Jurisprudence: G.R. No. 118794 May 8, 1996

SECOND DIVISION
Phil. Refining Company v. CA
G.R. No. 118794 May 8, 1996
REGALADO, J.

This is an appeal by certiorari from the decision of respondent Court of Appeals1 affirming the decision of the Court of Tax Appeals which disallowed petitioners claim for deduction as bad debts of several accounts in the total sum of P395,324.27, and imposing a 25% surcharge and 20% annual delinquency interest on the alleged deficiency income tax liability of petitioner.

Petitioner Philippine Refining Company (PRC) was assessed by respondent Commissioner of Internal Revenue (Commissioner) to pay a deficiency tax for the year 1985 in the amount of P1,892,584.00, computed as follows:

Deficiency Income Tax

Net Income per investigation P197,502,568.00

Add: Disallowances

Bad Debts P 713,070.93

Interest Expense P2.666.545.49 P3.379.616.00

Net Taxable Income P200.882.184.00

Tax Due Thereon P 70,298,764.00

Less: Tax Paid P 69,115,899.00

Deficiency Income Tax P 1,182,865.00

Add: 20% Interest (60% max.) P 709.719.00

Total Amount Due and Collectible P 1.892.584.002

The assessment was timely protested by petitioner on April 26, 1989, on the ground that it was based on the erroneous disallowances of bad debts and interest expense although the same are both allowable and legal deductions. Respondent Commissioner, however, issued a warrant of garnishment against the deposits of petitioner at a branch of City Trust Bank, in Makati, Metro Manila, which action the latter considered as a denial of its protest.

Petitioner accordingly filed a petition for review with the Court of Tax Appeals (CTA) on the same assignment of error, that is, that the bad debts and interest expense are legal and allowable deductions. In its decision3 of February 3, 1993 in C.T.A. Case No. 4408, the CTA modified the findings of

the Commissioner by reducing the deficiency income tax assessment to P237,381.26, with surcharge and interest incident to delinquency. In said decision, the Tax Court reversed and set aside the Commissioners disallowance of the supposed interest expense of P2,666,545.19 but maintained the disallowance of the bad debts of thirteen (13) debtors in the total sum of P395,324.27.

Petitioner then elevated the case to respondent Court of Appeals which, as earlier stated, denied due course to the petition for review and dismissed the same on August 24, 1994 in CA-G.R. S.P. No. 31190,4 on the following ratiocination:

We agree with respondent Court of Tax Appeals:

Out of the sixteen (16) accounts alleged as bad debts, We find that only three (3) accounts have met the requirements of the worthlessness of the accounts, hence were properly written off as bad debts, namely:

1. Petronila Catap P29,098.30

(Pet Mini Grocery)

2. Esther Guinto 254,375.54

(Esther Sari-sari Store)

3. Manuel Orea 34,272.82

(Elman Gen. Mdsg.)

TOTAL P317,746.66

xxx xxx xxx

With regard to the other accounts, namely:

1. Remoblas Store P 11,961.00

2. Tomas Store 16,842.79

3. AFPCES 13,833.62

4. CM Variety Store 10,895.82

5. URen Mart Enterprise 10,487.08

6. Aboitiz Shipping Corp. 89,483.40

7. J. Ruiz Trucking 69,640.34

8. Renato Alejandro 13,550.00

9. Craig, Mostyn Pty. Ltd. 23,738.00

10. C. Itoh 19,272.22

11. Crocklaan B. V. 77,690.00

12. Enriched Food Corp. 24,158.00

13. Lucito Sta. Maria 13,772.00

TOTAL P395,324.27

We find that said accounts have not satisfied the requirements of the worthlessness of a debt. Mere testimony of the Financial Accountant of the Petitioner explaining the worthlessness of said debts is seen by this Court as nothing more than a self-serving exercise which lacks probative value. There was no iota of documentary evidence (e. g., collection letters sent, report from investigating fieldmen, letter of referral to their legal department, police report/affidavit that the owners were bankrupt due to fire that engulfed their stores or that the owner has been murdered, etc.), to give support to the testimony of an employee of the Petitioner. Mere allegations cannot prove the worthlessness of such debts in 1985. Hence, the claim for deduction of these thirteen (13) debts should be rejected.5

1. This pronouncement of respondent Court of Appeals relied on the ruling of this Court in Collector vs. Goodrich International Rubber Co.,6 which established the rule in determining the worthlessness of a debt. In said case, we held that for debts to be considered as worthless, and thereby qualify as bad debts making them deductible, the taxpayer should show that (1) there is a valid and subsisting debt; (2) the debt must be actually ascertained to be worthless and uncollectible during the taxable year; (3) the debt must be charged off during the taxable year; and (4) the debt must arise from the business or trade of the taxpayer. Additionally, before a debt can be considered worthless, the taxpayer must also show that it is indeed uncollectible even in the future.

Furthermore, there are steps outlined to be undertaken by the taxpayer to prove that he exerted diligent efforts to collect the debts, viz: (1) sending of statement of accounts; (2) sending of collection letters; (3) giving the account to a lawyer for collection; and (4) filing a collection case in court.

