any cause of action had been barred by 16 laches.

G.R. No. 164349

January 31, 2006

RADIO COMMUNICATIONS OF THE PHILIPPINES, INC. (RCPI),Petitioner, vs. ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, MARDONIO INFANTE, ZENAIDA VERCHEZ-CATIBOG, AND FORTUNATO CATIBOG, Respondents. DECISION CARPIO MORALES, J.: On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon Provincial Hospital due to an ailment. On even date, her daughter Grace Verchez-Infante (Grace) immediately hied to the Sorsogon Branch of the Radio Communications of the Philippines, Inc. (RCPI) whose services she engaged to send a telegram to her sister Zenaida Verchez-Catibog (Zenaida) who was residing at 18 Legal St., 1 GSIS Village, Quezon City reading: "Send check money 2 Mommy hospital." For RCPIs services, Grace paid P10.50 for 3 which she was issued a receipt. As three days after RCPI was engaged to send the telegram to Zenaida no response was received from her, Grace sent a letter to Zenaida, this time thru JRS Delivery Service, reprimanding her for not sending any financial aid. Immediately after she received Graces letter, Zenaida, along with her husband Fortunato Catibog, left on January 26, 1991 for Sorsogon. On her arrival at Sorsogon, she disclaimed having received any telegram. In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon City on January 28, 1991 and brought Editha to the Veterans Memorial Hospital in Quezon City where she was confined from January 30, 1991 to March 21, 1991. The telegram was finally delivered to Zenaida 25 days later or 4 on February 15, 1991. On inquiry from RCPI why it took that long to deliver it, a messenger of RCPI replied that he had nothing to do with the delivery thereof as it was another messenger who previously was assigned to deliver the same but the address could not be located, hence, the telegram

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The trial court, observing that "although the delayed delivery of the questioned telegram was not apparently the proximate cause of the death of Editha," ruled out the presence of force majeure. Respecting the clause in the telegram relied upon by RCPI, the trial court held that it partakes of the nature of a contract of adhesion. Finding that the nature of RCPIs business obligated it to dispatch the telegram to the addressee at the earliest possible time but that it did not in view of the negligence of its employees to repair its radio transmitter and the concomitant delay in delivering the telegram on time, the trial court, upon the following provisions of the Civil Code, to wit: Article 2176 Whoever by act or omission causes damage to another, there being at fault or negligence, is obliged to pay for the damage done. Such fault or negligence if there is no pre-existing contractual relation between the parties, is called quasi-delict and is governed by the provisions of this Chapter. Article 1173 defines the fault of (sic) negligence of the obligor as the "omission of the diligence which is required by the nature of the obligation and corresponds with the circumstances of the person, of the time, or the place." In the instant case, the obligation of the defendant to deliver the telegram to the addressee is of an urgent nature. Its essence is the early delivery of the telegram to the concerned person. Yet, due to the negligence of its employees, the defendant failed to discharge of its obligation on time making it liable for damages under Article 2176. The negligence on the part of the employees gives rise to the presumption of negligence on the part of the 17 employer. (Underscoring supplied), rendered judgment against RCPI. Accordingly, it disposed: WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in favor of the plaintiffs and against the defendant, to wit: Ordering the defendant to pay the plaintiffs the following amount: 1. The amount of One Hundred Thousand (P100,000.00) Pesos as moral damages; 2. The amount of Twenty Thousand (P20,000.00) Pesos as attorneys fees; and 3. To pay the costs. SO ORDERED.
18

Hence, RCPIs present petition for review on certiorari, it raising the following questions: (1) "Is the award of moral damages proper even if the trial court found that there was no direct connection between the injury and the alleged 20 negligent acts?" and (2) "Are the stipulations in the Telegram Transmission Form, in the nature "contracts of 21 adhesion" (sic)? RCPI insists that respondents failed to prove any causal connection between its delay in transmitting the telegram 22 and Edithas death. RCPIs stand fails. It bears noting that its liability is anchored on culpa contractual or breach of contract with regard to Grace, and on tort with regard to her co-plaintiffs-herein-corespondents. Article 1170 of the Civil Code provides: Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages. (Underscoring supplied) Passing on this codal provision, this Court explained: In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify,prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promissee that may include his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make recompense to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from 23 his ensuing liability. (Emphasis and underscoring supplied)

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On appeal, the Court of Appeals, by Decision of February 27, 19 2004, affirmed the trial courts decision.

In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible time. It took 25 days, however, for RCPI to deliver it. RCPI invokes force majeure, specifically, the alleged radio noise and interferences which adversely affected the transmission and/or reception of the telegraphic message. Additionally, its messenger claimed he could not locate the address of Zenaida and it was only on the third attempt that he was able to deliver the telegram. For the defense of force majeure to prosper, x x x it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. An act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. Ones negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a persons participation whether by active intervention, neglect or failure to act the whole occurrence is humanized and removed from the rules applicable to acts of God. xxxx Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous event that could not be foreseen or, though foreseen, was inevitable. In other words, there must be an exclusion of human intervention from the cause 24 of injury or loss. (Emphasis and underscoring supplied) Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the telegram at the soonest possible time, it should have at least informed Grace of the nontransmission and the non-delivery so that she could have taken steps to remedy the situation. But it did not. There lies the fault or negligence. In an earlier case also involving RCPI, this Court held: Considering the public utility of RCPIs business and its contractual obligation to transmit messages, it should exercise due diligence to ascertain that messages are delivered to the persons at the given address and shouldprovide a system whereby in cases of undelivered messages the sender is given notice of non-delivery. Messages sent by cable or wireless means are usually more important and urgent than those which can wait for the 25 mail. xxxx

People depend on telecommunications companies in times of deep emotional stress or pressing financial needs . Knowing that messages about the illnesses or deaths of loved ones, births or marriages in a family, important business transactions, and notices of conferences or meetings as in this case, are coursed through the petitioner and similar corporations, it is incumbent upon them to exercise a greater amount of care and concern than that shown in this case. Every reasonable effort to inform senders of the non26 delivery of messages should be undertaken. (Emphasis and underscoring supplied) RCPI argues, however, against the presence of urgency in the delivery of the telegram, as well as the basis for the award of 27 moral damages, thus: The request to send check as written in the telegraphic text negates the existence of urgency that private respondents allegations that time was of the essence imports. A check drawn against a Manila Bank and transmitted to Sorsogon, Sorsogon will have to be deposited in a bank in Sorsogon and pass thru a minimum clearing period of 5 days before it may be encashed or withdrawn. If the transmittal of the requested check to Sorsogon took 1 day private respondents could therefore still wait for 6 days before the same may be withdrawn. Requesting a check that would take 6 days before it could be withdrawn therefore contradicts plaintiffs claim 28 of urgency or need. At any rate, any sense of urgency of the situation was met when Grace Verchez was able to communicate to Manila via a letter that she sent to the same addressee in Manila thru 29 JRS. xxxx As far as the respondent courts award for moral damages is concerned, the same has no basis whatsoever since private respondent Alfonso Verchez did not accompany his late wife when the latter went to Manila by bus. He stayed behind in Sorsogon for almost 1 week before he proceeded to 30 Manila. When pressed on cross-examination, private respondent Alfonso Verchez could not give any plausible reason as to the 31 reason why he did not accompany his ailing wife to Manila. xxxx It is also important to consider in resolving private respondents claim for moral damages that private respondent Grace Verchez did not accompany her 32 ailing mother to Manila.

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It is the common reaction of a husband to be at his ailing wifes side as much as possible. The fact that private respondent Alfonso Verchez stayed behind in Sorsogon for almost 1 week convincingly demonstrates that he himself 33 knew that his wife was not in critical condition. (Emphasis and underscoring supplied) RCPIs arguments fail. For it is its breach of contract upon which its liability is, it bears repeating, anchored. Since RCPI breached its contract, the presumption is that it was at fault or negligent. It, however, failed to rebut this presumption. For breach of contract then, RCPI is liable to Grace for damages. And for quasi-delict, RCPI is liable to Graces co-respondents following Article 2176 of the Civil Code which provides: Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasidelict and is governed by the provisions of this Chapter. (Underscoring supplied) RCPIs liability as an employer could of course be avoided if it could prove that it observed the diligence of a good father of a family to prevent damage. Article 2180 of the Civil Code so provides: The obligation imposed by Article 2176 is demandable not only for ones own acts or omissions, but also for those of persons for whom one is responsible. xxxx The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. xxxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. (Underscoring supplied) RCPI failed, however, to prove that it observed all the diligence of a good father of a family to prevent damage.

Respecting the assailed award of moral damages, a determination of the presence of the following requisites to justify the award is in order: x x x firstly, evidence of besmirched reputation or physical, mental or psychological suffering sustained by the claimant; secondly, a culpable act or omission factually established; thirdly, proof that the wrongful act or omission of the defendant is the proximate cause of damages sustained by the claimant; and fourthly, that the case is predicated on any of the instances expressed or envisioned 34 by Article 2219 and Article 2220 of the Civil Code. Respecting the first requisite, evidence of suffering by the plaintiffs-herein respondents was correctly appreciated by the CA in this wise: The failure of RCPI to deliver the telegram containing the message of appellees on time, disturbed their filial tranquillity. Family members blamed each other for failing to respond swiftly to an emergency that involved the life of the 35 late Mrs. Verchez, who suffered from diabetes. As reflected in the foregoing discussions, the second and third requisites are present. On the fourth requisite, Article 2220 of the Civil Code provides: Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. (Emphasis and underscoring supplied) After RCPIs first attempt to deliver the telegram failed, it did not inform Grace of the non-delivery thereof and waited for 12 days before trying to deliver it again, knowing as it should know that time is of the essence in the delivery of telegrams. When its second long-delayed attempt to deliver the telegram again failed, it, again, waited for another 12 days before making a third attempt. Such nonchalance in performing its urgent obligation indicates gross negligence amounting to bad faith. The fourth requisite is thus also present. In applying the above-quoted Article 2220, this Court has awarded moral damages in cases of breach of contract where the defendant was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual 36 obligation.

