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CARRIAGE OF GOODS BY

Carriage of Goods By Sea Act and Clause 17 of the

SEA ACT

$500.00 is the maximum liability, the law does not

questioned Bill of Lading, for in providing that


disallow an agreement for liability at a lesser amount.

1.

Decision of court a quo, reversed.

FIRST DIVISION

SYLLABUS

[G.R. No. L-37604. October 23, 1981.]

1.

STATUTORY

INTERPRETATION

CONSTRUCTION;
ACCORDING

TO

INTENTION;

EASTERN AND AUSTRALIAN STEAMSHIP CO., CARRIAGE OF GOODS BY SEA ACT; PROVISION FOR
LTD. AND F.E. ZUELLIG, INC., petitioners, vs. CARRIER'S LIABILITY. FOR UNDELIVERED CARGO;

GREAT AMERICAN INSURANCE CO. and COURT NO INCONSISTENCY WITH PROVISION IN BILL OF
OF FIRST INSTANCE OF MANILA, BRANCH XIII, LADING IN CASE AT BAR. There is no
respondents.

inconsistency between Section 4(5) of the Carriage of

Goods by Sea Act and Clause 17 of the Bill of Lading

Ramon O. Nolasco and Manuel N. Camacho for executed between the parties in the case at bar
petitioners.
Wilfredo V. Andaya for private respondent.
SYNOPSIS

limiting the carrier's liability to only L100 Sterling per


package that is undelivered. The first part of the
provision of Section 4(5) of the Carriage of Goods by
Sea Act limits the maximum amount that may be
recovered by the shipper in the absence of an

When a vessel owned and operated by petitioners agreement as to the nature and value of goods
failed to deliver to the consignee Benguet shipped. Said provision does not prescribe the
Consolidated Inc., goods shipped from Australia and minimum and hence. it could be any which is below
insured against all risks with respondent Great $500.00. Clause 17 of the questioned Bill of Lading
American Insurance Co. for P35,921.81, the latter also provides the maximum for which the carrier is
was compelled to pay the aforesaid amount to the liable. It prescribes that the carrier may only be held
consignee. As subrogee, respondent insurer filed a liable for an amount not more than t 100 Sterling
complaint against petitioners for the recovery of said which is below the maximum limit required in the
amount but the latter were willing to pay only the Carriage of Goods By Sea Act. Both the Carriage of
amount of t 100 Sterling or its peso equivalent of Goods By Sea Act and Clause 17 of the Bill of Lading
P1,544.00 per package as stated in the bill of Lading. allow the payment beyond the respective to maximum
The court a quo declared said stipulation as void, for limit imposed therein, provided that the value of the
being contrary to Section 4(5) of the Carriage of goods have been declared in the Bill of Lading.
Goods By Sea Act which fixes in the absence of a
declaration in the Bill of Lading of the value of the
goods shipped, a maximum liability of $500.00 or its
peso equivalent of P3 ,217.50 per package. Petitioners
were held liable for the amount provided for in the
Act.

2.

ID.;

ID.;

ID.;

ID.;

REFERS

TO

AN

AGREEMENT OTHER THAN THAT SET FORTH IN


BILL OF LADING; NOT APPLICABLE TO CASE AT
BAR. The second paragraph of Section 4(5) of the
Carriage of Goods By Sea Act prescribing the
maximum amount shall not be less than $500.00 per

On review by certiorari, the Supreme Court in finding package, refers to a situation where there is an
petitioners liable for t 100 Sterling only, ruled that agreement other than that set forth in the Bill of
there is no inconsistency between Section 4(5) of the Lading providing for a maximum higher than $500.00

Page 2 of 229
per package. In the case as bar, it is apparent that carrier's liability, even if the loss or damage results
there had been no agreement between the parties, from the carrier's negligence. Pursuant to such
and hence, Clause 17 of the Bill of Lading shall provision, where the shipper is silent as to the value
prevail.
3.

of his goods, the carrier's liability for loss or damage


ID.; ID.; ID.; ID.; DOES NOT DISALLOW AN

AGREEMENT FOR LIABILITY AT A LESSER AMOUNT;


CASE AT BAR. The condition imposed in Clause 17
of the Bill of Lading that liability for the loss of the
shipment is only limited to t 100 Sterling or its peso
equivalent of P1,544.40 should not be read in the
light of second paragraph of Section 4(5) of the
Carriage of Goods By Sea Act, for it would be to
render ineffective the very intent of the law setting the
sum of $500.00 as the maximum liability of the

thereto is limited to the amount specified in the


contract of carriage and where the shipper states the
value of his goods, the carrier's liability for loss or
damage thereto is limited to that amount. Under a
stipulation such as this. it is the duty of the shipper
to disclose rather than the carrier's to demand the
true value of the goods and silence on the part of the
shipper will be sufficient to limit recovery in case of
loss to the amount stated in the contract of carriage.
(14 Am. Jur. 2d p. 68)

vessel/carrier. per package, in the absence of a higher D E C I S I O N


valuation of the goods as indicated in the Bill of
Lading. By providing that $500.00 as the maximum

DE CASTRO,* J p:

liability, the law does not disallow an agreement for This is a petition for review on certiorari of the
liability at a lesser amount.
decision of the Court of First Instance of Manila,
4.

CIVIL

LAW;

COMMON

CARRIERS;

LIMITATION OF CARRIER'S LIABILITY; EXPRESSLY


ALLOWED IN ARTICLE 1749 OF THE NEW CIVIL
CODE. Article 1749 of the New Civil Code expressly
allows the limitation of the carrier's liability: "A

Branch XIII, dated July 25, 1973, in Civil Case No.


88985, entitled "Great American Insurance Co.,
plaintiff, vs. Eastern & Australian Steamship Co., Ltd.
and/or F.E. Zuellig, Inc., defendants," the dispositive
portion of which reads:

stipulation that the common carrier's liability is "WHEREFORE, judgment is hereby rendered, finding
limited to the value of the goods appearing in the bill the defendants liable to the plaintiff in the amount of

of lading, unless the shipper or owner declares a $500.00, or its peso equivalent of P3,217.50, with
greater value, is binding." Thus in the case of legal interest thereon from November 20, 1972; and to
Northern Motors, Inc. vs. Prince Line (107 Phil. 254) further pay to the plaintiff an amount equivalent to
it was held that ". . . as valid and binding a similar twenty-five per centum (25%) thereof by way of
provision in the bill of lading limiting the carrier's damages as and for attorney's fees."
liability to a specific amount unless the shipper
expressly declares a higher valuation and pays the The facts of the case are as follows:
corresponding

rate

thereon."

And

in

Phoenix

Assurance Company vs. Macondray & Co., Inc. (64


SCRA 20) the validity of a stipulation limiting the
carrier's liability was reiterated.