On the foregoing considerations, respondent Court of Appeals held that petitioner did not satisfy the requirements of worthlessness of a debt as to the thirteen (13) accounts disallowed as deductions.

It appears that the only evidentiary support given by PRC for its aforesaid claimed deductions was the explanation or justification posited by its financial adviser or accountant. Guia D. Masagana. Her allegations were not supported by any documentary evidence, hence, both the Court of Appeals and the CTA ruled that said contentions per se cannot prove that the debts were indeed uncollectible and can be considered as bad debts as to make them deductible. That both lower courts are correct is shown by petitioners own submission and the discussion thereof which we have taken time and patience to cull from the antecedent proceedings in this case, albeit bordering on factual settings.

The accounts of Remoblas Store in the amount of P11,961.00 and CM Variety Store in the amount of P10,895.82 are uncollectible, according to petitioner, since the stores were burned in November, 1984 and in early 1985, respectively, and there are no assets belonging to the debtors that can be garnished by PRC.7 However, PRC failed to show any documentary evidence for said allegations. Not a single document was offered to show that the stores were burned, even just a police report or an affidavit attesting to such loss by fire. In fact, petitioner did not send even a single demand letter to the owners of said stores.

The account of Tomas Store in the amount of P16,842.79 is uncollectible, claims petitioner PRC, since the owner thereof was murdered and left no visible assets which could satisfy the debt. Withal, just like the accounts of the two other stores just mentioned, petitioner again failed to present proof of the efforts exerted to collect the debt, other than the aforestated asseverations of its financial adviser.

The accounts of Aboitiz Shipping Corporation and J. Ruiz Trucking in the amounts of P89,483.40 and P69,640.34, respectively, both of which allegedly arose from the hijacking of their cargo and for which they were given 30% rebates by PRC, are claimed to be uncollectible. Again, petitioner failed to present an iota of proof, not even a copy of the supposed policy regulation of PRC that it gives rebates to clients in case of loss arising from fortuitous events or force majeure, which rebates it now passes off as uncollectible debts.

As to the account of P13,550.00 representing the balance collectible from Renato Alejandro, a former employee who failed to pay the judgment against him, it is petitioners theory that the same can no longer be collected since his whereabouts are unknown and he has no known property which can be garnished or levied upon. Once again, petitioner failed to prove the existence of the said case against that debtor or to submit any documentation to show that Alejandro was indeed bound to pay any judgment obligation.

The amount of P13,772.00 corresponding to the debt of Lucito Sta. Maria is allegedly due to the loss of his stocks through robbery and the account is uncollectible due to his insolvency. Petitioner likewise failed to submit documentary evidence, not even the written reports of the alleged investigation conducted by its agents as testified to by its aforenamed financial adviser. Regarding the accounts of C. Itoh in the amount of P19,272.22, Crocklaan B.V. in the sum of P77,690.00, and Craig, Mostyn Pty. Ltd. with a balance of P23,738.00, petitioner contends that these debtors being foreign corporations, it can sue them only in their country of incorporation; and since this will entail expenses more than the amounts of the debts to be collected, petitioner did not file any collection suit but opted to write them off as bad debts. Petitioner was unable to show proof of its efforts to collect the debts, even by a single demand letter therefor. While it is not required to file suit, it is at least expected by the law to produce reasonable proof that the debts are uncollectible although diligent efforts were exerted to collect the same.

The account of Enriched Food Corporation in the amount of P24,158.00 remains unpaid, although petitioner claims that it sent several letters. This is not sufficient to sustain its position, even if true, but even smacks of insouciance on its part. On top of that, it was unable to show a single copy of the alleged demand letters sent to the said corporation or any of its corporate officers.

With regard to the account of AFPCES for unpaid supplies in the amount of P13,833.62, petitioner asserts that since the debtor is an agency of the government, PRC did not file a collection suit therefor. Yet, the mere fact that AFPCES is a government agency does not preclude PRC from filing suit since said agency, while discharging proprietary functions, does not enjoy immunity from suit. Such pretension of petitioner cannot pass judicial muster.

No explanation is offered by petitioner as to why the unpaid account of URen Mart Enterprise in the amount of P10,487.08 was written off as a bad debt. However, the decision of the CTA includes this debtor in its findings on the lack of documentary evidence to justify the deductions claimed, since the worthlessness of the debts involved are sought to be established by the mere self-serving testimony of its financial consultant.

The contentions of PRC that nobody is in a better position to determine when an obligation becomes a bad debt than the creditor itself, and that its judgment should not be substituted by that of respondent court as it is PRC which has the facilities in ascertaining the collectibility or uncollectibility of these debts, are presumptuous and uncalled for. The Court of Tax Appeals is a highly specialized body specifically created for the purpose of reviewing tax cases. Through its expertise, it is undeniably competent to determine the issue of whether or not the debt is deductible through the evidence presented before it.8

Because of this recognized expertise, the findings of the CTA will not ordinarily be reviewed absent a showing of gross error or abuse on its part.9 The findings of fact of the CTA are binding on this Court and in the absence of strong reasons for this Court to delve into facts, only questions of law are open for determination.10 Were it not, therefore, due to the desire of this Court to satisfy petitioners calls for clarification and to use this case as a vehicle for exemplification, this appeal could very well have been summarily dismissed.