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As for RCPIs tort-based liability, Article 2219 of the Civil Code provides:

Moral damages may be recovered in the following and analogous cases: xxxx (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35. (Emphasis supplied) Article 26 of the Civil Code, in turn, provides: Every person shall respect the dignity, personality, privacy and peace of mind of his neighbors and other persons. The following and similar acts, though they may not constitute a criminal offense, shall produce a cause of action for damages, prevention, and other relief: xxxx (2) Meddling with or disturbing the private life or family relations of another. (Emphasis supplied) RCPIs negligence in not promptly performing its obligation undoubtedly disturbed the peace of mind not only of Grace but also her co-respondents. As observed by the appellate court, it disrupted the "filial tranquillity" among them as they blamed each other "for failing to respond swiftly to an emergency." The tortious acts and/or omissions complained of in this case are, therefore, analogous to acts mentioned under Article 26 of the Civil Code, which are among the instances of quasi-delict when courts may award moral damages under Article 2219 of the Civil Code. In fine, the award to the plaintiffs-herein respondents of moral damages is in order, as is the award of attorneys fees, respondents having been compelled to litigate to protect their rights. Clutching at straws, RCPI insists that the limited liability clause in the "Telegram Transmission Form" is not a contract of adhesion. Thus it argues: Neither can the Telegram Transmission Form be considered a contract of adhesion as held by the respondent court. The said stipulations were all written in bold letters right in front of the Telegram Transmission Form. As a matter of fact they were beside the space where the telegram senders write their telegraphic messages. It would have been different if the stipulations were written at the back for surely there is no way the sender will easily notice them. The fact that the stipulations were located in a particular space where they can easily be seen, is sufficient notice to any sender (like Grace Verchez-Infante) where she could manifest her disapproval, leave the RCPI station and avail of the services of the other 37 telegram operators. (Underscoring supplied) RCPI misunderstands the nature of a contract of adhesion. Neither the readability of the stipulations nor their physical

location in the contract determines whether it is one of adhesion. A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving the latter of the opportunity to bargain on equal 38 footing. (Emphasis and underscoring supplied) While a contract of adhesion is not necessarily void and unenforceable, since it is construed strictly against the party who drafted it or gave rise to any ambiguity therein, it is stricken down as void and unenforceable or subversive of public policy when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely deprived 39 of the opportunity to bargain on equal footing. This Court holds that the Court of Appeals finding that the parties contract is one of adhesion which is void is, given the facts and circumstances of the case, thus well-taken. WHEREFORE, the petition is DENIED, and the challenged decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED.

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respondent's stall. An investigation on the cause of the fire by Fire Investigator SFO1 Arnel C. Pinca (Pinca) revealed that the fire broke out due to the leaking fumes coming from the Liquefied Petroleum Gas (LPG) stove and tank installed at petitioner's stall. For the loss of his fastfood stall due to the fire, respondent demanded compensation from petitioner. However, petitioner refused to accede to respondent's demand. Hence, respondent filed a complaint for damages against petitioner before the Metropolitan Trial Court, Branch 24, Manila (MeTC), docketed as Civil Case No. 3 152822. Respondent alleged that petitioner failed to exercise due diligence in the upkeep and maintenance of her cooking equipments, as well as the selection and supervision of her employees; that petitioner's negligence was the proximate 4 cause of the fire that gutted the fastfood stalls. In her Answer dated September 23, 1996, petitioner denied liability on the grounds that the fire was a fortuitous event and that she exercised due diligence in the selection and 5 supervision of her employees. After trial, the MeTC rendered its Decision dated April 5, 1999 in favor of the respondent, the dispositive portion of which reads: G.R. NO. 146224 January 26, 2007 REAL, Petitioner, WHEREFORE, in light of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the latter: 1) To pay the plaintiff the sum of P50,000.00 representing temperate or moderate damages; and 2) To pay the plaintiff the sum of P25,000.00 as and for attorney's fees and litigation expenses. The counterclaim filed by the defendant is hereby DENIED FOR LACK OF MERIT. SO ORDERED.
7 6

VIRGINIA vs. SISENANDO H. BELO, Respondent. DECISION AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing the 1 Resolution dated June 16, 2000 of the Court of Appeals (CA) which dismissed outright the petition for review of Virginia Real (petitioner) in CA-G.R. SP No. 58799, and the CA 2 Resolution dated November 27, 2000 which denied her Motion for Reconsideration. The facts of the case: Petitioner owned and operated the Wasabe Fastfood stall located at the Food Center of the Philippine Women's University (PWU) along Taft Avenue, Malate, Manila. Sisenando H. Belo (respondent) owned and operated the BS Masters fastfood stall, also located at the Food Center of PWU. Around 7:00 o'clock in the morning of January 25, 1996, a fire broke out at petitioner's Wasabe Fastfood stall. The fire spread and gutted other fastfood stalls in the area, including

The MeTC held that the investigation conducted by the appropriate authority revealed that the fire broke out due to the leaking fumes coming from the LPG stove and tank installed at petitioner's fastfood stall; that factual circumstances did not show any sign of interference by any force of nature to infer that the fire occurred due to fortuitous event; that the petitioner failed to exercise due diligence, precaution, and vigilance in the conduct of her business, particularly, in maintaining the safety of her cooking equipment as well as in the selection and supervision of her employees; that even if petitioner passes the fault to her employees, Article 2180 of the Civil Code finds application; that in the absence of supporting evidence, the amount of actual damages and unrealized profits prayed for by respondent cannot be granted; that, nonetheless, respondent

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is entitled to temperate damages since respondent sustained pecuniary loss, though its true value cannot, from the very nature of the case, be proved with certainty. Dissatisfied, petitioner filed an appeal with the Regional Trial Court, Branch 43, Manila (RTC), docketed as Civil Case No. 9994606, insisting that the fire was a fortuitous event. On November 26, 1999, the RTC affirmed the Decision of the MeTC but increased the amount of temperate damages 8 awarded to the respondent fromP50,000.00 to P80,000.00. Petitioner filed a Motion for Reconsideration contending that the increase in the award of temperate damages is unreasonable since she also incurred losses from the fire. In its Order dated April 12, 2000, the RTC denied petitioner's Motion for Reconsideration holding that it cannot disregard evidence showing that the fire originated from petitioner's fastfood stall; that the increased amount of temperate damages awarded to respondent is not a full compensation but only a fair approximate of what he lost due to the 9 negligence of petitioner's workers. Petitioner then filed a Petition for Review with the CA, 10 docketed as CA-G.R. SP No. 58799. On June 16, 2000, the CA issued a Resolution dismissing the petition for being 11 "procedurally flawed/deficient." The CA held that the attached RTC Decision was not certified as a true copy by the Clerk of Court; that a certified true copy of the MeTC Decision was not attached; that material portions of the record, such as the position papers of the parties and affidavits of witnesses, as would support the material allegations of the 12 petition were also not attached. On July 14, 2000, petitioner filed her Motion for 13 Reconsideration, attaching photocopies of the Decisions of 14 the RTC and MeTC as certified correct by the Clerk of Court. On November 27, 2000, the CA issued its Resolution denying 15 petitioner's Motion for Reconsideration. Hence, the present petition raising the following issues: 1. Whether the submitted certified true copy of the appealed decision of the Regional Trial Court as authenticated by a court employee other than the Clerk of Court who was not around at that time said copy was secured constitutes compliance with the Rules? 2. Whether the submission of a certified true copy of the Metropolitan Trial Court's judgment is still an indispensable requirement in filing a petition for review before the Court of Appeals despite the fact that said judgment was already modified by the above decision of the Regional Trial Court and it is the latter decision that is the proper subject of the petition for review?

3. Whether the submission of copies of the respective position papers of the contending parties is still an indispensable requirement in filing a petition for review before the Court of Appeals despite the fact that the contents thereof are already quoted in the body of the verified petition and in the subject judgment of the Metropolitan Trial Court? 4. Whether the herein petitioner could be held liable for damages as a result of the fire that razed not only her own food kiosk but also the adjacent foodstalls at the Food Center premises of the Philippine Women's University, including that of the respondent? 5. Whether the Regional Trial Court could increase the amount of damages awarded by the Metropolitan Trial Court in favor of the respondent who has not even filed an appeal 16 therefrom? Petitioner submits that rules of procedure should not be applied in a very harsh, inflexible and technically unreasonable sense. While admitting that the RTC Decision and Order were not certified by the Clerk of Court himself, petitioner insists that they were certified as authentic copies by Administrative Officer IV Gregorio B. Paraon of the RTC. As to the MeTC Decision, petitioner contends that the submission of a certified true copy thereof is not an indispensable requirement because that judgment is not the subject of the petition for review. In any case, petitioner submits that she had substantially complied with the requirements of the rule when she attached with her Motion for Reconsideration the copies of the Decisions of the RTC and MeTC as certified correct by the Clerk of Court. Anent the non-submission of the position papers of the parties, petitioner maintains that the contents of said position papers were lengthily quoted verbatim in the petition and in the attached copy of the MeTC Decision. On the submission of affidavits of witnesses, petitioner contends that it was not necessary because the case before the MeTC was not covered by summary proceedings. On the merits of her petition before the CA, petitioner avers that she should not be held liable for a fire which was a fortuitous event since the fire could not be foreseen and the spread of the fire to the adjacent fastfood stalls was inevitable. Lastly, she argues that the RTC cannot increase the amount of temperate damages since the respondent did not appeal from the judgment of the MeTC.

