F.F. Cruz and Co., Inc. vs. Court of Appeals

The doctrine of res ipsa loquitur applies where a fire originating in a defendant's furniture manufacturing shop spreads to a neighboring residence, the cause being unknown and the shop being under the defendant's management and control; and where the injured party has received insurance indemnity, the amount so received must be deducted from the damages award under Article 2207 of the Civil Code, the insurer being subrogated pro tanto to the insured's right of action against the wrongdoer.

Petitioner F.F. Cruz and Co., Inc. operated a furniture manufacturing shop in Caloocan City, situated adjacent to the residence of private respondent Gregorio Mable and his family. The shop's operations involved combustible materials such as wood chips, sawdust, paint, varnish, and fuel and lubricants for machinery. A city ordinance required the construction of a firewall between commercial establishments and neighboring residences. Gregorio Mable had repeatedly requested petitioner's plant manager, Eric Cruz, to construct such a firewall, but the request was never heeded.

Petitioner F.F. Cruz and Co., Inc. operated a furniture manufacturing shop in Caloocan City, adjacent to the residence of private respondent Gregorio Mable and his family. Sometime in August 1971, Gregorio Mable first approached Eric Cruz, petitioner's plant manager, to request that a firewall be constructed between the shop and the Mable residence. The request was repeated several times but was never acted upon.

In the early morning of September 6, 1974, fire broke out in petitioner's shop. Petitioner's employees, who slept on the shop premises, attempted to extinguish the fire, but their efforts proved futile. The fire spread to the Mable residence, and both the shop and the house were razed to the ground. The cause of the conflagration was never discovered. The National Bureau of Investigation found specimens from the burned structures negative for the presence of inflammable substances. Subsequently, private respondents collected ₱35,000.00 on the insurance covering their house and its contents.

On January 23, 1975, private respondents filed an action for damages against petitioner. The Court of First Instance rendered judgment in their favor, awarding ₱80,000.00 for the house, ₱50,000.00 for furniture and other personal effects, ₱5,000.00 as moral damages, ₱2,000.00 as exemplary damages, and ₱5,000.00 as attorney's fees, with 6% interest from the date of filing of the complaint. On appeal, the Court of Appeals affirmed the finding of liability but reduced the award for the house to ₱70,000.00 while retaining the ₱50,000.00 award for furniture and fixtures. The Court of Appeals found that petitioner had failed to construct a firewall between its shop and the residence as required by a city ordinance; that the fire could have been caused by a heated motor or a lit cigarette; that gasoline and alcohol were used and stored in the shop; and that workers sometimes smoked inside the shop. The concrete wall that did exist was only 2-1/2 meters high, beyond which it consisted merely of galvanized iron sheets that would predictably crumble and melt under intense heat.

• Insurance Proceeds Deduction: Petitioner argued that the Court of Appeals erred in not deducting the sum of ₱35,000.00, which private respondents had recovered from insurance on their house, from the award of damages.
• Excessive or Unproved Damages: Petitioner contended that the damages awarded by the Court of Appeals were excessive and/or unproved.
• Res Ipsa Loquitur Application: Petitioner objected to the application of the doctrine of res ipsa loquitur to the facts of the case.

• Res Ipsa Loquitur: Whether the doctrine of res ipsa loquitur was properly applied to the facts of the case.
• Damages Assessment: Whether the damages awarded by the Court of Appeals were excessive or unproved.
• Insurance Proceeds Deduction: Whether the ₱35,000.00 insurance proceeds received by private respondents should be deducted from the award of damages.

• Res Ipsa Loquitur: Yes. The doctrine was properly applied, the fire having originated in petitioner's shop under its management and control, and such an accident not ordinarily occurring with proper care; independently, petitioner's failure to construct an ordinance-compliant firewall constituted negligence.
• Damages Assessment: No. The factual findings of the Court of Appeals on the amount of loss should not be disturbed, there being no showing of arbitrariness; the valuation of the house at ₱70,000.00 was reasonable given appreciation in real estate value and diminution of the peso.
• Insurance Proceeds Deduction: Yes. Pursuant to Article 2207 of the Civil Code, the ₱35,000.00 insurance indemnity received by private respondents must be deducted from the damages award, the insurer being subrogated pro tanto to the insured's right of action against the wrongdoer.

• Res Ipsa Loquitur: The doctrine of res ipsa loquitur provides that where the thing which caused the injury is under the management of the defendant or his servants, and the accident is such as in the ordinary course of things does not happen if those who have management or control use proper care, it affords reasonable evidence, in the absence of explanation by the defendant, that the accident arose from want of care. The facts called for its application because a furniture manufacturing shop normally contains combustible materials such as wood chips, sawdust, paint, varnish, and fuel and lubricants for machinery. The Court of Appeals had additionally found specific indicia of negligence: petitioner's failure to construct an ordinance-compliant firewall, the possibility that the fire was caused by a heated motor or a lit cigarette, the use and storage of gasoline and alcohol in the shop, and workers smoking inside the shop. Even without res ipsa loquitur, the failure to construct a firewall in accordance with city ordinances sufficed to support a finding of negligence, as the Court had ruled in Teague vs. Fernandez that failure to comply with a safety ordinance constitutes negligence. Petitioner's negligence extended not only to the cause of the fire but also to its spread, because the concrete wall was only 2-1/2 meters high and above that consisted of galvanized iron sheets that would predictably crumble and melt under intense heat. The Court relied on Africa vs. Caltex (Phil.), Inc. as controlling precedent.