The Court vehemently rejects the absurd thesis of petitioner that despite the supervening delay in the tax payment, nothing is lost on the part of the Government because in the event that these debts are collected, the same will be returned as taxes to it in the year of the recovery. This is an irresponsible statement which deliberately ignores the fact that while the Government may eventually recover revenues under that hypothesis, the delay caused by the non-payment of taxes under such a contingency will obviously have a disastrous effect on the revenue collections necessary for governmental operations during the period concerned.

2. We need not tarry at length on the second issue raised by petitioner. It argues that the imposition of the 25% surcharge and the 20% delinquency interest due to delay in its payment of the tax assessed is improper and unwarranted, considering that the assessment of the Commissioner was modified by the CTA and the decision of said court has not yet become final and executory.

Regarding the 25% surcharge penalty, Section 248 of the Tax Code provides:

SEC 248. Civil Penalties. (a) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to twenty-five percent (25%) of the amount due, in the following cases:

xxx xxx xxx

(3) Failure to pay the tax within the time prescribed for its payment.

With respect to the penalty of 20% interest, the relevant provision is found in Section 249 of the same Code, as follows:

SEC. 249. Interest. (a) In general. There shall be assessed and collected on any unpaid amount of tax, interest at the rate of twenty percent (20%) per annum, or such higher rate as may be prescribed by regulations, from the date prescribed for payment until the amount is fully paid.

xxx xxx xxx

(c) Delinquency interest. In case of failure to pay:

(1) The amount of the tax due on any return required to be filed, or

(2) The amount of the tax due for which no return is required, or

3) A deficiency tax, or any surcharge or interest thereon, on the due date appearing in the notice and demand of the Commissioner,

there shall be assessed and collected, on the unpaid amount, interest at the rate prescribed in paragraph (a) hereof until the amount is fully paid, which interest shall form part of the tax. (Italics supplied)

xxx xxx xxx

As correctly pointed out by the Solicitor General, the deficiency tax assessment in this case, which was the subject of the demand letter of respondent Commissioner dated April 11, 1989, should have been paid within thirty (30) days from receipt thereof. By reason of petitioners default thereon, the delinquency penalties of 25% surcharge and interest of 20% accrued from April 11, 1989. The fact that petitioner appealed the assessment to the CTA and that the same was modified does not relieve petitioner of the penalties incident to delinquency. The reduced amount of P237,381.25 is but a part of the original assessment of P1,892,584.00.

Our attention has also been called to two of our previous rulings and these we set out here for the benefit of petitioner and whosoever may be minded to take the same stance it has adopted in this case. Tax laws imposing penalties for delinquencies, so we have long held, are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely affected.11

We have likewise explained that it is mandatory to collect penalty and interest at the stated rate in case of delinquency. The intention of the law is to discourage delay in the payment of taxes due the Government and, in this sense, the penalty and interest are not penal but compensatory for the concomitant use of the funds by the taxpayer beyond the date when he is supposed to have paid them to the Government.12 Unquestionably, petitioner chose to turn a deaf ear to these injunctions.

ACCORDINGLY, the petition at bar is DENIED and the judgment of respondent Court of Appeals is hereby AFFIRMED, with treble costs against petitioner.

SO ORDERED.

Romero, Puno, Mendoza, and Torres, Jr., JJ., concur.

Tax Case Digest: Phil. Refining Company v. CA (1996)

Phil. Refining Company v. CA
G.R. No. 118794 May 8, 1996
REGALADO, J.

Lessons Applicable: deductibility of bad debts, penalties of 25% surcharge, interest of 20, civil penalties are compensatory (not penal), civil penalties and interest are automatic

Laws Applicable:

FACTS:

• Petitioner Philippine Refining Company (PRC) was assessed by respondent Commissioner of Internal Revenue (Commissioner) to pay a deficiency tax for the year 1985 in the amount of P1,892,584
• PRC protested that the amounts are bad debts and interest expense which are allowable and legl deductions.  But, CIR ignored it and issued a warrant of garnishment against PRC's deposits at City Trust Bank.
• PRC filed a Petition for Review with the CTA who reversed the interest expense disallowance but maintained the 13 bad debts disallowance. 
• PRC elevated the case to CA who dismissed the case for failing to satisfy the requirements of worthlessness of a debt:
• (1) there is a valid and subsisting debt
• (2) debt must be actually ascertained to be worthless and uncollectible during the taxable year
• (3) debt must be charged off during the taxable year
• (4) debt must arise from the business or trade of the taxpayer
• (5) uncollectible even in the future
• (6) exerted diligent effort to collect

ISSUES:
1. W/N bad debts requirements are met to be deductible as assessed by the CA
2. W/N PRC should be liable for penalties and interests

HELD: petition at bar is DENIED
1. NO.