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Respondent opted not to file a Comment, manifesting that the petition contains no new arguments which would require a comment since the arguments are but a rehash of those 17 raised and decided by the lower courts. The Court gave due course to the petition and required both 18 parties to submit their respective memoranda. In compliance therewith, petitioner submitted her 19 Memorandum. On the other hand, respondent filed a Manifestation stating that since no new issues have been raised by the petitioner in her petition and in order not to be redundant, he adopts as his memorandum the memoranda 20 he filed in the MeTC and the RTC. In his Memoranda before the MeTC and RTC, respondent emphasized the evidence he presented to establish his cause of action against petitioner, principally the testimony of Fire Investigator SFO1 Arnel G. Pinca stating that the fire originated from the LPG stove and tank in petitioner's fastfood stall. The requirements as to form and content of a petition for review of a decision of the RTC are laid down in Section 2 of Rule 42 of the Revised Rules of Court, thus: Sec. 2. Form and contents. - The petition shall be filed in seven (7) legible copies, with the original copy intended for the court being indicated as such by the petitioner, and shall (a) state the full names of the parties to the case, without impleading the lower courts or judges thereof either as petitioners or respondents; (b) indicate the specific material dates showing that it was filed on time; (c) set forth concisely a statement of the matters involved, the issues raised, the specification of errors of fact or law, or both, allegedly committed by the Regional Trial Court, and the reasons or arguments relied upon for the allowance of the appeal; (d) be accompanied by clearly legible duplicate originals or true copies of the judgments or final orders of both lower courts, certified correct by the clerk of court of the Regional Trial Court, the requisite number of plain copies thereof and of the pleadings and other material portions of the record as would support the allegations of the petition. (Emphasis supplied) xxxx Under Section 3 of the same Rule, failure to comply with the above requirements "shall be sufficient ground for the dismissal thereof." However, Section 6, Rule 1 of the Revised Rules of Court also provides that rules shall be liberally construed in order to promote their objective of securing a just, speedy and inexpensive disposition of every action and proceeding. Indeed, rules of procedure should be used to promote, not 21 frustrate justice.

In the present case, petitioner's submission of copies of the RTC Decision and Order certified as correct by the Administrative Officer IV of the RTC is insufficient compliance with the requirements of the rule. Petitioner failed to show that the Clerk of Court was officially on leave and the Administrative Officer was officially designated as officer-incharge. The rule is explicit in its mandate that the legible duplicate originals or true copies of the judgments or final orders of both lower courts must be certified correct by the Clerk of Court. Nonetheless, a strict application of the rule in this case is not called for. This Court has ruled against the dismissal of appeals based solely on technicalities in several cases, especially when the appellant had substantially complied 22 with the formal requirements. There is ample jurisprudence holding that the subsequent and substantial compliance of a party may call for the relaxation of the rules of 23 procedure. When the CA dismisses a petition outright and the petitioner files a motion for the reconsideration of such dismissal, appending thereto the requisite pleadings, documents or order/resolution, this would constitute 24 substantial compliance with the Revised Rules of Court. Thus, in the present case, there was substantial compliance when petitioner attached in her Motion for Reconsideration a photocopy of the Decision of the RTC as certified correct by the Clerk of Court of the RTC. In like manner, there was substantial compliance when petitioner attached, in her Motion for Reconsideration, a photocopy of the Decision of the MeTC as certified correct by the Clerk of Court of the RTC. On the necessity of attaching position papers and affidavits of witnesses, Section 2 of Rule 42 of the Revised Rules of Court requires attachments if these would support the allegations 25 of the petition. In the present case, there was no compelling need to attach the position papers of the parties since the Decisions of the MeTC and RTC already stated their respective arguments. As to the affidavits, the Court notes that they were presented by the respondent as part of the testimony of his witness Fire Investigator Pinca and therefore would not support the allegations of the petitioner. Truly, in dismissing the petition for review, the CA had committed grave abuse of discretion amounting to lack of jurisdiction in putting a premium on technicalities at the expense of a just resolution of the case. The Court's pronouncement in Republic of the Philippines v. 26 Court of Appeals is worth echoing: "cases should be determined on the merits, after full opportunity to all parties for ventilation of their causes and defenses, rather than on technicality or some procedural imperfections. In that way, 27 the ends of justice would be better served." Thus, what should guide judicial action is that a party litigant is given the

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fullest opportunity to establish the merits of his action or defense rather than for him to lose life, honor or property on 28 mere technicalities. The next most logical step would then be for the Court to simply set aside the challenged resolutions, remand the case to the CA and direct the latter to resolve on the merits of the petition in CA-G.R. SP No. 58799. But, that would further delay the case. Considering the issues raised which can be resolved on the basis of the pleadings and documents filed, and the fact that petitioner herself has asked the Court to decide her petition on the merits, the Court deems it more practical and in the greater interest of justice not to remand the case to the CA but, instead, to resolve the controversy 29 once and for all. The Court shall now address the issue of whether the fire was a fortuitous event. Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen and unexpected occurrence must be independent of human will; (b) it must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the obligor must be free from any participation in the aggravation of the injury resulting to the 30 creditor. Article 1174 of the Civil Code provides that no person shall be responsible for a fortuitous event which could not be foreseen, or which, though foreseen, was inevitable. In other words, there must be an entire exclusion of human agency 31 from the cause of injury or loss. It is established by evidence that the fire originated from leaking fumes from the LPG stove and tank installed at petitioner's fastfood stall and her employees failed to prevent the fire from spreading and destroying the other fastfood stalls, including respondent's fastfood stall. Such circumstances do not support petitioner's theory of fortuitous event. Petitioner's bare allegation is far from sufficient proof for the Court to rule in her favor. It is basic in the rule of evidence that bare allegations, unsubstantiated by evidence, are not 32 equivalent to proof. In short, mere allegations are not 33 evidence. The Civil Code provides: Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. x x x

Art. 2180. The obligation imposed by Article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. xxxx The owners and managers of an establishment or enterprise are likewise responsible for damages caused by their employees in the service of the branches in which the latter are employed or on the occasion of their functions. Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry. xxxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. Whenever an employee's negligence causes damage or injury to another, there instantly arises a presumptionjuris tantum that the employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or 34 supervision (culpa in vigilando) of its employees. To avoid liability for a quasi-delict committed by his employee, an employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence of a good father of a family in the selection and supervision of his 35 employee. In this case, petitioner not only failed to show that she submitted proof that the LPG stove and tank in her fastfood stall were maintained in good condition and periodically checked for defects but she also failed to submit proof that she exercised the diligence of a good father of a family in the selection and supervision of her employees. For failing to prove care and diligence in the maintenance of her cooking equipment and in the selection and supervision of her employees, the necessary inference was that petitioner had 36 been negligent. As to the award of temperate damages, the increase in the amount thereof by the RTC is improper. The RTC could no longer examine the amounts awarded by the MeTC since respondent did not appeal from the Decision of the 37 MeTC. It is well-settled that a party who does not appeal from the decision may not obtain any affirmative relief from the appellate court other than what he has obtained from the lower court, if any, whose decision is brought up on 38 appeal. While there are exceptions to this rule, such as if they involve (1) errors affecting the lower court's jurisdiction over the subject matter, (2) plain errors not specified, and (3) 39 clerical errors, none apply here.

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WHEREFORE, the petition is GRANTED. The assailed Resolutions dated June 16, 2000 and November 27, 2000 of the Court of Appeals are REVERSED and SET ASIDE. The Decision dated November 26, 1999 of the Regional Trial Court, Branch 43, Manila is AFFIRMED with MODIFICATION that the temperate damages awarded is reduced from P80,000.00 to P50,000.00 as awarded by the Metropolitan Trial Court, Branch 24, Manila in its Decision dated April 5, 1999. No costs. SO ORDERED.

