Yap Kim Chuan vs. Tiaoqui

A lessor is not liable for damages to a lessee's goods caused by leaks during an extraordinary rainfall constituting force majeure, absent proof that the lessor knew of hidden defects in the leased premises and fraudulently concealed them from the lessee. Liability for warranty of the thing leased is distinct from liability in damages, the latter arising only when the lessor knew of the defects and failed to disclose them, and only when the lessee elects rescission of the contract.

Yap Kim Chuan was a tenant leasing a building at No. 218 Calle Rosario, Manila, owned by Alfonso M. Tiaoqui. The building, composed of four apartments, had been recently finished and inspected by the city engineer, who authorized its use and occupancy for leasing. The construction had been directed by an architect and approved by the engineering and sanitation departments of the City of Manila. The case was tried together with two related cases (Nos. 10007 and 10008) involving analogous facts and the same defendant, as the questions of fact and law were identical across all three. On August 2, 1913, Tiaoqui transferred all his rights, claims, and obligations in the lease, as well as absolute ownership of the building, to the Tantungco y Guepangco sisters, who sought to intervene in the proceedings.

On March 15, 1913, Yap Kim Chuan leased the building at No. 218 Calle Rosario, Manila, owned by Alfonso M. Tiaoqui, undertaking to pay P310 in rent from March 15 to June 30, 1913, and P315 from July 1 until the termination of the lease on December 31 of the same year. The building, composed of four apartments, had been recently finished under the direction and inspection of an engineer, with plans and specifications approved by the engineering and sanitation departments of the City of Manila. After completion, the architect who superintended the construction certified that the building was well constructed, and the city engineer authorized its use and occupancy for leasing. The contractor Rafael Machuca Gotauco testified that he constructed the building according to plans and specifications and that the architect certified it as well constructed.

On April 14, 1913, at about 5 o'clock in the afternoon, a torrential rain fell over the City of Manila, described as the heaviest from January to April of that year. According to a certificate from the Observatory, 48.3 millimeters of water were registered in the rain-gauge, an amount notably excessive and the greatest during that four-month period. As a consequence of the large quantity of water that fell, the yard of the premises was flooded, the roof leaked, and drain-pipes had no outlet for the water. The lessee had to break open four bell traps in the yard to allow the water to flow away and prevent greater inundation. Many buildings in the Escolta and adjacent business sections, both wooden and reinforced concrete structures, were flooded by overflowing drains and gutters and by filtrations, as the gutters of the eaves and roofs were inadequate for the extraordinarily excessive rainfall. The merchandise stored in the storeroom of the leased building was wet and damaged, causing the plaintiff a loss amounting to P1,169.

The following day, April 15, 1913, an inventory of the damaged goods was made in the presence of the plaintiff, the defendant, and a notary public. According to the plaintiff, the defendant expressly authorized him to sell the damaged goods at any price and promised to pay the difference between the selling price and the regular price of the articles in good condition. The defendant denied this, asserting that his intervention in the notarial document did not signify acceptance of liability but was merely to determine the cause of the water entry. He further stated that when the plaintiffs demanded payment, he replied that he could not pay, but that he would investigate whether there were defects in the roof, in which case he would collect from the contractor Machuca and deliver whatever sum the latter might pay to the plaintiffs to cover the losses; however, if the contractor did not pay or if the leaks resulted from the torrential rain, he would not pay them anything. The plaintiff accordingly sold the damaged goods at a loss of P1,169, and despite repeated demands, the defendant refused to pay.

On August 2, 1913, Tiaoqui transferred all his rights, claims, and obligations in the lease, as well as the absolute ownership of the building, to the Tantungco y Guepangco sisters, who by agreement took over all the premises covered by the lease. The trial court, after trial and introduction of evidence by both parties, rendered judgment on March 20, 1914, sentencing the defendant to pay the plaintiff P1,019 with legal interest at 6% per annum from August 4, 1903, and the costs. The trial court found that a promise had been made by the defendant to pay the damages, a factual finding that the Supreme Court reversed upon examination of the record.