On December 10, 1971, the Jackson and Spring


(Sydney) Pty. Ltd. shipped from Sydney, Australia, one
(1) case of impellers for warman pump on board the
SS "Chitral," a vessel owned and operated in the

IN Philippines by Eastern & Australian Steamship Co.,


AMERICAN JURISPRUDENCE. "A stipulation in a Ltd., thru its agent F.E. Zuellig, Inc. under Bill of
contract of carriage that the carrier will not be liable Lading No. 31, for delivery to Manila, Philippines in
5.

ID.;

ID.;

ID.;

RECOGNIZED

ALSO

beyond a specified amount unless the shipper favor of consignee Benguet Consolidated, Inc. The
declares the goods to have a greater value is generally shipment was insured with Great American
deemed to be valid and will operate to limit the Insurance, Co. for P35,921.81 against all risks. On

Page 3 of 229
December 22, 1971 the SS "Chitral" arrived in Manila From the decision of the lower court the present
but failed to discharge the shipment or any part petition for review was instituted by petitioners
thereof. Demand was made on herein petitioners for assigning the following errors:
the delivery of said shipment, but having failed to
make delivery, a claim was presented against them for

the value of the shipment. Petitioners, likewise, failed THAT RESPONDENT CFI ERRED IN DECIDING THAT
to make good the claim. As a consequence of the loss THE LIMIT OF LIABILITY IN THE SUM OF 100
of the shipment, private respondent Great American STERLING OR ITS PESO EQUIVALENT OF THE
Insurance Co. was compelled to pay the consignee VESSEL/CARRIER, PER PACKAGE, AS STIPULATED

P35,921.81. As subrogee, said private respondent IN CLAUSE 17 OF THE BILL OF LADING, IS


filed a complaint dated Nov. 20, 1972 against herein CONTRARY TO LAW, AND, THEREFORE, VOID; and
petitioners for recovery of the said amount with legal
interest and attorney's fees. Cdpr

II

In the answer dated Nov. 27, 1972 petitioners alleged THAT RESPONDENT COURT ERRED IN AWARDING
that their liability for the loss of the shipment is only ATTORNEY'S FEES AND COSTS IN FAVOR OF
limited to 100 Sterling or its peso equivalent of PRIVATE RESPONDENT AND AGAINST THE HEREIN
P1,544.40 as per stipulation in the Bill of Lading and PETITIONERS.
that even before the filing of the complaint, petitioners
have signified their willingness to pay the claim up to
their limit of liability as stipulated in the Bill of
Lading.

Petitioners contend that the first paragraph of Section


4 (5) of the Carriage of Goods by Sea Act prescribes a
maximum liability of the vessel/carrier in the amount
of $500.00 per package; that said maximum liability,

During the pre-trial on May 28, 1973, the loss of the however, is not applicable in a shipment wherein the
subject shipment was admitted, and the parties nature and a higher valuation of the goods are
submitted the case for decision on one issue: whether indicated in the Bill of Lading; that the second
petitioners' liability is limited to 100 Sterling or its paragraph refers to an agreement of the shipper and
peso equivalent of P1,544.40 as stipulated in Clause the carrier which provides for another maximum
17 of the Bill of Lading 1 or whether petitioners' necessarily higher than $500.00 and that said proviso
liability should be $500 or its peso equivalent in the should not be read in connection with stipulations in
sum of P3,217.50 pursuant to Sec. 4(5) of the Bills of Lading limiting the vessel's liability to less
Carriage of Goods by Sea Act. 2

than $500.00 per package, otherwise, the very intent

of the law setting the sum of $500.00 as the


The court a quo found that under Section 4 (5) of the maximum liability of the carrier, per package, in the
Carriage of Goods by Sea Act, the carrier and the absence of a higher valuation of the goods as
shipper may, in the absence of a declaration in the indicated in the Bill of Lading would be nullified, for it
Bill of Lading of the value of the goods shipped, fix a would thereby become not the maximum, but the
maximum liability of the shipper for the cargo lost or minimum liability of the carrier. llcd
damaged, but such maximum shall not be less than
$500.00 per package. Consequently, the agreement Petitioners also contend that the New Civil Code,
for a maximum liability of only 100 Sterling contained particularly Articles 1749 3 and 1750, 4 expressly
in Clause 17 of the Bill of Lading was declared void allow the limitation of the carrier's liability, provided
for being contrary to law and as adverted to above, it is just and reasonable. Hence, the limitation of
petitioners' liability to 100 Sterling or its peso
petitioners were held liable.
equivalent as stipulated in the Bill of Lading is
perfectly legal and binding to the parties.

Page 4 of 229
Private respondent alleges that Article 1749 imposes Petitioners' stand that the condition imposed in
certain conditions for the validity of a stipulation Clause 17 of the Bill of Lading should not be read in
limiting the carrier's liability. These conditions are: (1) the light of second paragraph of Section 4 (5) of the
it must be in writing, signed by the shipper or owner; Carriage of Goods by Sea Act, is well taken. Indeed, it
(2) it must be supported by a valuable consideration would be to render ineffective the very intent of the
other than the service rendered by the carrier; and (3) law setting the sum of $500.00 as the maximum
it must be reasonable, just and not contrary to public liability of the vessel/carrier, per package, in the
policy.
Respondent believes that an agreement limiting the
carrier's liability does not per se give validity thereto
but it must be shown, among others, that the amount
agreed upon is just and reasonable under the
circumstances.
There is no inconsistency between Section 4 (5) of the

absence of a higher valuation of the goods as


indicated in the Bill of Lading. By providing that
$500.00 is the maximum liability, the law does not
disallow an agreement for liability at a lesser amount.
LLjur
Significantly, Article 1749 of the New Civil Code
expressly allows the limitation of the carrier's liability:

Carriage of Goods by Sea Act and Clause 17 of the "Art. 1749.

stipulation

that

the

common

Bill of Lading. The first part of the provision of Section carrier's liability is limited to the value of the goods
4 (5) of the Carriage of Goods by Sea Act limits the appearing in the bill of lading, unless the shipper or
maximum amount that may be recovered by the owner declares a greater value, is binding."
shipper in the absence of an agreement as to the
nature and value of goods shipped. Said provision
does not prescribe the minimum and hence, it could

Thus, in the case of Northern Motors, Inc. vs. Prince


Line, 5 We said:

be any amount which is below $500.00. Clause 17 of "This Court has held as valid and binding a similar
the questioned Bill of Lading also provides the provision in a bill of lading limiting the carrier's
maximum for which the carrier is liable. It prescribes liability to a specific amount unless the shipper
that the carrier may only be held liable for an amount expressly declares a higher valuation and pays the
not more than 100 Sterling which is below the corresponding rate thereon."
maximum limit required in the Carriage of Goods by
Again, in Phoenix Assurance Company vs. Macondray
Sea Act.