• Furthermore, there are steps outlined to be undertaken by the taxpayer to prove that he exerted diligent efforts to collect the debts, viz: (1) sending of statement of accounts; (2) sending of collection letters; (3) giving the account to a lawyer for collection; and (4) filing a collection case in court.
• The only evidentiary support given by PRC for its aforesaid claimed deductions was the explanation or justification posited by its financial adviser or accountant.  Not a single document was offered to show that the Remoblas Store and CM Variety Store were burned, even just a police report or an affidavit attesting to such loss by fire.  The account of Tomas Store in the amount of P16,842.79 is uncollectible, claims petitioner PRC, since the owner thereof was murdered and left no visible assets which could satisfy the debt. Withal, just like the accounts of the two other stores just mentioned, petitioner again failed to present proof of the efforts exerted to collect the debt, other than the aforestated asseverations of its financial adviser.  The accounts of Aboitiz Shipping Corporation and J. Ruiz Trucking in the amounts of P89,483.40 and P69,640.34, respectively, both of which allegedly arose from the hijacking of their cargo and for which they were given 30% rebates by PRC, are claimed to be uncollectible. Again, petitioner failed to present an iota of proof, not even a copy of the supposed policy regulation of PRC that it gives rebates to clients in case of loss arising from fortuitous events or force majeure, which rebates it now passes off as uncollectible debts. 
• Findings of the CTA having recognized expertise will not ordinarily be reviewed absent a showing of gross error or abuse on its part.

2.  YES.

• Sec. 248 and 249 of the tax code clearly provides that civil penalty is imposed in case of failure to pay the tax within the prescribed time for its payment and deficiency tax or any surcharge or interest on the due date appearing in the notice and demand of the commissioner.  Thus, penalties of 25% surcharge and interest of 20% shall accrue from April 11, 1989. 
• Tax laws imposing penalties for delinquencies, so we have long held, are intended to hasten tax payments by punishing evasions or neglect of duty in respect thereof. If penalties could be condoned for flimsy reasons, the law imposing penalties for delinquencies would be rendered nugatory, and the maintenance of the Government and its multifarious activities will be adversely affected.

Torts and Damages Case Digest: Fernando v. CA (1992)

G.R. No. 92087 May 8, 1992

Lessons Applicable: Experts and Professionals (Torts and Damages)

FACTS:

• November 7, 1975: Bibiano Morta, market master of the Agdao Public Market filed a requisition request with the Chief of Property of the City Treasurer's Office for the re-emptying of the septic tank in Agdao wherein Bascon won
• November 22, 1975: bidder Bertulano with four other companions namely Joselito Garcia, William Liagoso, Alberto Fernando and Jose Fajardo, Jr. were found dead inside the septic tank. 
• The bodies were removed by a fireman.
• The body of Joselito Garcia, was taken out by his uncle, Danilo Garcia and taken to the Regional Hospital but he expired there. 
• The City Engineer's office investigated the case and learned they entered the septic tank without clearance from it nor with the knowledge and consent of the market master. 
• Since the septic tank was found to be almost empty, they were presumed to be the ones who did the re-emptying.
• Dr. Juan Abear of the City Health Office found them to have died from "asphyxia" - diminution of oxygen supply in the body and intake of toxic gas
• November 26, 1975: Bascon signed the purchase order 
• RTC: Dismissed the case
• CA: Reversed - law intended to protect the plight of the poor and the needy, the ignorant and the indigent

ISSUE: W/N Davao city is negligent and its negligence is the proximate cause therefore can be liable for damages

HELD: NO. CA affirmed.

• test by which to determine the existence of negligence in a particular case:
• Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence
• standard supposed to be supplied by the imaginary conduct of the discreet pater familias of the Roman law
• Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to another was sufficiently probable warrant his foregoing the conduct or guarding against its consequences
• The question as to what would constitute the conduct of a prudent man in a given situation must of course be always determined in the light of human experience and in view of the facts involved in the particular case
• Reasonable foresight of harm, followed by the ignoring of the suggestion born of this provision, is always necessary before negligence can be held to exist
• Distinction must be made between the accident and the injury
• Where he contributes to the principal occurrence, as one of its determining factors, he can not recover
• Where, in conjunction with the occurrence, he contributes only to his own injury, he may recover the amount that the defendant responsible for the event should pay for such injury, less a sum deemed a suitable equivalent for his own imprudence
• Toilets and septic tanks are not nuisances per se as defined in Article 694 of the New Civil Code which would necessitate warning signs for the protection of the public
• While the construction of these public facilities demands utmost compliance with safety and sanitary requirements, the putting up of warning signs is not one of those requirements
• accident such as toxic gas leakage from the septic tank is unlikely to happen unless one removes its covers
• Considering the nature of the task of emptying a septic tank especially one which has not been cleaned for years, an ordinarily prudent person should undoubtedly be aware of the attendant risks. The victims are no exception; more so with Mr. Bertulano, an old hand in this kind of service, who is presumed to know the hazards of the job. His failure, therefore, and that of his men to take precautionary measures for their safety was the proximate cause of the accident.
• proximate and immediate cause of the death of the victims was due to their own negligence. Consequently, the petitioners cannot demand damages from the public respondent.