(NCJR), Branch 135 in Makati City dated 31 January 2001 in Civil Case No. 96-160. The foregoing are the facts culled from the record, and from the findings of the CA and the RTC. Ley Construction and Development Corporation (LCDC) was the project contractor for the construction of several buildings for Philippine Realty & Holdings Corporation (PRHC), the project owner. Engineer Dennis Abcede (Abcede) was the project construction manager of PRHC, while Joselito Santos (Santos) was its general manager and vice-president for operations. Sometime between April 1988 and October 1989, the two corporations entered into four major construction projects, as evidenced by four duly notarized "construction agreements." LCDC committed itself to the construction of the buildings needed by PRHC, which in turn committed itself to pay the contract price agreed upon. These were the four construction projects the parties entered into involving a Project 1, Project 2, Project 3 (all of which involve the Alexandra buildings) and a Tektite Building: 1. Construction Agreement dated 25 April 1988 AlexandraCluster C involving the construction of two units of sevenstorey buildings with basement at a contract price of P 68,000,000 (Project 1); 2. Construction Agreement dated 25 July 1988 AlexandraCluster B involving the construction of an eleven-storey twin-tower building with a common basement at a contract price of P 140,500,000 (Project 2); 3. Construction Agreement dated 23 November 1988 Alexandra-Cluster E involving the construction of an elevenstorey twin-tower building with common basement at a contract price of P 140,500,000 (Project 3); and 4. Construction Agreement dated 10 October 1989 Tektite Towers Phase I involving the construction of Tektite Tower Building I at Tektite Road at a contract price of P 729,138,964 (Tektite Building). The agreement covering the construction of the Tektite Building was signed by a Mr. Campos under the words "Phil. Realty & Holdings Corp." and by Santos as a witness. Manuel Ley, the president of LCDC, signed under the words "Ley Const. & Dev. Corp." The terms embodied in the afore-listed construction agreements were almost identical. Each agreement provided for a fixed price to be paid by PRHC for every project. All the aforementioned agreements contain the following provisions:

G.R. No. 165548

June 13, 2011 AND HOLDINGS

PHILIPPINE REALTY CORPORATION, Petitioner, vs. LEY CONSTRUCTION CORPORATION, Respondent. x - - - - - - - - - - - - - - - - - - - - - - -x G.R. No. 167879 LEY CONSTRUCTION CORPORATION, Petitioner, vs. PHILIPPINE REALTY CORPORATION, Respondent. DECISION SERENO, J.:

AND

DEVELOPMENT

AND

DEVELOPMENT

AND

HOLDINGS

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These are consolidated petitions for review under Rule 45 of the New Rules of Civil Procedure filed by both parties from a Court of Appeals (CA) Decision in CA-GR No. 71293 dated 30 September 2004. This Decision reversed a Decision of the Regional Trial Court (RTC), National Capital Judicial Region

16

ARTICLE IV CONTRACT PRICE ... ... ...

The Contract Price shall not be subject to escalation except due to work addition, (approved by the OWNER and the ARCHITECT) and to official increase in minimum wage as covered by the Labor Adjustment Clause below. All costs and expenses over and above the Contract Price except as provided in Article V hereof shall be for the account of the CONTRACTOR. It is understood that there shall be no escalation on the price of materials. However, should there be any increase in minimum daily wage level, the adjustment on labor cost only shall be considered based on conditions as stipulated below. ... ... ...

In the course of the construction of the Tektite Building, it became evident to both parties that LCDC would not be able to finish the project within the agreed period. Thus, through its president, LCDC met with Abcede to discuss the cause of the delay. LCDC explained that the unanticipated delay in construction was due mainly to the sudden, unexpected hike in the prices of cement and other construction materials. It claimed that, without a corresponding increase in the fixed prices found in the agreements, it would be impossible for it to finish the construction of the Tektite Building. In their analysis of the project plans for the building and of all the external factors affecting the completion of the project, the parties discovered that even if LCDC were able to collect the entire balance from the contract, the collected amount would still be insufficient to purchase all the materials needed to complete the construction of the building. Both parties agreed that their foremost objective should be to ensure that the Tektite Building project would be completed. To achieve this goal, they entered into another agreement. Abcede asked LCDC to advance the amount necessary to complete construction. Its president acceded, on the absolute condition that it be allowed to escalate the contract price. It wanted PRHC to allow the escalation and to disregard the prohibition contained in Article VII of the agreements. Abcede replied that he would take this matter up with the board of directors of PRHC. The board of directors turned down the request for an 3 escalation agreement. Neither PRHC nor Abcede gave notice to LCDC of the alleged denial of the proposal. However, on 9 August 1991 Abcede sent a formal letter to LCDC, asking for its conformity, to the effect that should it infuse P36 million into the project, a contract price escalation for the same 4 amount would be granted in its favor by PRHC. This letter was signed by Abcede above the title 5 "Construction Manager," as well as by LCDC. A plain reading of the letter-agreement will reveal that the blank above the words "PHIL. REALTY & HOLDINGS CORP." was never 6 signed, viz: Very truly yours, (Signed) _______________________ DENNIS A. Construction Manager CONFORME: (Signed) _______________________ LEY CONST. & DEV. CORP. APPROVED & ACCEPTED :

ARTICLE VII TIME OF COMPLETION ... ... ...

Should the work be delayed by any act or omission of the OWNER or any other person employed by or contracted by the OWNER in the project, including days in the delivery or (sic) materials furnished by the OWNER or others, or by any appreciable additions or alterations in the work ordered by the OWNER or the ARCHITECT, under Article V or by force majeure, war, rebellion, strikes, epidemics, fires, riots, or acts of the civil or military authorities, the CONTRACTOR shall be granted time extension. Sometime after the execution of these agreements, two more were entered into by the parties: 1. Letter-agreement dated 24 August 1989 Project 3 for the construction of the drivers quarters in Project 3; and 2. Agreement dated 7 January 1993 Tektite Towers for the concreting works on "GL, 5, 9, & A" (ground floor to the 5th floor) of the Tektite Towers. Santos signed the letter-agreement on the construction of 1 the drivers quarters in Project 3, while both he and Abcede signed the letter-agreement on the concreting works on GL, 2 5, 9, and A, and also of Project 3. In order to jump-start the construction operations, LCDC was required to submit a performance bond as provided for in the construction agreements. As stated in these agreements, as soon as PRHC received the performance bond, it would deliver its initial payment to LCDC. The remaining balance was to be paid in monthly progress payments based on actual work completed. In practice, these monthly progress payments were used by LCDC to purchase the materials needed to continue the construction of the remaining parts of the building.

ABCEDE

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_______________________ PHIL. REALTY & HOLDINGS CORP. Notwithstanding the absence of a signature above PRHCs name, LCDC proceeded with the construction of the Tektite Building, expending the entire amount necessary to complete the project. From August to December 1991, it infused amounts totaling P 38,248,463.92. These amounts were not deposited into the joint account of LCDC and PRHC, but paid 7 directly to the suppliers upon the instruction of Santos. LCDC religiously submitted to PRHC monthly reports that contained the amounts of infusion it made from the period August 1991 to December 1991. These monthly reports all had the following heading: ... ... ...
8

of P 2,248,463.92. It attached a 16 January 1992 letter written by D.A. Abcede & Associates, informing PRHC of the total cash infusion made by LCDC to the project, to wit: in compliance with the commitment of Ley Construction and Devt Corp. to infuse P36.00M for the above subject project x xx x x x we would like to present the total cash infusion by LCDC for the period covering the month of August, 1991 to December 1991 broken down as follows: ... ... ...

T O T A L: P 38,248,463.92 PRHC never replied to this letter.

MR. JOSELITO L. SANTOS VICE PRESIDENT OPERATION PHIL. REALTY & HOLDINGS CORP. 4th Floor Quad Alpha Centrum Bldg. 125 Pioneer St., Mandaluyong, M.M. T H R U : D.A. ABCEDE & ASSOCIATES Construction Managers SUBJECT : P 36.0M INFUSION-TEKTITE TOWERS PROJECT From these monthly reports, it can be gleaned that the following were the cash infusions made by LCDC: Month Amount Date of report monthly

In another letter dated 7 September 1992, there was a reconciliation of accounts between the two corporations with respect to the balances due for Projects 1, 2, and 3. The reconciliation of accounts resulted in PRHC owing LCDC the sum of P 20,862,546.41, broken down as follows: Project 1 Project 2 Project 3 P 1,783,046.72 P 13,550,003.93 P 5,529,495.76 P 20,862,546.41 In a letter dated 8 September 1992, when 96.43% of Tektite Building had been completed, LCDC requested the release of the P 36 million escalation price. PRHC did not reply, but after the construction of the building was completed, it conveyed 15 its decision in a letter on 7 December 1992. That decision was to set off, in the form of liquidated damages, its claim to the supposed liability of LCDC, to wit: ... ... ...
14

August 1991 September 1991 October 1991 November 1991 December 1991

PhP 6,724,632.26

15 October 1991

PhP 7,326,230.69

7 October 1991

10

PhP 7,756,846.88 PhP 8,553,313.50 PhP 7,887,440.50 PhP 38,248,463.92

7 November 1991 7 December 1991 9 January 1992

13

11

12

In this regard, please be advised that per owners decision; your claim of P 36,000,00.00 adjustment will be applied to the liquidated damages for concreting works computed in the amount of Thirty Nine Million Three Hundred Twenty Six Thousand Eight Hundred Seventeen & 15/100 (P39,326,817.15) as shown in the attached sheet. Further, the net difference P 3,326,817.15 will also be considered waived as additional consideration.

PRHC never replied to any of these monthly reports. On 20 January 1992, LCDC wrote a letter addressed to Santos stating that it had already complied with its commitment as of 31 December 1991 and was requesting the release

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In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed escalation price ofP 36

18

...

...