& Co., Inc., 6 We reiterated the validity of a


It should be noted that both the Carriage of Goods by stipulation limiting the carrier's liability.
Sea Act and Clause 17 of the Bill of Lading allow the
payment beyond the respective maximum limit The right of the carrier to limit its liability has been
imposed therein, provided that the value of the goods recognized not only in Our jurisdiction but also in
American jurisprudence:
have been declared in the Bill of Lading.
The second paragraph of Section 4 (5) of the Carriage "A stipulation in a contract of carriage that the carrier
of Goods by Sea Act prescribing the maximum will not be liable beyond a specified amount unless
amount shall not be less than $500.00 refers to a the shipper declares the goods to have a greater value
situation where there is an agreement other than that is generally deemed to be valid and will operate to
set forth in the Bill of Lading providing for a limit the carrier's liability, even if the loss or damage
maximum higher than $500.00 per package. In the results from the carrier's negligence. Pursuant to
case at bar, it is apparent that there had been no such provision, where the shipper is silent as to the
agreement between the parties, and hence, Clause 17 value of his goods, the carrier's liability for loss or
of the Bill of Lading shall prevail.

damage thereto is limited to the amount specified in

Page 5 of 229
the contract of carriage and where the shipper states the damaged four (4) coils transported by them, plus
the value of his goods, the carrier's liability for loss or interest and attorneys fees.
damage thereto is limited to that amount. Under a
stipulation such as this, it is the duty of the shipper
to disclose, rather than the carrier's to demand the
true value of the goods and silence on the part of the
shipper will be sufficient to limit recovery in case of
loss to the amount stated in the contract of carriage."
7

Petitioners claimed that the loss or the deterioration


of the goods shipped was due to pre-shipment
damage. They cited the notation "metal envelopes rust
stained and slightly dented" printed on the Bill of
Lading as evidence that the character of the goods or
defect in the packing or the containers was the
proximate cause of the damage. They averred that

In view of the above findings, it is no longer necessary they exercised due diligence and foresight required by
to discuss the second assignment of error.

law to prevent any damage/loss to said shipment.

WHEREFORE, the decision of the court a quo is In affirming the decision of the Court of Appeals but
hereby reversed and another one is entered finding with modification with respect to the extent of
petitioners liable to private respondent in the amount petitioners' liability, the Supreme Court held that the
of 100 Sterling or its peso equivalent of P1,544.40. petitioners failed to rebut the prima facie presumption
Without pronouncement as to costs.

of negligence. They failed to prove that they observed


the extraordinary diligence and precaution, which the

SO ORDERED.
Makasiar,

law requires a common carrier to know and to follow

Fernandez,

Guerrero

and

Herrera, JJ., concur.

Melencio- to avoid damage to or destruction of the goods


entrusted to it for safe carriage and delivery. True, the
words "metal envelopes rust stained and slightly

Teehankee, J. (Chairman), concurs in the result.

dented" were noted on the Bill of Lading; however,


there was no showing that petitioners exercised due

2.

diligence to forestall or lessen the loss. Having been in


the service for several years, the master of the vessel

THIRD DIVISION

should have known at the outset that metal envelopes


in the said state would eventually deteriorate when

[G.R. No. 143133. June 5, 2002.]

not properly stored while in transit. Equipped with


BELGIAN OVERSEAS CHARTERING AND SHIPPING the proper knowledge of the nature of steel sheets in
N.V.
and
JARDINE
DAVIES
TRANSPORT coils and of the proper way of transporting them, the
SERVICES,

PHILIPPINE master of the vessel and his crew should have


undertaken precautionary measures to avoid possible
FIRST INSURANCE CO., INC., respondent.
deterioration of the cargo. But none of these
Del Rosario and Del Rosario for petitioners.
measures was taken. Having failed to discharge the
Astorga

&

INC.,

Repol

petitioners,

Law

vs.

Offices

for

private

respondent.
SYNOPSIS
Petitioners assailed the decision of the Court of

burden of proving that they have exercised the


extraordinary diligence required by law, petitioners
cannot escape liability for the damage to the four
coils. DAEICc
SYLLABUS

Appeals which reversed and set aside the Decision of 1.


CIVIL LAW; COMMON CARRIERS; BOUND TO
the Regional Trial Court of Makati City, and ordered OBSERVE
EXTRAORDINARY
DILIGENCE
AND
them to pay actual damages representing the value of VIGILANCE WITH RESPECT TO SAFETY OF THE

Page 6 of 229
GOODS

AND

THEM;

PASSENGERS

RATIONALE

TRANSPORTED

FOR

THE

BY war, whether international or civil; (3) an act or

STRICT omission of the shipper or owner of the goods; (4) the

REQUIREMENT. Well-settled is the rule that character of the goods or defects in the packing or the
common carriers, from the nature of their business container; or (5) an order or act of competent public
and for reasons of public policy, are bound to observe authority. This is a closed list. If the cause of
extraordinary diligence and vigilance with respect to destruction, loss or deterioration is other than the
the safety of the goods and the passengers they enumerated circumstances, then the carrier is liable
transport. Thus, common carriers are required to therefor. IAcTaC
render service with the greatest skill and foresight
and "to use all reason[a]ble means to ascertain the
nature and characteristics of the goods tendered for
shipment, and to exercise due care in the handling
and stowage, including such methods as their nature
requires." The extraordinary responsibility lasts from
the time the goods are unconditionally placed in the
possession of and received for transportation by the
carrier

until

they

are

delivered,

actually

or

constructively, to the consignee or to the person who


has a right to receive them. This strict requirement is
justified by the fact that, without a hand or a voice in
the preparation of such contract, the riding public
enters into a contract of transportation with common
carriers. Even if it wants to, it cannot submit its own
stipulations for their approval. Hence, it merely
adheres

to

the

agreement

prepared

by

them.

THIECD
2.

4.

ID.; ID.; ID.; ID.; CHARACTER OF THE

GOODS

OR

DEFECTS

IN

THE

PACKING;

ELUCIDATED; NOT PRESENT IN CASE AT BAR. In


their attempt to escape liability, petitioners further
contend that they are exempted from liability under
Article 1734(4) of the Civil Code. They cite the
notation "metal envelopes rust stained and slightly
dented" printed on the Bill of Lading as evidence that
the character of the goods or defect in the packing or
the containers was the proximate cause of the
damage. We are not convinced. From the evidence on
record, it cannot be reasonably concluded that the
damage to the four coils was due to the condition
noted on the Bill of Lading. The aforecited exception
refers to cases when goods are lost or damaged while
in transit as a result of the natural decay of
perishable goods or the fermentation or evaporation
of substances liable therefor, the necessary and

ID.; ID.; PRIMA FACIE PRESUMPTION OF natural wear of goods in transport, defects in

NEGLIGENCE; BURDEN OF PROVING OBSERVANCE packages in which they are shipped, or the natural
OF EXTRAORDINARY DILIGENCE LIES ON COMMON propensities of animals. None of these is present in
CARRIERS. Owing to this high degree of diligence the instant case. DcHaET
required of them, common carriers, as a general rule,
are presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or
destroyed. That is, unless they prove that they
exercised extraordinary diligence in transporting the
goods. In order to avoid responsibility for any loss or
damage, therefore, they have the burden of proving
that they observed such diligence. aHSTID
3.