• Damages Assessment: The amount of loss sustained by private respondents constitutes a finding of fact by the Court of Appeals, which should not be disturbed by the Supreme Court, more so when there is no showing of arbitrariness. Both the CFI and the Court of Appeals agreed on the ₱50,000.00 valuation for furniture, fixtures, and personal effects. With regard to the house, the Court of Appeals reduced the award from ₱80,000.00 to ₱70,000.00, which could not be categorized as arbitrary given that the house was built in 1951 for ₱40,000.00 and its reconstruction would cost ₱246,000.00 according to private respondents; considering the appreciation in real estate value and the diminution of the peso, ₱70,000.00 was not excessive.

• Insurance Proceeds Deduction: Article 2207 of the Civil Code provides that if the plaintiff's property has been insured and the insured has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company is subrogated to the rights of the insured against the wrongdoer; if the amount paid does not fully cover the injury or loss, the aggrieved party is entitled to recover the deficiency. The law is clear and needs no interpretation. Having been indemnified by their insurer, private respondents were only entitled to recover the deficiency from petitioner. The insurer, if it so desired, could seek reimbursement of the ₱35,000.00 from petitioner, this being the essence of its right of subrogation. Since the insurer was not a party to the case and its identity was not of record, the insurer had to claim its right to reimbursement independently.

• Res Ipsa Loquitur — The doctrine provides that where the thing which caused the injury complained of is shown to be under the management of the defendant or his servants, and the accident is such as in the ordinary course of things does not happen if those who have its management or control use proper care, it affords reasonable evidence, in the absence of explanation by the defendant, that the accident arose from want of care. The Court applied it to a fire of unknown origin that broke out in a furniture manufacturing shop and spread to a neighboring residence, finding that the shop was under petitioner's management and that combustible materials were normally present therein.

• Negligence per se for violation of ordinance — Failure to comply with a city ordinance providing for safety regulations constitutes an act of negligence. The Court relied on this principle to hold that petitioner's failure to construct an ordinance-compliant firewall between its shop and the neighboring residence independently supported a finding of negligence, apart from the application of res ipsa loquitur.

• Insurance subrogation under Article 2207 — When the plaintiff's property has been insured and the insured has received indemnity from the insurer for the injury or loss arising out of the wrong complained of, the insurer is subrogated to the rights of the insured against the wrongdoer. If the amount paid does not fully cover the loss, the aggrieved party is entitled to recover the deficiency. The insurer is the real party in interest with regard to the indemnity received by the insured and may seek reimbursement from the wrongdoer.

• "Where the thing which caused the injury complained of is shown to be under the management of the defendant or his servants and the accident is such as in the ordinary course of things does not happen if those who have its management or control use proper care, it affords reasonable evidence, in the absence of explanation by the defendant, that the accident arose from want of care." — This is the canonical formulation of the doctrine of res ipsa loquitur as adopted by the Philippine Supreme Court, quoted from Africa vs. Caltex (Phil.), Inc., and applied here to the fire originating in petitioner's furniture shop.

• "Even without applying the doctrine of res ipsa loquitur, petitioner's failure to construct a firewall in accordance with city ordinances would suffice to support a finding of negligence." — This passage establishes that the Court found an independent ground for negligence beyond res ipsa loquitur, grounded on the violation of a safety ordinance.

• "Having been indemnified by their insurer, private respondents are only entitled to recover the deficiency from petitioner." — This sentence captures the Court's application of Article 2207, limiting the insured's recovery against the wrongdoer to the deficiency after deducting insurance proceeds.

• Africa vs. Caltex (Phil.), Inc., G.R. No. L-12986, March 31, 1966, 16 SCRA 448 — Controlling precedent on the doctrine of res ipsa loquitur. The Court applied the doctrine where fire broke out in a Caltex service station while gasoline was being unloaded and spread to neighboring houses, adjudging Caltex liable. The Court followed this precedent in the present case, finding the factual setting analogous.

• Teague vs. Fernandez, G.R. No. L-29745, June 4, 1973, 51 SCRA 181 — Cited for the proposition that failure to comply with an ordinance providing for safety regulations constitutes an act of negligence, independently supporting a finding of liability.

• M.D. Transit & Taxi Co., Inc. vs. Court of Appeals, G.R. No. L-23882, February 17, 1968, 22 SCRA 559 — Cited for the rule that factual findings of the Court of Appeals on the amount of loss should not be disturbed by the Supreme Court, absent arbitrariness.

• Fireman's Fund Insurance Co. vs. Jamila & Co., Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323 — Cited for the principle that upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose negligence caused the loss.

• Phil. Air Lines, Inc. vs. Heald Lumber Co., 101 Phil. 1031 (1957) — Cited for the proposition that under Article 2207, the real party in interest with regard to the indemnity received by the insured is the insurer.

• Article 2207, Civil Code — Provides that if the plaintiff's property has been insured and the insured has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company is subrogated to the rights of the insured against the wrongdoer; if the amount paid does not fully cover the loss, the aggrieved party is entitled to recover the deficiency. Applied to deduct the ₱35,000.00 insurance proceeds from the damages award and to recognize the insurer's right to seek reimbursement from petitioner.

Fernan, C.J., Gutierrez, Jr., Feliciano, and Bidin, JJ., concurred.