...

million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the escalation price. In the same letter, it claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay P 39,326,817.15 as liquidated damages. This claim was set forth in PRHCs earlier 7 December 1992 letter. LCDC countered that there were many times when its requests for time extension although due to reasonable causes sanctioned by the construction agreement such as power failures, water supply interruption, and scarcity of construction materials were unreasonably reduced to shorter periods by PRHC. In its letter dated 9 December 1992, LCDC claimed that in a period of over two years, out of the 618 days of extension it requested, only 256 days or not even half the number of days originally requested were considered. It further claimed that its president inquired from Abcede and Santos why its requests for extension of time were not granted in full. The two, however, assured him that LCDC would not be penalized with damages for even a single day of delay, because the fact that it was working hard on the 16 Tektite Building project was known to PRHC. Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993, PRHC denied any liability. During the course of the proceedings, both parties conducted another reconciliation of their respective records. The reconciliation showed the following balances in favor of LCDC: Project 1 Project 2 Project 3 Total: P 1,703,955.07 P 13,251,152.61 P 5,529,495.76 P 20,484,603.44

1. Immediately upon the filing of this Complaint, an order of preliminary attachment be issued over defendant Philrealtys properties as security for any judgment which plaintiff may recover against said defendant; and 2. After trial, judgment be rendered as follows: 2.1. On the first, second and third alternative causes of action, (a) Ordering defendant Philrealty to pay plaintiff actual damages in the amount ofP36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; (b) In the alternative, ordering defendants Abcede and Santos to jointly and severally, in the event that they acted without necessary authority, to pay plaintiff actual damages in the amount of P36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; and (c) Ordering defendant Philrealty or defendants Abcede and Santos to pay plaintiff exemplary damages in the amount to be determined by the Honorable Court but not less thanP5,000,000.00 2.2. On the fourth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P7,112,738.82 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P1,000,000.00 2.3. On the fifth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P20,862,546.41 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in an amount to be determined by the Honorable Court but not less than P5,000,000.00. 2.4. On the sixth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P232,367.96 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P100,000.00 2.5. On the seventh cause of action, ordering defendant Philrealty and/or defendants Abcede and Santos to pay plaintiff attorneys fees in the amount of P750,000.00 and expenses of litigation in the amount of P50,000.00, plus costs.

In addition to the agreed-upon outstanding balance in favor of LCDC, the latter claimed another outstanding balance of P 232,367.96 in its favor for the construction of the drivers quarters in Project 3. It also further claimed the amount of P 7,112,738.82, representing the balance for the concreting works from the ground floor to the fifth floor of the Tektite Building. Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with Application for the Issuance of a Writ of Preliminary Attachment on 2 February 1996 before the RTC in Makati City docketed as Civil Case No. 96-160: WHEREFORE, it is respectfully prayed that:

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Plaintiff prays for such other just and equitable reliefs as may be warranted by the circumstances. On 23 July 1999, a joint Stipulation of Facts was filed by the parties. In the said stipulation, they reconciled their respective claims on the payments made and the balances due for the construction of the Tektite Building project, Project 1, and Project 2. The reconciliation shows that the following amounts are due and/or overpaid: Due to LCDC Tektite Building Project 1 Project 2 P1,703,955.07 P3,251,152.61 P14,955,107.68 P4,646,947.35 Overpaid to LCDC P4,646,947.35
17

On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for Partial Reconsideration, which was granted. It must be noted that in the Stipulation of Facts, the parties had jointly agreed that the P7,112,738.82 unpaid account in the concreting of Tektite Building would no longer be included in the list of claims submitted to the RTC for decision. Nonetheless, this amount was still included as an award in the trial courts 7 May 2001 amended Decision, the dispositive portion of which provides: WHEREFORE, premises considered, judgment is hereby rendered: A. Dismissing the counter-claim of defendant DENNIS ABCEDE and the cross-claim of defendant JOSELITO SANTOS; and B. Ordering defendant PHILIPPINE REALTY AND HOLDING CORPORATION to pay plaintiff LEY CONSTRUCTION AND DEVELOPMENT CORPORATION: 1. P33,601,316.17, for the Tektite Tower I Project with legal interest thereon from date of the filing of the complaint until fully paid; 2. P13,251,152.61 for Alexandra Cluster B with legal interest thereon from date of the filing of the complaint until fully paid; 3. P1,703,955.07 for Alexandra Cluster C with legal interest thereon from date of the filing of the complaint until fully paid; 4. P7,112,738.82 in actual damages for the concreting works of Tektite Tower I, with legal interest thereon from the date of the filing of the complaint until fully paid; 5. P5,529,495.76 in actual damages for the construction of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid; 6. P232,367.96 in actual damages for the construction of the drivers quarters of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid; 7. P750,000.00 for attorneys fees and expenses of litigation; and 8. Costs. SO ORDERED.
19

Both parties agreed that the only remaining issues to be resolved by the court, with respect to the Tektite Building project and Projects 1 to 3, were as follows: a) The validity of Ley Constructions claim that Philrealty had granted the former a contract price escalation for Tektite Tower I in the amount of P36,000,000.00 b) The validity of the claim of Philrealty that the following amounts should be charged to Ley Construction: Payments/Advances without LCDCs conformity and recommendation of the Construction Manager, D.A. Abcede & Associates that subject items are LCDCs account: a. Esicor, Inc. waterproofing works Cluster B P1,121,000.00 b. Ideal Marketing, Inc. waterproofing works at Cluster B, Quadrant 2 P885,000.00 P2,006,000.00 c) The claim of Philrealty for liquidated damages for delay in completion of the construction as follows: d) Tektite Tower I - P39,326,817.15 Alexandra Cluster B - 12,785,000.00 Alexandra Cluster C - 1,100,000.00 and e) The claim of Ley Construction for additional sum of P2,248,463.92 which it allegedly infused for the Tektite Tower I project over and above the original P36,000,000.00 it 18 had allegedly bound itself to infuse.

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PRHC filed a Notice of Appeal on 14 June 2001. The Court of 20 Appeals, in CA-G.R. CV No. 71293, reversed the lower courts amended Decision on 30 September 2004 and ruled thus:

WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May 7, 2001 amended decision are hereby REVERSED and SET ASIDE and a new one is entered: I. FINDING plaintiff-appellee LCDC LIABLE to defendantappellant PRHC in the amount of Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred Sixty Four 90/100 (P60,464,764.90) PESOS detailed as follows: [1] P39,326,817.15 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Tektite Tower Phase I, the length of delay having been signed and confirmed by LCDC; [2] P12,785,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Alexandra Cluster B, the length of delay having been signed and confirmed by LCDC; [3] P1,700,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff appellee LCDC in the construction of Alexandra Cluster C, the length of delay having been confirmed by LCDC; [4] P4,646,947.75 overpayment by defendant-appellant PRHC to plaintiff-appellee LCDC for the Tektite Tower Phase I Project; [5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work or plaintiff-appellee LCDC in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Escritor, Inc.; [6] P885,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work of plaintiff-appellee LCDC at the Alexandra Cluster B Quadrant in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Ideal Marketing Inc., and consideration. ... ... ...

shorter periods by PRHC. In its letter dated 9 December 1992, LCDC claimed that in a period of over two years, out of the 618 days of extension it requested, only 256 days or not even half the number of days originally requested were considered. It further claimed that its president inquired from Abcede and Santos why its requests for extension of time were not granted in full. The two, however, assured him that LCDC would not be penalized with damages for even a single day of delay, because the fact that it was working hard on the 16 Tektite Building project was known to PRHC. Thereafter, in a letter dated 18 January 1993, LCDC demanded payment of the agreed total balance for Projects 1, 2, and 3. Through a reply letter dated 16 February 1993, PRHC denied any liability. During the course of the proceedings, both parties conducted another reconciliation of their respective records. The reconciliation showed the following balances in favor of LCDC: Project 1 Project 2 Project 3 Total: P 1,703,955.07 P 13,251,152.61 P 5,529,495.76 P 20,484,603.44

In addition to the agreed-upon outstanding balance in favor of LCDC, the latter claimed another outstanding balance of P 232,367.96 in its favor for the construction of the drivers quarters in Project 3. It also further claimed the amount of P 7,112,738.82, representing the balance for the concreting works from the ground floor to the fifth floor of the Tektite Building. Seeking to recover all the above-mentioned amounts, LCDC filed a Complaint with Application for the Issuance of a Writ of Preliminary Attachment on 2 February 1996 before the RTC in Makati City docketed as Civil Case No. 96-160: WHEREFORE, it is respectfully prayed that: 1. Immediately upon the filing of this Complaint, an order of preliminary attachment be issued over defendant Philrealtys properties as security for any judgment which plaintiff may recover against said defendant; and 2. After trial, judgment be rendered as follows: 2.1. On the first, second and third alternative causes of action,

In a letter dated 18 January 1993, LCDC, through counsel, demanded payment of the agreed escalation price ofP 36 million. In its reply on 16 February 1993, PRHC suddenly denied any liability for the escalation price. In the same letter, it claimed that LCDC had incurred 111 days of delay in the construction of the Tektite Building and demanded that the latter pay P 39,326,817.15 as liquidated damages. This claim was set forth in PRHCs earlier 7 December 1992 lett er. LCDC countered that there were many times when its requests for time extension although due to reasonable causes sanctioned by the construction agreement such as power failures, water supply interruption, and scarcity of construction materials were unreasonably reduced to

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(a) Ordering defendant Philrealty to pay plaintiff actual damages in the amount ofP36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; (b) In the alternative, ordering defendants Abcede and Santos to jointly and severally, in the event that they acted without necessary authority, to pay plaintiff actual damages in the amount of P36,000,00.00 with legal interest thereon from the filing of this Complaint until fully paid; and (c) Ordering defendant Philrealty or defendants Abcede and Santos to pay plaintiff exemplary damages in the amount to be determined by the Honorable Court but not less thanP5,000,000.00 2.2. On the fourth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P7,112,738.82 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P1,000,000.00 2.3. On the fifth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P20,862,546.41 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in an amount to be determined by the Honorable Court but not less than P5,000,000.00. 2.4. On the sixth cause of action, ordering defendant Philrealty to pay plaintiff (a) Actual damages in the amount of P232,367.96 with legal interest thereon from the filing of this Complaint until fully paid; and (b) Exemplary damages in the amount to be determined by the Honorable Court but not less than P100,000.00 2.5. On the seventh cause of action, ordering defendant Philrealty and/or defendants Abcede and Santos to pay plaintiff attorneys fees in the amount of P750,000.00 and expenses of litigation in the amount of P50,000.00, plus costs. Plaintiff prays for such other just and equitable reliefs as may be warranted by the circumstances. On 23 July 1999, a joint Stipulation of Facts was filed by the parties. In the said stipulation, they reconciled their respective claims on the payments made and the balances due for the construction of the Tektite Building project, Project 1, and Project 2. The reconciliation shows that the following amounts are due and/or overpaid:
17