ID.;

ID.;

ID.;

EXCEPTIONS.

5.

ID.; ID.; SHALL BE HELD RESPONSIBLE

ABSENT ADEQUATE EXPLANATION AS TO HOW


THE DETERIORATION, LOSS OR DESTRUCTION OF
GOODS HAPPENED. Mere proof of delivery of the
goods in good order to a common carrier and of their
arrival in bad order at their destination constitutes a
prima facie case of fault or negligence against the
carrier. If no adequate explanation is given as to how

The the deterioration, the loss or the destruction of the

presumption of fault or negligence will not arise if the goods happened, the transporter shall be held
loss is due to any of the following causes: (1) flood, responsible. THaCAI
storm,

earthquake,

lightning,

or

other

natural

disaster or calamity; (2) an act of the public enemy in

6.

ID.; ID.; PETITIONERS FAILED TO OBSERVE

EXTRAORDINARY DILIGENCE AND PRECAUTION IN

Page 7 of 229
TRANSPORTING THE GOODS IN CASE AT BAR. that

metal

envelopes

in

the

said

state

would

That petitioners failed to rebut the prima facie eventually deteriorate when not properly stored while
presumption of negligence is revealed in the case at in transit. Equipped with the proper knowledge of the
bar by a review of the records and more so by the nature of steel sheets in coils and of the proper way of
evidence adduced by respondent. First, as stated in transporting them, the master of the vessel and his
the Bill of Lading, petitioners received the subject crew

should

have

undertaken

precautionary

shipment in good order and condition in Hamburg, measures to avoid possible deterioration of the cargo.
Germany. Second, prior to the unloading of the cargo, But none of these measures was taken. Having failed
an

Inspection

Report

prepared

and

signed

by to discharge the burden of proving that they have

representatives of both parties showed the steel exercised the extraordinary diligence required by law,
bands broken, the metal envelopes rust-stained and petitioners cannot escape liability for the damage to
heavily buckled, and the contents thereof exposed the four coils. cHSIDa
and rusty. Third, Bad Order Tally Sheet No. 154979
issued by Jardine Davies Transport Services, Inc.,
stated that the four coils were in bad order and
condition. Normally, a request for a bad order survey
is made in case there is an apparent or a presumed
loss or damage. Fourth, the Certificate of Analysis
stated that, based on the sample submitted and
tested, the steel sheets found in bad order were wet
with fresh water. Fifth, petitioners in a letter
addressed to the Philippine Steel Coating Corporation
and dated October 12, 1990 admitted that they

8.

ID.; ID.; NOT RELIEVED OF LIABILITY FOR

LOSS

IF

IT

ACCEPTS

THE

GOODS

NOTWITHSTANDING DEFECTS IN PACKING. Even


if the fact of improper packing was known to the
carrier or its crew or was apparent upon ordinary
observation, it is not relieved of liability for loss or
injury resulting therefrom, once it accepts the goods
notwithstanding such condition. Thus, petitioners
have not successfully proven the application of any of
the exceptions in the present case. DaAETS

were aware of the condition of the four coils found in 9.


COMMERCIAL LAW; CARRIAGE OF GOODS
bad order and condition. These facts were confirmed BY SEA ACT; SECTION 3, PARAGRAPH 6 THEREOF;
by Ruperto Esmerio, head checker of BM Santos NOTICE OF CLAIM NEED NOT BE GIVEN IF STATE
Checkers Agency. All these conclusively prove the fact OF THE GOODS, AT THE TIME OF THEIR RECEIPT,
of shipment in good order and condition and the HAS BEEN THE SUBJECT OF A JOINT INSPECTION

consequent damage to the four coils while in the OR SURVEY. Petitioners claim that pursuant to
possession of petitioner, who notably failed to explain Section 3, paragraph 6 of the Carriage of Goods by
why. Further, petitioners failed to prove that they Sea Act (COGSA), respondent should have filed its
observed the extraordinary diligence and precaution Notice of Loss within three days from delivery. They
which the law requires a common carrier to know and assert that the cargo was discharged on July 31,
to follow to avoid damage to or destruction of the 1990, but that respondent filed its Notice of Claim
goods entrusted to it for safe carriage and delivery. only on September 18, 1990. We are not persuaded.
aEHADT
7.

First, the above-cited provision of COGSA provides

ID.; ID.; MUST EXERCISE DUE DILIGENCE

TO FORESTALL OR LESSEN THE LOSS; CASE AT


BAR. True, the words "metal envelopes rust stained
and slightly dented" were noted on the Bill of Lading;
however,

there

is

no

showing

that

petitioners

exercised due diligence to forestall or lessen the loss.


Having been in the service for several years, the
master of the vessel should have known at the outset

that the notice of claim need not be given if the state


of the goods, at the time of their receipt, has been the
subject of a joint inspection or survey. As stated
earlier, prior to unloading the cargo, an Inspection
Report as to the condition of the goods was prepared
and

signed

IAcTaC

by

representatives

of

both

parties.

Page 8 of 229
10.

ID.;

ID.;

ID.;

ONE-YEAR

PRESCRIPTIVE declares a greater value is sanctioned by law. There

PERIOD; FAILURE TO FILE NOTICE OF CLAIM are, however, two conditions to be satisfied: (1) the
WITHIN THREE DAYS WILL NOT BAR RECOVERY IF contract

is

reasonable

and

just

under

the

IT IS NONETHELESS FILED WITHIN ONE YEAR; circumstances, and (2) it has been fairly and freely
CASE AT BAR. As stated in Section 3, paragraph 6 agreed upon by the parties. The rationale for, this
of the Carriage of Goods by Sea Act a failure to file a rule is to bind the shippers by their agreement to the
notice of claim within three days will not bar recovery value (maximum valuation) of their goods. IcTaAH
if it is nonetheless filed within one year. This one-year
prescriptive period also applies to the shipper, the
consignee, the insurer of the goods or any legal holder
of the bill of lading. In Loadstar Shipping Co., Inc. v.
Court of Appeals, we ruled that a claim is not barred
by prescription as long as the one-year period has not
lapsed. Thus, in the words of the ponente, Chief
Justice Hilario G. Davide, Jr.: "Inasmuch as the
neither the Civil Code nor the Code of Commerce
states a specific prescriptive period on the matter, the
Carriage of Goods by Sea Act (COGSA) which
provides for a one-year period of limitation on claims
for loss of, or damage to, cargoes sustained during
transit may be applied suppletorily to the case at
bar." In the present case, the cargo was discharged on
July 31, 1990, while the Complaint was filed by
respondent on July 25, 1991, within the one-year
prescriptive period. TIcEDC
11.

13.