Jurisprudence: G.R. No. 92087

FIRST DIVISION

G.R. No. 92087 May 8, 1992

SOFIA FERNANDO, in her behalf and as the legal guardian of her minor children, namely: ALBERTO & ROBERTO, all surnamed FERNANDO, ANITA GARCIA, NICOLAS LIAGOSO, ROSALIA BERTULANO, in her behalf and as the legal guardian of her minor children, namely: EDUARDO, ROLANDO, DANIEL, AND JOCELYN, all surnamed BERTULANO, PRIMITIVA FAJARDO in her behalf and as legal guardian of her minor children, namely: GILBERT, GLEN, JOCELYN AND JOSELITO, all surnamed FAJARDO, and EMETERIA LIAGOSO, in her behalf and as guardian ad litem, of her minor grandchildren, namely: NOEL, WILLIAM, GENEVIEVE and GERRY, all surnamed LIAGOSO, petitioners,
vs.
THE HONORABLE COURT OF APPEALS AND CITY OF DAVAO, respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari praying that the amended decision of the Court of Appeals dated January 11, 1990 in CA-G.R. No. C.V. 04846, entitled "Sofia Fernando, etc., et al. v. The City of Davao," be reversed and that its original decision dated January 31, 1986 be reinstated subject to the modification sought by the petitioners in their motion for partial reconsideration dated March 6, 1986.

The antecedent facts are briefly narrated by the trial court, as follows:

From the evidence presented we see the following facts: On November 7, 1975, Bibiano Morta, market master of the Agdao Public Market filed a requisition request with the Chief of Property of the City Treasurer's Office for the re-emptying of the septic tank in Agdao. An invitation to bid was issued to Aurelio Bertulano, Lito Catarsa, Feliciano Bascon, Federico Bolo and Antonio Suñer, Jr. Bascon won the bid. On November 26, 1975 Bascon was notified and he signed the purchase order. However, before such date, specifically on November 22, 1975, bidder Bertulano with four other companions namely Joselito Garcia, William Liagoso, Alberto Fernando and Jose Fajardo, Jr. were found dead inside the septic tank. The bodies were removed by a fireman. One body, that of Joselito Garcia, was taken out by his uncle, Danilo Garcia and taken to the Regional Hospital but he expired there. The City Engineer's office investigated the case and learned that the five victims entered the septic tank without clearance from it nor with the knowledge and consent of the market master. In fact, the septic tank was found to be almost empty and the victims were presumed to be the ones who did the re-emptying. Dr. Juan Abear of the City Health Office autopsied the bodies and in his reports, put the cause of death of all five victims as "asphyxia" caused by the diminution of oxygen supply in the body working below normal conditions. The lungs of the five victims burst, swelled in hemmorrhagic areas and this was due to their intake of toxic gas, which, in this case, was sulfide gas produced from the waste matter inside the septic tank. (p. 177, Records)

On August 28, 1984, the trial court rendered a decision, the dispositive portion of which reads:

IN VIEW OF THE FOREGOING, this case is hereby DISMISSED without pronouncement as to costs.

SO ORDERED. (Records, p. 181)

From the said decision, the petitioners appealed to the then Intermediate Appellate Court (now Court of Appeals). On January 3, 1986, the appellate court issued a decision, the dispositive portion of which reads:

WHEREFORE, in view of the facts fully established and in the liberal interpretation of what the Constitution and the law intended to protect the plight of the poor and the needy, the ignorant and the
indigent –– more entitled to social justice for having, in the unforgettable words of Magsaysay, "less in life," We hereby reverse and set aside the appealed judgment and render another one:

1. Ordering the defendant to pay to the plaintiffs Dionisio Fernando, Sofia Fernando and her minor children the following sums of money:

a) Compensatory damages for his death P30,000.00

b) Moral damages P20,000.00

2. Ordering the defendant to pay to the plaintiffs David Garcia and Anita Garcia the following sums of money:

a) Compensatory damages for his death P30,000.00

b) Moral damages P20,000.00

3. Ordering the defendant to pay to the plaintiff Rosalia Bertulano (sic) and her minor children the following sums of money

a) Compensatory damages for his death P30,000.00

b) Moral damages P20,000.00

4. Ordering the defendant to pay to the plaintiff Primitiva Fajardo and her minor children the following sums of money:

a) Compensatory damages for his death P30,000.00

b) Moral damages P20,000.00

5. Ordering the defendant to pay to the plaintiffs Norma Liagoso, Nicolas Liagoso and Emeteria Liagoso and her minor grandchildren the following sums of money:

a) Compensatory damages for his death P30,000.00

b) Moral damages P20,000.00

The death compensation is fixed at P30,000.00 in accordance with the rulings of the Supreme Court starting with People vs. De la Fuente, Nos. L-63251-52, December 29, 1983, 126 SCRA 518 reiterated in the recent case of People vs. Nepomuceno, No. L-41412, May 27, 1985. Attorney's fees in the amount of P10,000.00 for the handling of the case for the 5 victims is also awarded.