Due to LCDC Tektite Building Project 1 Project 2 P1,703,955.07 P3,251,152.61 P14,955,107.68

Overpaid to LCDC P4,646,947.35

P4,646,947.35

Both parties agreed that the only remaining issues to be resolved by the court, with respect to the Tektite Building project and Projects 1 to 3, were as follows: a) The validity of Ley Constructions claim that Philrealty had granted the former a contract price escalation for Tektite Tower I in the amount of P36,000,000.00 b) The validity of the claim of Philrealty that the following amounts should be charged to Ley Construction: Payments/Advances without LCDCs conformity and recommendation of the Construction Manager, D.A. Abcede & Associates that subject items are LCDCs account: a. Esicor, Inc. waterproofing works Cluster B P1,121,000.00 b. Ideal Marketing, Inc. waterproofing works at Cluster B, Quadrant 2 P885,000.00 P2,006,000.00 c) The claim of Philrealty for liquidated damages for delay in completion of the construction as follows: d) Tektite Tower I - P39,326,817.15 Alexandra Cluster B - 12,785,000.00 Alexandra Cluster C - 1,100,000.00 and e) The claim of Ley Construction for additional sum of P2,248,463.92 which it allegedly infused for the Tektite Tower I project over and above the original P36,000,000.00 it 18 had allegedly bound itself to infuse. On 31 January 2001, the RTC promulgated its Decision. LCDC filed a Motion for Partial Reconsideration, which was granted. It must be noted that in the Stipulation of Facts, the parties had jointly agreed that the P7,112,738.82 unpaid account in the concreting of Tektite Building would no longer be included in the list of claims submitted to the RTC for decision. Nonetheless, this amount was still included as an award in the trial courts 7 May 2001 amended Decision, the dispositive portion of which provides:

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WHEREFORE, premises considered, judgment is hereby rendered: A. Dismissing the counter-claim of defendant DENNIS ABCEDE and the cross-claim of defendant JOSELITO SANTOS; and B. Ordering defendant PHILIPPINE REALTY AND HOLDING CORPORATION to pay plaintiff LEY CONSTRUCTION AND DEVELOPMENT CORPORATION: 1. P33,601,316.17, for the Tektite Tower I Project with legal interest thereon from date of the filing of the complaint until fully paid; 2. P13,251,152.61 for Alexandra Cluster B with legal interest thereon from date of the filing of the complaint until fully paid; 3. P1,703,955.07 for Alexandra Cluster C with legal interest thereon from date of the filing of the complaint until fully paid; 4. P7,112,738.82 in actual damages for the concreting works of Tektite Tower I, with legal interest thereon from the date of the filing of the complaint until fully paid; 5. P5,529,495.76 in actual damages for the construction of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid; 6. P232,367.96 in actual damages for the construction of the drivers quarters of Alexandra Cluster E, with legal interest thereon from the date of the filing of the complaint until fully paid; 7. P750,000.00 for attorneys fees and expenses of litigation; and 8. Costs. SO ORDERED.
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construction of Tektite Tower Phase I, the length of delay having been signed and confirmed by LCDC; [2] P12,785,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the construction of Alexandra Cluster B, the length of delay having been signed and confirmed by LCDC; [3] P1,700,000.00 liquidated damages pursuant to contract for delay incurred by plaintiff appellee LCDC in the construction of Alexandra Cluster C, the length of delay having been confirmed by LCDC; [4] P4,646,947.75 overpayment by defendant-appellant PRHC to plaintiff-appellee LCDC for the Tektite Tower Phase I Project; [5] P1,121,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work or plaintiff-appellee LCDC in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Escritor, Inc.; [6] P885,000.00 expenses incurred by defendant-appellant PRHC for corrective works to redo/repair allegedly defective Waterproofing construction work of plaintiff-appellee LCDC at the Alexandra Cluster B Quadrant in the Alexander Cluster B Project which was paid by defendant-appellant PRHC to contractor Ideal Marketing Inc., and II. FINDING defendant-appellant PRHC LIABLE to plaintiffappellee LCDC in the amount of Fifty Six million Seven Hundred Sixteen Thousand Nine Hundred Seventy One 40/100 (P56,716,971.40) detailed as follows: In Yao Ka Sin Trading v. Court of Appeals, et al,. this Court discussed the applicable rules on the doctrine of apparent authority, to wit: The rule is of course settled that "[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 44 faith with such officers or agents."
43

PRHC filed a Notice of Appeal on 14 June 2001. The Court of 20 Appeals, in CA-G.R. CV No. 71293, reversed the lower courts amended Decision on 30 September 2004 and ruled thus: WHEREFORE, premises considered, the assailed January 31, 2001 decision and the May 7, 2001 amended decision are hereby REVERSED and SET ASIDE and a new one is entered: I. FINDING plaintiff-appellee LCDC LIABLE to defendantappellant PRHC in the amount of Sixty million Four Hundred Sixty Four (Thousand) Seven Hundred Sixty Four 90/100 (P60,464,764.90) PESOS detailed as follows: [1] P39,326,817.15 liquidated damages pursuant to contract for delay incurred by plaintiff-appellee LCDC in the

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In Peoples Aircargo and Warehousing Co. Inc. v. Court of 45 Appeals, et al., we held that apparent authority is derived not merely from practice: Its existence may be ascertained through (1) the general manner in which the corporation holds out an officer or agent as having the power to act or, in other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond the scope of his ordinary powers. We rule that Santos and Abcede held themselves out as possessing the authority to act, negotiate and sign documents on behalf of PRHC; and that PRHC sanctioned these acts. It would be the height of incongruity to now allow PRHC to deny the extent of the authority with which it had clothed both individuals. We find that Abcedes role as construction manager, with regard to the construction projects, was akin to that of a general manager with regard to the general operations of the corporation he or she is representing. Consequently, the escalation agreement entered into by LCDC and Abcede is a valid agreement that PRHC is obligated to comply with. This escalation agreement whether written or verbal has lifted, through novation, the prohibition contained in the Tektite Building Agreement. In order for novation to take place, the concurrence of the following requisites is indispensable: 1. There must be a previous valid obligation. 2. The parties concerned must agree to a new contract. 3. The old contract must be extinguished. 4. There must be a valid new contract.
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agreement for having allowed LCDC to continue infusing additional money spending for its own project, when it could have promptly notified LCDC of the alleged disapproval of the proposed escalation price by its board of directors. Estoppel is an equitable principle rooted in natural justice; it is meant to prevent persons from going back on their own acts and representations, to the prejudice of others who have 47 relied on them. Article 1431 of the Civil Code provides: Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. Article 1431 is reflected in Rule 131, Section 2 (a) of the Rules of Court, viz.: Sec. 2. Conclusive presumptions. The following are instances of conclusive presumptions: (a) Whenever a party has by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act or omission be permitted to falsify it. This Court has identified the elements of estoppel as: [F]irst, the actor who usually must have knowledge, notice or suspicion of the true facts, communicates something to another in a misleading way, either by words, conduct or silence; second, the other in fact relies, and relies reasonably or justifiably, upon that communication; third, the other would be harmed materially if the actor is later permitted to assert any claim inconsistent with his earlier conduct; and fourth, the actor knows, expects or foresees that the other would act upon the information given or that a reasonable person in the actor's position would expect or foresee such 48 action. This liability of PRHC, however, has a ceiling. The escalation agreement entered into was for P 36 millionthe maximum amount that LCDC contracted itself to infuse and that PRHC agreed to reimburse. Thus, the Court of Appeals was correct in ruling that the P 2,248,463.92 infused by LCDC over and above the P 36 million should be for its account, since PRHC never agreed to pay anything beyond the latter amount. While PRHC benefited from this excess infusion, this did not result in its unjust enrichment, as defined by law. Unjust enrichment exists "when a person unjustly retains a benefit to the loss of another, or when a person retains money or property of another against the fundamental 49 principles of justice, equity and good conscience." Under Art. 22 of the Civil Code, there is unjust enrichment when (1) a person is unjustly benefited, and (2) such benefit is derived

All the aforementioned requisites are present in this case. The obligation of both parties not to increase the contract price in the Tektite Building Agreement was extinguished, and a new obligation increasing the old contract price by P 36 million was created by the parties to take its place. What makes this Court believe that it is incorrect to allow PRHC to escape liability for the escalation price is the fact that LCDC was never informed of the board of directors supposed non-approval of the escalation agreement until it was too late. Instead, PRHC, for its own benefit, waited for the former to finish infusing the entire amount into the construction of the building before informing it that the said agreement had never been approved by the board of directors. LCDC diligently informed PRHC each month of the partial amounts the former infused into the project. PRHC must be deemed estopped from denying the existence of the escalation