ID.; ID.; ID.; PART OF THE BILL OF LADING

AS THOUGH PHYSICALLY IN IT AND AGREED UPON


BY THE PARTIES; CASE AT BAR. It is to be noted,
however, that the Civil Code does not limit the liability
of the common carrier to a fixed amount per package.
In all matters not regulated by the Civil Code, the
right and the obligations of common carriers shall be
governed by the Code of Commerce and special laws.
Thus, the COGSA, which is suppletory to the
provisions of the Civil Code, supplements the latter by
establishing

statutory

provision

limiting

the

carrier's liability in the absence of a shipper's


declaration of a higher value in the bill of lading. The
provisions on limited liability are as much a part of
the bill of lading as though physically in it and as
though placed there by agreement of the parties. In
the case before us, there was no stipulation in the Bill
of Lading limiting the carrier's liability. Neither did

ID.; ID.; LIABILITY LIMITATION; BILL OF the shipper declare a higher valuation of the goods to

LADING; FUNCTIONS. A bill of lading serves two be shipped. This fact notwithstanding, the insertion
functions. First, it is a receipt for the goods shipped. of the words "L/C No. 90/02447 cannot be the basis
Second, it is a contract by which three parties for petitioners' liability. ECSaAc
namely, the shipper, the carrier, and the consignee
undertake

specific

responsibilities

and

assume

stipulated obligations. In a nutshell, the acceptance of


the bill of lading by the shipper and the consignee,
with full knowledge of its contents, gives rise to the
presumption that it constituted a perfected and
binding contract. EASCDH
12.

ID.;

ID.;

ID.;

STIPULATION

14.

ID.;

ID.;

OBLIGATION

ID.;

ARISING

TRANSPORTATION

COMMON
FROM

NOT

CARRIERS'

CONTRACT
NEGATED

OF
BY

DISCREPANCY BETWEEN AMOUNT INDICATED IN


INVOICE AND AMOUNT IN BILL OF LADING. A
notation in the Bill of Lading which indicated the
amount of the Letter of Credit obtained by the shipper

LIMITING for the importation of steel sheets did not effect a

COMMON CARRIERS LIABILITY TO A CERTAIN SUM, declaration of the value of the goods as required by
UNLESS OWNER DECLARES A GREATER VALUE IS the bill. That notation was made only for the
SANCTIONED BY LAW; CONDITIONS; RATIONALE. convenience of the shipper and the bank processing
A stipulation in the bill of lading limiting to a certain the Letter of Credit. In Keng Hua Paper Products v.
sum the common carrier's liability for loss or Court of Appeals, we held that a bill of lading was
destruction of a cargo unless the shipper or owner separate

from

the

Other

Letter

of

Credit

Page 9 of 229
arrangements. We ruled thus: "(T)he contract of Proof of the delivery of goods in good order to a
carriage, as stipulated in the bill of lading in the common carrier and of their arrival in bad order at
present case, must be treated independently of the their destination constitutes prima facie fault or
contract of sale between the seller and the buyer, and negligence on the part of the carrier. If no adequate
the contract of issuance of a letter of credit between explanation

is

given

the amount of goods described in the commercial destruction

or

the

as

to

how

deterioration

the
of

loss,
the

the

goods

invoice in the contract of sale and the amount allowed happened, the carrier shall be held liable therefor.
in the letter of credit will not affect the validity and EICDSA
enforceability of the contract of carriage as embodied
in the bill of lading. As the bank cannot be expected

Statement of the Case

to look beyond the documents presented to it by the Before us is a Petition for Review under Rule 45 of the
seller pursuant to the letter of credit, neither can the Rules of Court, assailing the July 15, 1998 Decision 1
carrier be expected to go beyond the representations and the May 2, 2000 Resolution 2 of the Court of
of the shipper in the bill of lading and to verify their Appeals 3 (CA) in CA-G.R. CV No. 53571. The decretal
accuracy vis--vis the commercial invoice and the portion of the Decision reads as follows:
letter of credit. Thus, the discrepancy between the
amount of goods indicated in the invoice and the "WHEREFORE, in the light of the

foregoing

amount in the bill of lading cannot negate petitioner's disquisition, the decision appealed from is hereby
obligation to private respondent arising from the REVERSED and SET ASIDE. Defendants-appellees
contract of transportation." AECIaD
15.

ID.; ID.; ID.; TERM "PACKAGE," EXPLAINED;

are ORDERED to jointly and severally pay plaintiffsappellants the following:

FOUR Hundred Fifty-One Thousand TwentyCASE AT BAR. Petitioners' liability should be '1)
computed based on US$500 per package and not on Seven Pesos and 32/100 (P451,027.32) as actual
the per metric ton price declared in the Letter of damages, representing the value of the damaged
Credit. In Eastern Shipping Lines, Inc. v. Intermediate cargo, plus interest at the legal rate from the time of
Appellate Court we explained the meaning of package: filing of the complaint on July 25, 1991, until fully
"When what would ordinarily be considered packages paid;
are shipped in a container supplied by the carrier and
the number of such units is disclosed in the shipping
documents, each of those units and not the container

'2)

Attorney's fees amounting to 20% of the claim;

and

constitutes the 'package' referred to in the liability '3)


Costs of suit."' 4
limitation provision of Carriage of Goods by Sea Act."
Considering, therefore, the ruling in Eastern Shipping The assailed Resolution denied petitioner's Motion for
Lines and the fact that the Bill of Lading clearly Reconsideration.
disclosed the contents of the containers, the number
of units, as well as the nature of the steel sheets, the
four damaged coils should be considered as the
shipping unit subject to the US$500 limitation.
cDSaEH
DECISION
PANGANIBAN, J p:

The CA reversed the Decision of the Regional Trial


Court (RTC) of Makati City (Branch 134), which had
disposed as follows:
"WHEREFORE, in view of the foregoing, judgment is
hereby rendered, dismissing the complaint, as well as
defendant's counterclaim." 5
The Facts

Page 10 of 229
The factual antecedents of the case are summarized The
by the Court of Appeals in this wise:
"On June 13, 1990, CMC Trading A.G. shipped on

RTC

dismissed

the

Complaint

because

respondent had failed to prove its claims with the


quantum of proof required by law. 7

board the M/V 'Anangel Sky' at Hamburg, Germany It

likewise

242 coils of various Prime Cold Rolled Steel sheets for because

debunked

respondent's

petitioners'
suit

was

counterclaim,
not

manifestly

transportation to Manila consigned to the Philippine frivolous or primarily intended to harass them. 8
Steel Trading Corporation. On July 28, 1990, M/V
Anangel Sky arrived at the port of Manila and, within

Ruling of the Court of Appeals

the subsequent days, discharged the subject cargo. In reversing the trial court, the CA ruled that
Four (4) coils were found to be in bad order B.O. Tally petitioners were liable for the loss or the damage of

sheet No. 154974. Finding the four (4) coils in their the goods shipped, because they had failed to
damaged state to be unfit for the intended purpose, overcome the presumption of negligence imposed on
the consignee Philippine Steel Trading Corporation common carriers. ICTcDA
declared the same as total loss.