No pronouncement as to costs.

SO ORDERED. (Rollo, pp. 33-34)

Both parties filed their separate motions for reconsideration. On January 11, 1990, the Court of Appeals rendered an Amended Decision, the dispositive portion of which reads:

WHEREFORE, finding merit in the motion for reconsideration of the defendant-appellee Davao City, the same is hereby GRANTED. The decision of this Court dated January 31, 1986 is reversed and set aside and another one is hereby rendered dismissing the case. No pronouncement as to costs.

SO ORDERED. (Rollo, p. 25)

Hence, this petition raising the following issues for resolution:

1. Is the respondent Davao City guilty of negligence in the case at bar?

2. If so, is such negligence the immediate and proximate cause of deaths of the victims hereof? (p. 72,Rollo)

Negligence has been defined as the failure to observe for the protection of the interests of another person that degree of care, precaution, and vigilance which the circumstances justly demand, whereby such other person suffers injury (Corliss v. Manila Railroad Company, L-21291, March 28, 1969, 27 SCRA 674, 680). Under the law, a person who by his omission causes damage to another, there being negligence, is obliged to pay for the damage done (Article 2176, New Civil Code). As to what would constitute a negligent act in a given situation, the case of Picart v. Smith (37 Phil. 809, 813) provides Us the answer, to wit:

The test by which to determine the existence of negligence in a particular case may be stated as follows:Did the defendant in doing the alleged negligent act use that reasonable care and caution which an ordinarily prudent person would have used in the same situation? If not, then he is guilty of negligence. The law here in effect adopts the standard supposed to be supplied by the imaginary conduct of the discreet pater familias of the Roman law. The existence of negligence in a given case is not determined by reference to the personal judgment of the actor in the situation before him. The law considers what would be reckless, blameworthy, or negligent in the man of ordinary intelligence and prudence and determines liability by that.

The question as to what would constitute the conduct of a prudent man in a given situation must of course be always determined in the light of human experience and in view of the facts involved in the particular case. Abstract speculation cannot here be of much value but this much can be profitably said: Reasonable men govern their conduct by the circumstances which are before them or known to them. They are not, and are not supposed to be, omniscient of the future. Hence they can be expected to take care only when there is something before them to suggest or warn of danger. Could a prudent man, in the case under consideration, foresee harm as a result of the course actually pursued? If so, it was the duty of the actor to take precautions to guard against that harm. Reasonable foresight of harm, followed by the ignoring of the suggestion born of this provision, is always necessary before negligence can be held to exist. Stated in these terms, the proper criterion for determining the existence of negligence in a given case is this: Conduct is said to be negligent when a prudent man in the position of the tortfeasor would have foreseen that an effect harmful to another was sufficiently probable warrant his foregoing the conduct or guarding against its consequences. (emphasis supplied)

To be entitled to damages for an injury resulting from the negligence of another, a claimant must establish the relation between the omission and the damage. He must prove under Article 2179 of the New Civil Code that the defendant's negligence was the immediate and proximate cause of his injury. Proximate cause has been defined as that cause, which, in natural and continuous sequence unbroken by any efficient intervening cause, produces the injury, and without which the result would not have occurred (Vda. de Bataclan, et al. v. Medina, 102 Phil. 181, 186). Proof of such relation of cause and effect is not an arduous one if the claimant did not in any way contribute to the negligence of the defendant. However, where the resulting injury was the product of the negligence of both parties, there exists a difficulty to discern which acts shall be considered the proximate cause of the accident. In Taylor v. Manila Electric Railroad and Light Co. (16 Phil. 8, 29-30), this Court set a guideline for a judicious assessment of the situation:

Difficulty seems to be apprehended in deciding which acts of the injured party shall be considered immediate causes of the accident. The test is simple. Distinction must be made between the accident and the injury, between the event itself, without which there could have been no accident, and those acts of the victim not entering into it, independent of it, but contributing to his own proper hurt. For instance, the cause of the accident under review was the displacement of the crosspiece or the failure to replace it. This produced the event giving occasion for damages — that is, the sinking of the track and the sliding of the iron rails. To this event, the act of the plaintiff in walking by the side of the car did not contribute, although it was an element of the damage which came to himself. Had the crosspiece been out of place wholly or partly through his act or omission of duty, that would have been one of the determining causes of the event or accident, for which he would have been responsible. Where he contributes to the principal occurrence, as one of its determining factors, he can not recover. Where, in conjunction with the occurrence, he contributes only to his own injury, he may recover the amount that the defendant responsible for the event should pay for such injury, less a sum deemed a suitable equivalent for his own imprudence. (emphasis Ours)

Applying all these established doctrines in the case at bar and after a careful scrutiny of the records, We find no compelling reason to grant the petition. We affirm.