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at the expense of or with damages to another. The term is further defined thus: Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for property or benefits received under circumstances that give rise to legal or equitable obligation to account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, 51 coercion, or request. In order for an unjust enrichment claim to prosper, one must not only prove that the other party benefited from ones efforts or the obligations of others; it must also be shown that the other party was unjustly enriched in the sense that the term "unjustly" could mean "illegally" or 52 "unlawfully." LCDC was aware that the escalation agreement was limited to P36 million. It is not entitled to remuneration of the excess, since it did not confer this benefit by mistake, fraud, coercion, or request. Rather, it voluntarily infused the excess amount with full knowledge that PRHC had no obligation to reimburse it. Parenthetically, we note that the CA had ruled that the 7 December 1992 letter demonstrates that PRHC treated the P 36 million as a loan deductible from the liquidated 53 damages for which LCDC is supposedly liable. It ruled that when PRHC informed LCDC that it would apply the P 36 million to the liquidated damages, PRHC, in effect, acknowledged that it was in debt to LCDC in the amount of P 36 million, and that forms the basis for PRHCs liabi lity to LCDC for the said amount. We disagree with this analysis. In a contract of loan, ownership of the money is transferred 54 from the lender to the borrower. In this case, ownership of the P 36 million was never transferred to PRHC. As previously mentioned, such amount was paid directly to the 55 suppliers. We find that arrangement between PRHC and LCDC cannot be construed as a loan agreement but rather, it was an agreement to advance the costs of construction. In Liwanag v. Court of Appeals et al., we state: Neither can the transaction be considered a loan, since in a contract of loan once the money is received by the debtor, ownership over the same is transferred. Being the owner, the borrower can dispose of it for whatever purpose he may deem proper. In the instant petition, however, it is evident that Liwanag could not dispose of the money as she pleased because it was only delivered to her for a single Causepurpose, namely, for the purchase of cigarettes, and if this was not possible then to return the money to Rosales. 1 Mar 1990 LCDC is not liable for liquidated damages for delay in the construction of the buildings for PRHC.

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There is no question that LCDC was not able to fully construct the Tektite Building and Projects 1, 2, and 3 on time. It reasons that it should not be made liable for liquidated damages, because its rightful and reasonable requests for 56 time extension were denied by PRHC. It is important to note that PRHC does not question the veracity of the factual representations of LCDC to justify the latters requests for extension of time. It insists, however, that in any event LCDC agreed to the limits of the time 57 extensions it granted. The practice of the parties is that each time LCDC requests for more time, an extension agreement is executed and signed by both parties to indicate their joint approval of the number of days of extension agreed upon. The applicable provision in the parties agreements is as follows: ARTICLE VII TIME OF COMPLETION ... ... ...

Should the work be delayed by any act or omission of the OWNER or any other person employed by or contracted by the OWNER in the project, including days in the delivery or (sic) materials furnished by the OWNER or others, or by any appreciable additions or alterations in the work ordered by the OWNER or the ARCHITECT, under Article V or by force majeure, war, rebellion, strikes, epidemics, fires, riots, or acts of the civil or military authorities, the CONTRACTOR shall be granted time extension. In case the CONTRACTOR encounters any justifiable cause or reason for delay, the CONTRACTOR shall within ten (10) days, after encountering such cause of delay submit to the OWNER in writing a written request for time extension indicating therein the requested contract time extension. Failure by the CONTRACTOR to comply with this requirements (sic) will be adequate reason for the OWNER not to grant the time extension.1avvphi1 The following table shows the dates of LCDCs letter -requests, the supposed causes justifying them, the number of days requested, and the number of days granted by PRHC and supposedly conformed to by LCDC: 1avvphi1 # of days requested

# o gran

Due to additional works and shortage of supplies and cement

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Plaintiff-appellees allegation that determination by PHRC of 6 extensions of time were unreasonable or arbitrary is untenable in the light of express provisions of the Frequent power failures 10 Construction 2 Agreements which prescribed precise procedures for extensions of time. In fact the procedure is Bad weather which endangered the lives of the construction workers fool-proof because both OWNER and CONTRACTOR sign to 10 2 ("heavy winds") indicate approval of the number of days of extension. Computation of the penalty becomes mechanical after that. Each extension as signed by the parties is a contract by itself Inclement weather that endangered the lives of the construction 10 and has the 3 force of law between them. workers Shortage of cement supply 18 In fact, the parties followed that prescribed procedure strictly Architectural and structural revisions of R.C. beams at the 8th floor the CONTRACTOR first requested the OWNER to approve 20 8 level the number of days applied for as extension of time to finish the particular project and the OWNER will counter-offer by approving only a lower number of days extension of time for For change order work and revisions in the plans initiated by the 271CONTRACTOR 136 to finish the contract as recommended by the architect and Abcedes delay in giving the revised plans to contractor CONSTRUCTION MANAGER ABCEDE, and in the end, both CONTRACTOR and OWNER sign jointly the approved number Inclement weather and scarcity of cement 25 17 of days agreed upon. That signed extension of time is taken 59 to be the contract between the parties. Water supply interruption and power failures preventing the mixing 15 The appellate 6 court further ruled that each signed extension of cement is a separate contract that becomes the law between the 60 parties: Typhoon Uring and water supply interruption (typhoon Uring alone caused a delay for more than 10 days due to strong and continuous 15 there is nothing 2 arbitrary or unreasonable about the number rains) of days extension of time because each extension is a meeting of the minds between the parties, each under joint OWNER and CONTRACTOR witnessed by the Inadequate supply of Portland cement and frequent power failures 15 signature 12 61 CONSTRUCTION MANAGER. Inadequate supply of cement and frequent power failures 17 Inasmuch 12 as LCDCs claimed exemption from liability are beyond the approved time extensions, LCDC, according to the the CA, is liable therefor. 456majority of217

Justice Juan Q. Enriquez, in his Dissenting Opinion, held that additions and alterations in the work ordered by the owner and by LCDC fell under the definition of 108the reasons 20submitted 62 architect force majeure. This specific point was not refuted by the majority. 564 237 We agree with Justice Enriquez on this point and thereby disagree with the majority ruling of the CA. Article 1174 of the Civil Code provides: "Except in cases expressly specified by the law, or when it is otherwise declared by stipulation or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though foreseen, were inevitable." A perusal of the construction agreements shows that the parties never agreed to make LCDC liable even in cases of force majeure. Neither was the assumption of risk required. Thus, in the occurrence of events that could not be foreseen, or though foreseen were inevitable, neither party should be held responsible.

As previously mentioned, LCDC sent a 9 December 1992 letter to PRHC claiming that, in a period of over two years, only 256 out of the 618 days of extension requested were considered. We disregard these numbers presented by LCDC because of its failure to present evidence to prove its allegation. The tally that we will acceptas reflected by the evidence submitted to the lower courtis as follows: out of the 564 days requested, only 237 were considered. Essentially the same aforementioned reasons or causes are presented by LCDC as defense against liability for both 58 Projects 1 and 2. In this regard, the CA ruled:

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Under Article 1174 of the Civil Code, to exempt the obligor from liability for a breach of an obligation due to an "act of God" or force majeure, the following must concur: (a) the cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforseeable or unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and (d) the debtor must be free from any participation in, or aggravation of the injury to 63 the creditor. The shortage in supplies and cement may be characterized as 64 force majeure. In the present case, hardware stores did not have enough cement available in their supplies or stocks at the time of the construction in the 1990s. Likewise, typhoons, power failures and interruptions of water supply all clearly fall under force majeure. Since LCDC could not possibly continue constructing the building under the circumstances prevailing, it cannot be held liable for any delay that resulted from the causes aforementioned. Further, PRHC is barred by the doctrine of promissory estoppel from denying that it agreed, and even promised, to hold LCDC free and clear of any liquidated damages. Abcede and Santos also promised that the latter corporation would not be held liable for liquidated damages even for a single day of delay despite the non-approval of the requests for 65 extension. Mr. Ley testified to this fact as follows: Q: So, Mr. Witness in all those requests for extension and whenever the D.A. Abcede & Associates did not grant you the actual number of days stated in your requests for extension, what did Ley construction and Development do, if any? A: We talked to Dennis Abcede and Mr. Santos, Maam. Q: And what did you tell them? A: I will tell them why did you not grant the extension for us, Maam. Q: What was the response of Mr. Abcede and Mr. Santos? A: Mr. Abcede and Mr. Santos told me, Mr. Ley dont worry, you will not be liquidated of any single day for this because we can see that you worked so hard for this project, Maam. Q: And what did you do after you were given that response of Mr. Abcede and Mr. Santos? A: They told me you just relax and finish the project, and we will pay you up to the last centavos, Maam. Q: What did you do after taking that statement or assurance? A: As gentlemans agreement I just continued working 66 without complaining anymore, Maam.