The CA further held as inadequately proven


"Despite receipt of a formal demand, defendants- petitioners' claim that the loss or the deterioration of
appellees refused to submit to the consignee's claim. the goods was due to pre-shipment damage. 9 It
Consequently, plaintiff-appellant paid the consignee likewise opined that the notation "metal envelopes
five hundred six thousand eighty six & 50/100 pesos rust stained and slightly dented" placed on the Bill of
(P506,086.50), and was subrogated to the latter's Lading had not been the proximate cause of the
rights and causes of action against defendants- damage to the four (4) coils. 10
appellees. Subsequently, plaintiff-appellant instituted
this complaint for recovery of the amount paid by As to the extent of petitioners' liability, the CA held
them, to the consignee as insured.

that the package limitation under COGSA was not

applicable, because the words "L/C No. 90/02447"


"Impugning the propriety of the suit against them, indicated that a higher valuation of the cargo had
defendants-appellees imputed that the damage been declared by the shipper. The CA, however,
and/or loss was due to pre-shipment damage, to the affirmed the award of attorney's fees.
inherent nature, vice or defect of the goods, or to

perils, danger and accidents of the sea, or to Hence, this Petition. 11


insufficiency of packing thereof, or to the act or
omission of the shipper of the goods or their
representatives.

In

addition

Issues

thereto,

defendants- In their Memorandum, petitioners raise the following


appellees argued that their liability, if there be any, issues for the Court's consideration:
should not exceed the limitations of liability provided

for in the bill of lading and other pertinent laws. I


Finally, defendants-appellees averred that, in any
event, they exercised due diligence and foresight
required by law to prevent any damage/loss to said
shipment." 6
Ruling of the Trial Court

"Whether or not plaintiff by presenting only one


witness who has never seen the subject shipment and
whose testimony is purely hearsay is sufficient to
pave the way for the applicability of Article 1735 of
the Civil Code;
II

Page 11 of 229
"Whether or not the consignee/plaintiff filed the methods

as

their

nature

requires."

14

The

required notice of loss within the time required by extraordinary responsibility lasts from the time the
law;

goods are unconditionally placed in the possession of


and received for transportation by the carrier until

III

they are delivered, actually or constructively, to the

"Whether or not a notation in the bill of lading at the consignee or to the person who has a right to receive
time of loading is sufficient to show pre-shipment them. 15
damage and to exempt herein defendants from
liability;

This strict requirement is justified by the fact that,


without a hand or a voice in the preparation of such
contract, the riding public enters into a contract of

IV

transportation with common carriers. 16 Even if it

"Whether or not the "PACKAGE LIMITATION" of wants to, it cannot submit its own stipulations for
liability under Section 4 (5) of COGSA is applicable to their approval. 17 Hence, it merely adheres to the
the case at bar." 12
agreement prepared by them.
In sum, the issues boil down to three:
1.

Whether

petitioners

have

Owing to this high degree of diligence required of


overcome

the

presumption of negligence of a common carrier


2.

Whether the notice of loss was timely filed

them, common carriers, as a general rule, are


presumed to have been at fault or negligent if the
goods they transported deteriorated or got lost or
destroyed. 18 That is, unless they prove that they

exercised extraordinary diligence in transporting the


Whether the package limitation of liability is goods. 19 In order to avoid responsibility for any loss
applicable
or damage, therefore, they have the burden of proving
3.

This Court's Ruling


The Petition is partly meritorious.

that they observed such diligence. 20


However, the presumption of fault or negligence will
not arise 21 if the loss is due to any of the following

First Issue:

causes: (1) flood, storm, earthquake, lightning, or

Proof of Negligence

public enemy in war, whether international or civil; (3)

Petitioners contend that the presumption of fault


imposed on common carriers should not be applied
on the basis of the lone testimony offered by private
respondent. The contention is untenable.

other natural disaster or calamity; (2) an act of the


an act or omission of the shipper or owner of the
goods; (4) the character of the goods or defects in the
packing or the container; or (5) an order or act of
competent public authority. 22 This is a closed list. If
the cause of destruction, loss or deterioration is other

Well-settled is the rule that common carriers, from than the enumerated circumstances, then the carrier
the nature of their business and for reasons of public is liable therefor. 23
policy, are bound to observe extraordinary diligence
and vigilance with respect to the safety of the goods
and the passengers they transport. 13 Thus, common
carriers are required to render service with the
greatest skill and foresight and "to use all reason[a]ble
means to ascertain the nature and characteristics of
the goods tendered for shipment, and to exercise due
care in the handling and stowage, including such

Corollary to the foregoing, mere proof of delivery of


the goods in good order to a common carrier and of
their arrival in bad order at their destination
constitutes a prima facie case of fault or negligence
against the carrier. If no adequate explanation is
given as to how the deterioration, the loss or the

Page 12 of 229
destruction of the goods happened, the transporter Q.
shall be held responsible. 24

How is BM Santos Checkers Agency related or

connected with defendant Jardine Davies Transport

That petitioners failed to rebut the prima facie

Services?

presumption of negligence is revealed in the case at A.

It is the company who contracts the checkers,

bar by a review of the records and more so by the sir.


evidence adduced by respondent. 25

Q.

You mentioned that you are a Head Checker,

First, as stated in the Bill of Lading, petitioners will you inform this Honorable Court your duties and
received the subject shipment in good order and responsibilities?
condition in Hamburg, Germany. 26

A.

I am the representative of BM Santos on board

Second, prior to the unloading of the cargo, an the vessel, sir, to supervise the discharge of cargoes.
Inspection

Report

27

prepared

and

signed

by

representatives of both parties showed the steel

xxx

xxx

xxx

bands broken, the metal envelopes rust-stained and Q.


On or about August 1, 1990, were you still
heavily buckled, and the contents thereof exposed connected or employed with BM Santos as a Head
and rusty. CAaDSI
Checker?
Third, Bad Order Tally Sheet No. 154979 28 issued by A.
Jardine Davies Transport Services, Inc., stated that
the four coils were in bad order and condition. Q.

Yes, sir.
And, on or about that date, do you recall

Normally, a request for a bad order survey is made in having attended the discharging and inspection of
case there is an apparent or a presumed loss or cold steel sheets in coil on board the MV/AN ANGEL
SKY?

damage. 29

Fourth, the Certificate of Analysis 30 stated that, A.


based on the sample submitted and tested, the steel
sheets found in bad order were wet with fresh water.
Fifth, petitioners in a letter 31 addressed to the
Philippine

Steel

Coating

Corporation

and

dated

October 12, 1990 admitted that they were aware of


the condition of the four coils found in bad order and
condition.
These facts were confirmed by Ruperto Esmerio, head
checker of BM Santos Checkers Agency. Pertinent
portions of his testimony are reproduced hereunder:
"Q.