Petitioners fault the city government of Davao for failing to clean a septic tank for the period of 19 years resulting in an accumulation of hydrogen sulfide gas which killed the laborers. They contend that such failure was compounded by the fact that there was no warning sign of the existing danger and no efforts exerted by the public respondent to neutralize or render harmless the effects of the toxic gas. They submit that the public respondent's gross negligence was the proximate cause of the fatal incident.

We do not subscribe to this view. While it may be true that the public respondent has been remiss in its duty to re-empty the septic tank annually, such negligence was not a continuing one. Upon learning from the report of the market master about the need to clean the septic tank of the public toilet in Agdao Public Market, the public respondent immediately responded by issuing invitations to bid for such service. Thereafter, it awarded the bid to the lowest bidder, Mr. Feliciano Bascon (TSN, May 24, 1983, pp. 22-25). The public respondent, therefore, lost no time in taking up remedial measures to meet the situation. It is likewise an undisputed fact that despite the public respondent's failure to re-empty the septic tank since 1956, people in the market have been using the public toilet for their personal necessities but have remained unscathed. The testimonies of Messrs. Danilo Garcia and David Secoja (plaintiffs'-petitioners' witnesses) on this point are relevant, to wit:

Atty. Mojica, counsel for defendant Davao City:

xxx xxx xxx

The place where you live is right along the Agdao creek, is that correct?

DANILO GARCIA:

A Yes, sir.

Q And to be able to go to the market place, where you claim you have a stall,, you have to pass on the septic tank?

A Yes, sir.

Q Day in and day out, you pass on top of the septic tank?

A Yes, sir.

Q Is it not a fact that everybody living along the creek passes on top of this septic tank as they go out from the place and return to their place of residence, is that correct?

And this septic tank, rather the whole of the septic tank, is covered by lead . . .?

A Yes, sir. there is cover.

Q And there were three (3) of these lead covering the septic tank?

A Yes, sir.

Q And this has always been closed?

A Yes, sir. (TSN, November 26, 1979, pp. 21-23, emphasis supplied)

ATTY. JOVER, counsel for the plaintiffs:

Q You said you are residing at Davao City, is it not?

DAVID SEJOYA:

A Yes, sir.

Q How long have you been a resident of Agdao?

A Since 1953.

Q Where specifically in Agdao are you residing?

A At the Public Market.

Q Which part of the Agdao Public Market is your house located?

A Inside the market in front of the fish section.

Q Do you know where the Agdao septic tank is located?

A Yes, sir.

Q How far is that septic tank located from your house?

A Around thirty (30) meters.

Q Have you ever had a chance to use that septic tank (public toilet)?

A Yes, sir.

Q How many times, if you could remember?

A Many times, maybe more than 1,000 times.

Q Prior to November 22, 1975, have you ever used that septic tank (public toilet)?

A Yes, sir.

Q How many times have you gone to that septic tank (public toilet) prior to that date, November 22, 1975?

A Almost 1,000 times. (TSN, February 9, 1983, pp. 1-2)

The absence of any accident was due to the public respondent's compliance with the sanitary and plumbing specifications in constructing the toilet and the septic tank (TSN, November 4, 1983, p. 51). Hence, the toxic gas from the waste matter could not have leaked out because the septic tank was air-tight (TSN, ibid, p. 49). The only indication that the septic tank in the case at bar was full and needed emptying was when water came out from it (TSN, September 13, 1983, p. 41). Yet, even when the septic tank was full, there was no report of any casualty of gas poisoning despite the presence of people living near it or passing on top of it or using the public toilet for their personal necessities.

Petitioners made a lot of fuss over the lack of any ventilation pipe in the toilet to emphasize the negligence of the city government and presented witnesses to attest on this lack. However, this strategy backfired on their faces. Their witnesses were not expert witnesses. On the other hand, Engineer Demetrio Alindada of the city government testified and demonstrated by drawings how the safety requirements like emission of gases in the construction of both toilet and septic tank have been complied with. He stated that the ventilation pipe need not be constructed outside the building as it could also be embodied in the hollow blocks as is usually done in residential buildings (TSN, November 4, 1983, pp. 50-51). The petitioners submitted no competent evidence to corroborate their oral testimonies or rebut the testimony given by Engr. Alindada.

We also do not agree with the petitioner's submission that warning signs of noxious gas should have been put up in the toilet in addition to the signs of "MEN" and "WOMEN" already in place in that area. Toilets and septic tanks are not nuisances per se as defined in Article 694 of the New Civil Code which would necessitate warning signs for the protection of the public. While the construction of these public facilities demands utmost compliance with safety and sanitary requirements, the putting up of warning signs is not one of those requirements. The testimony of Engr. Alindada on this matter is elucidative:

ATTY. ALBAY:

Q Mr. Witness, you mentioned the several aspects of the approval of the building permit which include the plans of an architect, senitary engineer and electrical plans. All of these still pass your approval as building official, is that correct?