The above testimony is uncontradicted. Even assuming that all the reasons LCDC presented do not qualify as fortuitous events, as contemplated by law, this Court finds that PRHC is estopped from denying that it had granted a waiver of the liquidated damages the latter corporation may collect from the former due to a delay in the construction of any of the buildings. Courts may rule on causes of action not included in the Complaint, as long as these have been proven during trial without the objection of the opposing party. PRHC argues that since the parties had already limited the issues to those reflected in their joint stipulation of facts, neither the trial court nor the appellate court has the authority to rule upon issues not included therein. Thus it was wrong for the trial court and the CA to have awarded the amounts of P 5,529,495.76 representing the remaining balance for Project 3 as well as for the P 232,367.96 representing the balance for the construction of the driv ers quarters in Project 3. PRHC claims that in the Stipulation of Facts, all the issues regarding Project 3 were already made part of the computation of the balances for the other projects. It thus argues that the computation for the Tektite Building showed that the overpayment for Project 3 in the amount of P 9,531,181.80 was credited as payment for the 67 Tektite Tower Project. It reasons that, considering that it actually made an overpayment for Project 3, it should not be made liable for the remaining balances for Project 3 and the 68 drivers quarters in Project 3. It is LCDCs position, however, that the Stipulation of Facts covers the balances due only for 69 the Tektite Tower Project, Project 1, and Project 2. Since Project 3 was not included in the reconciliation contained in the said stipulation, it maintains that the balance for Project 3 70 remains at P 5,529,495.76, and that the balance for the construction of the drivers quarters in Project 3 remains at P 232,367.96. On its part, LCDC disputes the deletion by the CA of the lower courts grant of the alleged P 7,112,738.82 unpaid balance for the concreting works in the Tektite Building. The CA had ruled that this cause of action was withdrawn by the parties when they did not include it in their Joint Stipulation of Facts. LCDC argues that to the contrary, the silence of the Stipulation of 71 Facts on this matter proves that the claim still stands. Considering that the unpaid balances for Project 3, its drivers quarters, and the concreting works in the Tektite Building were not covered by the Stipulation of Facts entered into by the parties, we rule that no judicial admission could have been made by LCDC regarding any issue involving the unpaid balances for those pieces of work. We affirm in this case the doctrine that courts may rule or decide on matters that, although not submitted as issues,

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were proven during trial. The admission of evidence, presented to support an allegation not submitted as an issue, should be objected to at the time of its presentation by the party to be affected thereby; otherwise, the court may admit the evidence, and the fact that such evidence seeks to prove a matter not included or presented as an issue in the pleadings submitted becomes irrelevant, because of the failure of the appropriate party to object to the presentation. No objection was raised when LCDC presented evidence to prove the outstanding balances for Project 3, its drivers quarters, and the concreting works in the Tektite Building. In Phil. Export and Foreign Loan Guarantee Corp. v. Phil. 72 Infrastructures, et al., this Court held: It is settled that even if the complaint be defective, but the parties go to trial thereon, and the plaintiff, without objection, introduces sufficient evidence to constitute the particular cause of action which it intended to allege in the original complaint, and the defendant voluntarily produces witnesses to meet the cause of action thus established, an issue is joined as fully and as effectively as if it had been previously joined by the most perfect pleadings. Likewise, when issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Considering the absence of timely and appropriate objections, the trial court did not err in admitting evidence of the unpaid balances for Project 3, its drivers quarters, and the concreting works in the Tektite Building. Furthermore, both the lower and the appellate courts found that the supporting evidence presented by LCDC were sufficient to prove that the claimed amounts were due, but that they remained unpaid. LCDC should be held liable for the corrective works to redo or repair the defective waterproofing in Project 2. The waterproofing of Project 2 was not undertaken by LCDC. Instead, Vulchem Corporation (Vulchem), which was recommended by Santos and Abcede, was hired for that task. Vulchems waterproofing turned out to be defective. In order to correct or repair the defective waterproofing, PRHC had to contract the services of another corporation, which charged it P2,006,000. Denying liability by alleging that PRHC forced it into hiring Vulchem Corporation for the waterproofing works in Project 2, LCDC argues that under Article 1892, 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 73 bears no responsibility for the acts of the sub-agent. The provision reads:

"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." LCDC argues that because PRHC, as the principal, had designated Vulchem as sub-agent, LCDC, as the agent, should not be made responsible for the acts of the substitute, even in the instance where the latter were notoriously 74 incompetent. LCDCs reliance on Art. 1892 is misplaced. The principles of agency are 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. Art. XIV of the Project 2 Agreement clearly states that if the contractor sublets any part of the agreement to a third party, who in effect becomes a sub-contractor, the losses or expenses that result from the acts/inactions of the subcontractor should be for the contractors account, to wit: ARTICLE XIV ASSIGNMENT This Agreement, and/or any of the payments to be due hereunder shall not be assigned in whole or in part by the CONTRACTOR nor shall any part of the works be sublet by CONTRACTOR without the prior written consent of OWNER, and such consent shall not relieve the CONTRACTOR from full responsibility and liability for the works hereunder shall not be granted in any event until CONTRACTOR has furnished OWNER with satisfactory evidence that the Sub-Contractor is carrying ample insurance to the same extent and in the same manner as herein provided to be furnished by CONTRACTOR. If the agreement is assigned or any part thereof is sublet, CONTRACTOR shall exonerate, indemnify and save harmless the OWNER from and against any and all losses or expenses 75 caused thereby. LCDC had every right to reject Vulchem as sub-contractor for the waterproofing work of Project 2 but it did not do so and proceeded to hire the latter. It is not unusual for project owners to recommend sub-contractors, and such recommendations do not diminish the liability of contractors in the presence of an Article XIV-type clause in the construction agreement. The failure of LCDC to ensure that the work of its sub-contractor is satisfactory makes it liable

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for the expenses PRHC incurred in order to correct the defective works of the sub-contractor. The CA did not err in ruling that the contract itself gave PRHC the authority to recover the expenses for the "re-do" works arising from the 76 defective work of Vulchem. LCDC is entitled to attorneys fees and the expenses of litigation and costs. According to the CA, LCDC was not entitled to attorneys fees, because it was not the aggrieved party, but was the one that violated the terms of the construction agreements and 77 should thus be made to pay costs. LCDC claims, on the other hand, that the CA seriously erred in deleting the lower courts award of P750,000 attorneys fees and the expenses of litigation in its favor, since this award is justified under the 78 law. To support its claim, LCDC cites Article 2208(5), which provides: ART. 2208. In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial costs, cannot be recovered, except: ... ... ...

Agreement, the CONTRACTOR/OWNER should it be adjudged liable in whole or in part, shall pay the OWNER/CONTRACTOR reasonable attorneys fees in the amount equivalent to Twenty Percent (20%) of the total amount claimed in addition to all expenses of litigation and costs of the suit. Equivalent to at least Twenty Percent (20%) of the total amount claimed in addition to all expenses of litigation and costs of the suit. As long as a stipulation does not contravene the law, morals, 81 and public order, it is binding upon the obligor. Thus, LCDC is entitled to recover attorneys fees. Nevertheless, this Court deems it proper to equitably reduce the stipulated amount. Courts have the power to reduce the amount of attorneys 82 fees when found to be excessive, viz: We affirm the equitable reduction in attorneys fees. These are not an integral part of the cost of borrowing, but arise only when collecting upon the Notes becomes necessary. The purpose of these fees is not to give respondent a larger compensation for the loan than the law already allows, but to protect it against any future loss or damage by being compelled to retain counsel in-house or notto institute judicial proceedings for the collection of its credit. Courts have has the power to determine their reasonableness based on quantum meruit and to reduce the amount thereof if 83 excessive. We reverse the appellate courts Decision and reinstate the lower courts award of attorneys fees, but reduce the amount from P750,000 to P200,000. WHEREFORE, we SET ASIDE the Decision of the Court of Appeals and RULE as follows: I. We find Philippine Realty and Holdings Corporation (PRHC) LIABLE to Ley Construction Development Corporation (LCDC) in the amount of P 64,029,710.22, detailed as follows: 1. P 13,251,152.61 as balance yet unpaid by PRHC for Project 2; 2. P 1,703,955.07 as balance yet unpaid by PRHC for Project 1; 3. P 5,529,495.76 as balance yet unpaid by PRHC for Project 3; 4. P 232,367.96 as balance yet unpaid by PRHC for the drivers quarters for Project 3; 5. P 36,000,000.00 as agreed upon in the escalation agreement entered into by PRHCs representatives and LCDC for the Tektite Building;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim; ... ... ...

Attorney's fees may be awarded when the act or omission of the defendant compelled the plaintiff to incur expenses to 79 protect the latters interest. In ABS-CBN Broadcasting Corp. 80 v. CA, we held thus: The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorney's fees under Article 2208 demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorney's fees may not be awarded where no sufficient showing of bad faith could be reflected in a party's persistence in a case other than an erroneous conviction of the righteousness of his cause. LCDC has failed to establish bad faith on the part of PRHC so as to sustain its position that it is entitled to attorneys fees. Nevertheless, the CA erred in reversing the lower courts Decision granting LCDCs claim for attorneys fees considering that the construction agreements contain a penal clause that deals with the award of attorneys fees, as follows: In the event the OWNER/CONTRACTOR institutes a judicial proceeding in order to enforce any terms or conditions of this

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6. P 7,112,738.82 as balance yet unpaid by PRHC for the concreting works from the ground floor to the fifth floor of the Tektite Building; 7. P 200,000.00 as LCDCs reduced attorneys fees. II. Further, we find LCDC LIABLE to PRHC in the amount of P 6,652,947.75 detailed as follows: 1. P 4,646,947.75 for the overpayment made by PRHC for the Tektite Building; 2. P 2,006,000.00 for the expenses incurred by PRHC for corrective works to redo/repair the allegedly defective waterproofing construction work done by LCDC in Project 2. The respective liabilities of the parties as enumerated above are hereby SET OFF against each other, and PRHC is hereby DIRECTED to pay LCDC the net amount due, which is P 57,376,762.47, with legal interest from the date of the filing of Complaint. SO ORDERED.

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