Mr. Esmerio, you mentioned that you are a

Head Checker. Will you inform the Honorable Court


with what company you are connected?
A.

BM Santos Checkers Agency, sir.

Yes, sir, I was there.

xxx
Q.

xxx

xxx

Based on your inspection since you were also

present at that time, will you inform this Honorable


Court the condition or the appearance of the bad
order

cargoes

that

were

unloaded

from

the

MV/ANANGEL SKY?
ATTY. MACAMAY:
Objection, Your Honor, I think the document
itself reflects the condition of the cold steel sheets and
the best evidence is the document itself, Your Honor
that shows the condition of the steel sheets.
COURT:
Let the witness answer.

Page 13 of 229
A.

The scrap of the cargoes is broken already and aforecited exception refers to cases when goods are

the rope is loosen and the cargoes are dent on the lost or damaged while in transit as a result of the
sides." 32

natural decay of perishable goods or the fermentation

All these conclusively prove the fact of shipment in


good order and condition and the consequent damage
to the four coils while in the possession of petitioner,
33 who notably failed to explain why. 34

or evaporation of substances liable therefor, the


necessary and natural wear of goods in transport,
defects in packages in which they are shipped, or the
natural propensities of animals. 41 None of these is
present in the instant case.

Further, petitioners failed to prove that they observed


the extraordinary diligence and precaution which the
law requires a common carrier to know and to follow
to avoid damage to or destruction of the goods
entrusted to it for safe carriage and delivery. 35

Further, even if the fact of improper packing was


known to the carrier or its crew or was apparent upon
ordinary observation, it is not relieved of liability for
loss or injury resulting therefrom, once it accepts the
goods notwithstanding such condition. 42 Thus,

True, the words "metal envelopes rust stained and petitioners have not successfully proven the
slightly dented" were noted on the Bill of Lading; application of any of the aforecited exceptions in the
however,

there

is

no

showing

that

petitioners present case. 43

exercised due diligence to forestall or lessen the loss.


36 Having been in the service for several years, the

Second Issue:

master of the vessel should have known at the outset Notice of Loss
that

metal

envelopes

in

the

said

state

would

eventually deteriorate when not properly stored while


in transit. 37 Equipped with the proper knowledge of
the nature of steel sheets in coils and of the proper
way of transporting them, the master of the vessel
and his crew should have undertaken precautionary
measures to avoid possible deterioration of the cargo.
But none of these measures was taken. 38 Having

Petitioners

claim

that

pursuant

to

Section

3,

paragraph 6 of the Carriage of Goods by Sea Act 44


(COGSA), respondent should have filed its Notice of
Loss within three days from delivery. They assert that
the cargo was discharged on July 31, 1990, but that
respondent filed its Notice of Claim only on September
18, 1990. 45

failed to discharge the burden of proving that they We are not persuaded. First, the above-cited provision
have exercised the extraordinary diligence required by of COGSA provides that the notice of claim need not
law, petitioners cannot escape liability for the damage be given if the state of the goods, at the time of their
to the four coils. 39

In their attempt to escape liability, petitioners further


contend that they are exempted from liability under
Article 1734(4) of the Civil Code. They cite the
notation "metal envelopes rust stained and slightly

receipt, has been the subject of a joint inspection or


survey. As stated earlier, prior to unloading the cargo,
an Inspection Report 46 as to the condition of the
goods was prepared and signed by representatives of
both parties. 47

dented" printed on the Bill of Lading as evidence that Second, as stated in the same provision, a failure to
the character of the goods or defect in the packing or file a notice of claim within three days will not bar
the containers was the proximate cause of the recovery if it is nonetheless filed within one year. 48
damage. We are not convinced.
This one-year prescriptive period also applies to the
From the evidence on record, it cannot be reasonably
concluded that the damage to the four coils was due
to the condition noted on the Bill of Lading. 40 The

shipper, the consignee, the insurer of the goods or


any legal holder of the bill of lading. 49

Page 14 of 229
In Loadstar Shipping Co., Inc. v. Court of Appeals, 50 Further, a stipulation in the bill of lading limiting to a
we ruled that a claim is not barred by prescription as certain sum the common carrier's liability for loss or
long as the one-year period has not lapsed. Thus, in destruction of a cargo unless the shipper or owner
the words of the ponente, Chief Justice Hilario G. declares a greater value 58 is sanctioned by law. 59
Davide Jr.:

There are, however, two conditions to be satisfied: (1)

"Inasmuch as neither the Civil Code nor the Code of


Commerce states a specific prescriptive period on the
matter, the Carriage of Goods by Sea Act (COGSA)
which provides for a one-year period of limitation on
claims for loss of, or damage to, cargoes sustained

the contract is reasonable and just under the


circumstances, and (2) it has been fairly and freely
agreed upon by the parties. 60 The rationale for this
rule is to bind the shippers by their agreement to the
value (maximum valuation) of their goods. 61

during transit may be applied suppletorily to the It is to be noted, however, that the Civil Code does not
case at bar."

limit the liability of the common carrier to a fixed

In the present case, the cargo was discharged on July


31, 1990, while the Complaint 51 was filed by
respondent on July 25, 1991, within the one-year
prescriptive period. CcEHaI

amount per package. 62 In all matters not regulated


by the Civil Code, the right and the obligations of
common carriers shall be governed by the Code of
Commerce and special laws. 63 Thus, the COGSA,
which is suppletory to the provisions of the Civil

Third Issue:

Code, supplements the latter by establishing a

Package Limitation

the absence of a shipper's declaration of a higher

statutory provision limiting the carrier's liability in

Assuming arguendo they are liable for respondent's


claims, petitioners contend that their liability should
be limited to US$500 per package as provided in the
Bill of Lading and by Section 4(5) 52 of COGSA. 53
On the other hand, respondent argues that Section
4(5) of COGSA is inapplicable, because the value of
the subject shipment was declared by petitioners
beforehand, as evidenced by the reference to and the
insertion

of

the

Letter

of

Credit

or

"L/C

No.