• Force Majeure: Defendant-appellant argued that the torrential rainfall of April 14, 1913, was an unforeseen and unavoidable event constituting force majeure, and that neither he nor the plaintiffs could have foreseen that the roof would leak.
• No Defect in Building: The defendant maintained that the building had been recently finished, constructed under the direction of an engineer, and approved by the city engineer and sanitation departments, with no indication of defects in the roof.
• No Fault or Negligence: The defendant alleged that the wetting of the merchandise was not caused wholly by leaks and drips but was in large part due to the improper location of the merchandise inside the building, and that in neither case was there fault or negligence on his part.
• No Promise to Pay: The defendant denied that he authorized the plaintiff to sell the damaged goods or promised to pay the difference between the selling price and the regular price, asserting that his intervention in the notarial instrument of April 15, 1913, was merely to determine the cause and manner of water entry into the building.
• No Notice of Defects: The defendant contended that the plaintiffs never notified him that repairs were necessary or that the roof was defective, and that neither party was aware of any defect until the rainstorm occurred.
• Transfer of Ownership: The defendant alleged that on August 2, 1913, he transferred all his rights, claims, and obligations in the lease and the absolute ownership of the building to the Tantungco y Guepangco sisters, who took over all premises covered by the lease and became directly interested parties.

• Promise to Pay: Counsel for the plaintiff-appellee strongly insisted that the defendant-lessor agreed and stipulated to pay the amount of the deterioration or depreciation of the goods and merchandise that were wet by the rainfall.
• Direct Claim for Indemnity: The plaintiff set up a direct claim for indemnity for losses and damages from the lessor, seeking payment of P1,169 with legal interest and costs.

• Lessor's Liability for Damages: Whether the lessor is liable for damages to the lessee's merchandise caused by roof leaks during an extraordinary rainfall, absent proof of knowledge of hidden defects.
• Fortuitous Event: Whether the torrential rainfall of April 14, 1913, constituted a fortuitous event (force majeure) relieving the lessor of liability under Article 1105 of the Civil Code.
• Warranty vs. Indemnity: Whether the lessor's warranty obligation under the Civil Code includes an obligation to indemnify the lessee for damages, even absent proof of fraud or bad faith.
• Promise to Pay: Whether the defendant promised to pay the plaintiff for the losses sustained from the sale of damaged goods.

• Lessor's Liability for Damages: No. The lessor is not liable for damages caused by leaks during a fortuitous event, there being no evidence that he failed to perform any obligation under the lease or under Articles 1554 and 1555 of the Civil Code, and no stipulation in the lease providing for such liability.
• Fortuitous Event: Yes. The torrential rainfall of April 14, 1913, was a fortuitous event under Article 1105 of the Civil Code — unforeseeable and unavoidable by any of the parties — and the resulting damages could not be ascribed to the owner of the premises.
• Warranty vs. Indemnity: No. Liability for warranty of the thing leased is distinct from liability in damages; the latter arises only when the lessor knew of hidden defects and concealed them from the lessee in bad faith, and only when the lessee elects rescission of the contract.
• Promise to Pay: No. The evidence was insufficient to establish that the defendant promised to pay the losses, the plaintiffs' own witnesses giving contradictory testimony and the defendant's sworn denial prevailing over the uncorroborated declarations of the interested plaintiffs.

• Lessor's Liability for Damages: Articles 1554 and 1555 of the Civil Code enumerate the principal obligations of lessor and lessee. The lessor must deliver the thing leased, make necessary repairs to preserve it, and maintain the lessee in peaceful enjoyment; the lessee must pay rent, use the thing leased as a diligent father of a family would, and pay expenses of the instrument constituting the contract. No evidence showed that the defendant failed in any of these obligations. The building had been recently finished, approved by the architect and city engineer, and presented no indication of defects. The plaintiffs never notified the defendant that repairs were necessary or that the roof was defective. Neither the lessor nor the lessees knew the roof was defective until the rainstorm occurred. Absent proof of any breach of obligation, no liability for indemnity could attach.