DEMETRIO ALINDADA:

A Yes.

Q So there is the sanitary plan submitted to and will not be approved by you unless the same is in conformance with the provisions of the building code or sanitary requirements?

A Yes, for private building constructions.

Q How about public buildings?

A For public buildings, they are exempted for payment of building permits but still they have to have a building permit.

Q But just the same, including the sanitary plans, it require your approval?

A Yes, it requires also.

Q Therefore, under the National Building Code, you are empowered not to approve sanitary plans if they are not in conformity with the sanitary requirements?

A Yes.

Q Now, in private or public buildings, do you see any warning signs in the vicinity of septic tanks?

A There is no warning sign.

Q In residential buildings do you see any warning sign?

A There is none.

ATTY. AMPIG:

We submit that the matter is irrelevant and immaterial, Your Honor.

ATTY. ALBAY:

But that is in consonance with their cross-examination, your Honor.

COURT:

Anyway it is already answered.

ATTY. ALBAY:

Q These warning signs, are these required under the preparation of the plans?

A It is not required.

Q I will just reiterate, Mr. Witness. In residences, for example like the residence of Atty. Ampig or the residence of the honorable Judge, would you say that the same principle of the septic tank, from the water closet to the vault, is being followed?

A Yes.

ATTY. ALBAY:

That will be all, Your Honor. (TSN, December 6, 1983, pp. 62-63)

In view of this factual milieu, it would appear that an accident such as toxic gas leakage from the septic tank is unlikely to happen unless one removes its covers. The accident in the case at bar occurred because the victims on their own and without authority from the public respondent opened the septic tank. Considering the nature of the task of emptying a septic tank especially one which has not been cleaned for years, an ordinarily prudent person should undoubtedly be aware of the attendant risks. The victims are no exception; more so with Mr. Bertulano, an old hand in this kind of service, who is presumed to know the hazards of the job. His failure, therefore, and that of his men to take precautionary measures for their safety was the proximate cause of the accident. In Culion Ice, Fish and Elect. Co., v. Phil. Motors Corporation (55 Phil. 129, 133), We held that when a person holds himself out as being competent to do things requiring professional skill, he will be held liable for negligence if he fails to exhibit the care and skill of one ordinarily skilled in the particular work which he attempts to do (emphasis Ours). The fatal accident in this case would not have happened but for the victims' negligence. Thus, the appellate court was correct to observe that:

. . . Could the victims have died if they did not open the septic tank which they were not in the first place authorized to open? Who between the passive object (septic tank) and the active subject (the victims herein) who, having no authority therefore, arrogated unto themselves, the task of opening the septic tank which caused their own deaths should be responsible for such deaths. How could the septic tank which has been in existence since the 1950's be the proximate cause of an accident that occurred only on November 22, 1975? The stubborn fact remains that since 1956 up to occurrence of the accident in 1975 no injury nor death was caused by the septic tank. The only reasonable conclusion that could be drawn from the above is that the victims' death was caused by their own negligence in opening the septic tank. . . . (Rollo, p. 23)

Petitioners further contend that the failure of the market master to supervise the area where the septic tank is located is a reflection of the negligence of the public respondent.

We do not think so. The market master knew that work on the septic tank was still forthcoming. It must be remembered that the bidding had just been conducted. Although the winning bidder was already known, the award to him was still to be made by the Committee on Awards. Upon the other hand, the accident which befell the victims who are not in any way connected with the winning bidder happened before the award could be given. Considering that the case was yet no award to commence work on the septic tank, the duty of the market master or his security guards to supervise the work could not have started (TSN, September 13, 1983, p. 40). Also, the victims could not have been seen working in the area because the septic tank was hidden by a garbage storage which is more or less ten (10) meters away from the comfort room itself (TSN, ibid, pp. 38-39). The surreptitious way in which the victims did their job without clearance from the market master or any of the security guards goes against their good faith. Even their relatives or family members did not know of their plan to clean the septic tank.

Finally, petitioners' insistence on the applicability of Article 24 of the New Civil Code cannot be sustained. Said law states:

Art. 24. In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection.

We approve of the appellate court's ruling that "(w)hile one of the victims was invited to bid for said project, he did not win the bid, therefore, there is a total absence of contractual relations between the victims and the City Government of Davao City that could give rise to any contractual obligation, much less, any liability on the part of Davao City." (Rollo, p. 24) The accident was indeed tragic and We empathize with the petitioners. However, the herein circumstances lead Us to no other conclusion than that the proximate and immediate cause of the death of the victims was due to their own negligence. Consequently, the petitioners cannot demand damages from the public respondent.

ACCORDINGLY, the amended decision of the Court of Appeals dated January 11, 1990 is AFFIRMED. No costs.

SO ORDERED.

Narvasa, C.J., Cruz, Griño-Aquino and Bellosillo, JJ., concur.