• Fortuitous Event: Article 1105 of the Civil Code provides that no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, except in cases expressly mentioned in law or declared in the obligation. The rainfall of April 14, 1913, registered 48.3 millimeters in the rain-gauge, the heaviest from January to April of that year. The flooding affected not only the defendant's building but many structures throughout the Escolta and adjacent business sections, including reinforced concrete buildings. The occurrence was independent of the obligor's will, unforeseeable, and inevitable — placing it beyond human control. The wetting of the merchandise was not a case expressly mentioned in law for which the owner is responsible, nor was it provided against in the lease. The defendant's repair of the roof the following day could not be taken as proof of liability, as he did not know and could not have foreseen the torrential rain or the roof defects. A judgment of the Supreme Court of Spain dated October 29, 1887, applying the identical Article 1101, was cited in support of the principle that indemnity for losses and damages cannot be claimed when caused by a fortuitous event.

• Warranty vs. Indemnity: Article 1553 of the Civil Code makes the provisions on warranty in the title on purchase and sale applicable to leases. Articles 1484 and 1485 provide that the lessor is liable for warranty against hidden defects, but Article 1486 limits the lessee's remedies to (a) withdrawing from the contract with return of expenses, or (b) demanding a proportional reduction of price. Only if the lessor knew of the defects and did not disclose them may the lessee also claim indemnity for losses and damages, and only if the lessee chooses rescission. The plaintiffs did not prove that the defendant knew of any defect in the roof and concealed it, nor did they seek rescission of the contract — they continued to occupy the property. By insisting on the lease while claiming indemnity without rescission, they waived any right to indemnity even assuming the lessor were liable under the warranty provisions.

• Promise to Pay: The declarations of the three plaintiffs did not constitute sufficient proof to offset the defendant's positive denial. The witnesses called by the plaintiffs gave contradictory testimony — the plaintiffs averred that the defendant promised to pay half the difference, while the witnesses stated he agreed to pay the whole amount. The defendant's sworn statement denied any agreement to pay and explained that his intervention in the notarial instrument was solely to determine the cause of water entry. His conditional promise to collect from the contractor Machuca and deliver any sum recovered was attached to a condition that the plaintiffs never accepted. The trial court's finding that a promise had been made was reversed upon examination of the full record.

• Fortuitous Event (Force Majeure) — A fortuitous event is an accident independent of the obligor's will, arising from an unforeseen event or one that, even if foreseen, could not be avoided due to its unexpectedness and inevitability placing it beyond human control. Under Article 1105 of the Civil Code, no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable. The Court applied this doctrine to hold that an extraordinarily heavy rainfall causing roof leaks and flooding was a fortuitous event relieving the lessor of liability for damages to the lessee's goods, absent any stipulation in the lease or provision of law imposing such liability.

• Distinction Between Warranty and Indemnity in Lease — The lessor's obligation to warrant the thing leased against hidden defects, derived from Articles 1484, 1485, and 1486 of the Civil Code (made applicable to leases by Article 1553), is not equivalent to an obligation to indemnify the lessee for damages. Liability for warranty allows the lessee to withdraw from the contract with return of expenses or demand a proportional reduction of price. Indemnity for losses and damages is available only when the lessor knew of the hidden defects and fraudulently concealed them from the lessee, and only when the lessee elects rescission of the contract. A lessee who continues to occupy the property without seeking rescission is deemed to have waived indemnity.

• "A fortuitous event is an accident independent of the obligor's will to carry out some stipulation and it is plain that for him to escape the imputation of not performing his obligation he must be placed in a situation arising from an unforeseen event, or in one where, even if he had foreseen it, still he could not have avoided it, by reason of the fact that its unexpectedness and inevitability places it beyond human control." — This passage defines the doctrine of fortuitous event as applied to the lessor's liability, articulating the ratio decidendi for absolving the defendant.

• "Liability for the warranty is not equivalent to liability in damages, as the latter is an obligation distinct from the former." — This passage establishes the critical distinction between the lessor's warranty obligation and the separate obligation to indemnify, a principle central to the Court's ruling that the plaintiffs' direct claim for indemnity was unwarranted.

• "While the lessor is obligated by the general rule to warranty of the thing leased, whether or not he may know of the existence therein of defects that render it inadequate for the use the tenant intends, he is only liable for an indemnity for damages in addition to the warranty when he knew of the defects in the thing leased and had not revealed them to the lessee, a procedure which induces the presumption that he acted with fraud and bad faith." — This passage states the conditions under which indemnity beyond warranty becomes available, requiring both knowledge of the defect and concealment in bad faith, plus the lessee's election of rescission.

• Judgment of the Supreme Court of Spain, October 29, 1887 — Cited as controlling authority for the principle that indemnity for losses and damages cannot be claimed when they are caused by a fortuitous event. The Spanish tribunal applied Article 1101 of the Spanish Civil Code, identical to the provision in force in the Philippines, in establishing this jurisprudential rule.

• Article 1554, Civil Code — Enumerates the lessor's obligations: to deliver the thing leased, to make necessary repairs during the lease, and to maintain the lessee in peaceful enjoyment. The Court found no evidence that the defendant failed in any of these obligations.
• Article 1555, Civil Code — Enumerates the lessee's obligations: to pay rent, to use the thing leased as a diligent father of a family would, and to pay expenses of the instrument constituting the contract.
• Article 1556, Civil Code — Provides that if the lessor or lessee fails to comply with the obligations in the preceding articles, the aggrieved party may request rescission and indemnity, or only the latter, leaving the contract in force. The dissenting opinion relied on this article to argue that a lessee may adhere to the lease and still maintain an action for damages.
• Article 1562, Civil Code — Presumes that the lessee received the property in good condition unless proven otherwise. The plaintiffs failed to prove the building was uninhabitable or inadequate when accepted.
• Article 1105, Civil Code — Provides that no one shall be liable for events which could not be foreseen, or which having been foreseen were inevitable, except in cases expressly mentioned in law or declared in the obligation. The Court applied this to hold the torrential rainfall was a fortuitous event.
• Article 1553, Civil Code — Makes the provisions on warranty in the title on purchase and sale applicable to leases, thereby importing Articles 1484, 1485, and 1486 into the law on lease.
• Article 1486, Civil Code — Allows the vendee (lessee) to choose between withdrawing from the contract with return of expenses or demanding a proportional reduction of price; indemnity for damages is available only if the vendor (lessor) knew of the defects and did not disclose them, and only if the lessee chooses rescission.
• Article 1101, Civil Code — Provides that those guilty of fraud, negligence, or delay in fulfilling obligations, or who act in contravention of stipulations, shall be subject to indemnity. The Court found no evidence that the defendant acted with fraud, negligence, or delay.

Arellano, C.J., Araullo, J., Johnson, J. (concurred in the result), and Trent, J.

• Carson, J. — The dissent challenged the majority on three grounds. First, it disputed the characterization of the rainfall as a fortuitous event, citing Census data showing that rainfall exceeding 46.5 millimeters in one hour occurred with regularity — at least once per year on average — between 1885 and 1902, including multiple occurrences in single years. The dissent argued that owners and builders in the Philippines should be required to construct buildings capable of withstanding rainfall levels within the normal experience of the country, given the frequency and intensity of heavy rains, strong winds, and earthquakes. Second, the dissent contended that Article 1556 of the Civil Code expressly allows a lessee, at his option, to adhere to the lease and maintain an action for damages when the covenant of peaceful enjoyment is broken, and that requiring rescission as a precondition to indemnity under Article 1486 was inapplicable because Article 1556 provides a specific provision for lease contracts. Third, the dissent disagreed with the majority's reversal of the trial court's factual finding that the defendant had promised to pay the damages, noting the conflict in evidence and the trial court's advantage in assessing credibility.