90/02447" in the said Bill of Lading. 54


A bill of lading serves two functions. First, it is a
receipt for the goods shipped. 55 Second, it is a
contract by which three parties namely, the
shipper, the carrier, and the consignee undertake
specific

responsibilities

and

assume

stipulated

obligations. 56 In a nutshell, the acceptance of the


bill of lading by the shipper and the consignee, with

value in the bill of lading. 64 The provisions on


limited liability are as much a part of the bill of lading
as though physically in it and as though placed there
by agreement of the parties. 65
In the case before us, there was no stipulation in the
Bill of Lading 66 limiting the carrier's liability. Neither
did the shipper declare a higher valuation of the
goods to be shipped. This fact notwithstanding, the
insertion of the words "L/C No. 90/02447 cannot be
the basis for petitioners' liability.
First, a notation in the Bill of Lading which indicated
the amount of the Letter of Credit obtained by the
shipper for the importation of steel sheets did not
effect a declaration of the value of the goods as
required by the bill. 67 That notation was made only
for the convenience of the shipper and the bank
processing the Letter of Credit. 68

full knowledge of its contents, gives rise to the Second, in Keng Hua Paper Products v. Court of
presumption that it constituted a perfected and Appeals, 69 we held that a bill of lading was separate
binding contract. 57
from the Other Letter of Credit arrangements. We
ruled, thus:

Page 15 of 229
"(T)he contract of carriage, as stipulated in the bill of Complaint on July 25, 1991 until the finality of this
lading

in

the

present

case,

must

be

treated Decision, and 12 percent thereafter until fully paid.

independently of the contract of sale between the No pronouncement as to costs.


seller and the buyer, and the contract of issuance of a
letter of credit between the amount of goods described

SO ORDERED. acIASE

in the commercial invoice in the contract of sale and Sandoval-Gutierrez and Carpio, JJ., concur.
the amount allowed in the letter of credit will not
affect the validity and enforceability of the contract of Puno, J., is abroad, on official leave.
carriage as embodied in the bill of lading. As the bank
cannot be expected to look beyond the documents
presented to it by the seller pursuant to the letter of
credit, neither can the carrier be expected to go

3.
SECOND DIVISION

beyond the representations of the shipper in the bill [G.R. No. 165647. March 26, 2009.]
of lading and to verify their accuracy vis--vis the
commercial invoice and the letter of credit. Thus, the PHILIPPINES FIRST INSURANCE

CO.,

INC.,

discrepancy between the amount of goods indicated in petitioner, vs. WALLEM PHILS. SHIPPING, INC.,
the invoice and the amount in the bill of lading UNKNOWN
OWNER
AND/OR
UNKNOWN
cannot negate petitioner's obligation to private CHARTERER OF THE VESSEL M/S "OFFSHORE
respondent
arising
from
the
contract
of MASTER" AND "SHANGHAI FAREAST SHIP
transportation." 70

In the light of the foregoing, petitioners' liability


should be computed based on US$500 per package

BUSINESS COMPANY", respondents.


DECISION

and not on the per metric ton price declared in the TINGA, J p:
Letter of Credit. 71 In Eastern Shipping Lines, Inc. v.
Intermediate Appellate Court, 72 we explained the Before us is a Rule 45 petition 1 which seeks the
meaning of package:

reversal of the Decision 2 and Resolution 3 of the


Court of Appeals in CA-G.R. No. 61885. The Court of

"When what would ordinarily be considered packages Appeals reversed the Decision 4 of the Regional Trial
are shipped in a container supplied by the carrier and Court (RTC) of Manila, Branch 55 in Civil Case No.
the number of such units is disclosed in the shipping 96-80298, dismissing the complaint for sum of
documents, each of those units and not the container money. ETISAc
constitutes the 'package' referred to in the liability
limitation provision of Carriage of Goods by Sea Act."

The facts of the case follow. 5

Considering, therefore, the ruling in Eastern Shipping On or about 2 October 1995, Anhui Chemicals Import
Lines and the fact that the Bill of Lading clearly & Export Corporation loaded on board M/S Offshore
disclosed the contents of the containers, the number Master a shipment consisting of 10,000 bags of
of units, as well as the nature of the steel sheets, the sodium sulphate anhydrous 99 PCT Min. (shipment),

four damaged coils should be considered as the complete and in good order for transportation to and
delivery at the port of Manila for consignee, L.G.
shipping unit subject to the US$500 limitation.
Atkimson Import-Export, Inc. (consignee), covered by
WHEREFORE, the Petition is partly granted and the a Clean Bill of Lading. The Bill of Lading reflects the
assailed Decision MODIFIED. Petitioners' liability is gross weight of the total cargo at 500,200 kilograms.
reduced to US$2,000 plus interest at the legal rate of 6 The Owner and/or Charterer of M/V Offshore
six percent from the time of the filing of the Master is unknown while the shipper of the shipment

Page 16 of 229
is Shanghai Fareast Ship Business Company. Both of P397,879.69 and the latter signed a subrogation
are foreign firms doing business in the Philippines, receipt.
thru

its

local

ship

agent,

respondent

Wallem

Philippines Shipping, Inc. (Wallem). 7

IaHSCc

Petitioner, in the exercise of its right of subrogation,


sent a demand letter to Wallem for the recovery of the

On or about 16 October 1995, the shipment arrived amount paid by petitioner to the consignee. However,
at the port of Manila on board the vessel M/S despite receipt of the letter, Wallem did not settle nor
Offshore Master from which it was subsequently even send a response to petitioner's claim. 15
discharged. It was disclosed during the discharge of
the shipment from the carrier that 2,426 poly bags
(bags) were in bad order and condition, having
sustained various degrees of spillages and losses.
This is evidenced by the Turn Over Survey of Bad
Order Cargoes (turn-over survey) of the arrastre
operator, Asian Terminals, Inc. (arrastre operator). 8
The bad state of the bags is also evinced by the
arrastre operator's Request for Bad Order Survey. 9
ESHAIC

of the subject shipment from the pier to the


consignee's warehouse in Quezon City, 10 while the
inspection

was

conducted

jointly

by

the

consignee's representative and the cargo surveyor.


During the unloading, it was found and noted that
the bags had been discharged in damaged and bad
order condition. Upon inspection, it was discovered
that 63,065.00 kilograms of the shipment had
sustained unrecovered spillages, while 58,235.00
kilograms had been exposed and contaminated,
resulting

the RTC for damages against respondents for the


recovery of P397,879.69 representing the actual
damages suffered by petitioner plus legal interest
thereon computed from the time of the filing of the
complaint

until

fully

paid

and

attorney's

fees

equivalent to 25% of the principal claim plus costs of


suit.
In a decision 16 dated 3 November 1998, the RTC

Asia Star Freight Services, Inc. undertook the delivery

final

Consequently, petitioner instituted an action before

in

losses

due

to

depreciation

and

downgrading. 11

ordered respondents to pay petitioner P397,879.69


with 6% interest plus attorney's fees and costs of the
suit. It attributed the damage and losses sustained by
the shipment to the arrastre operator's mishandling
in the discharge of the shipment. Citing Eastern
Shipping Lines, Inc. v. Court of Appeals, 17 the RTC
held the shipping company and the arrastre operator
solidarily liable since both the arrastre operator and
the carrier are charged with and obligated to deliver
the goods in good order condition to the consignee. It
also ruled that the ship functioned as a common
carrier and was obliged to observe the degree of care
required of a common carrier in handling cargoes.
Further, it held that a notice of loss or damage in

On 29 April 1996, the consignee filed a formal claim writing is not required in this case because said goods
with Wallem for the value of the damaged shipment, already underwent a joint inspection or survey at the
to no avail. Since the shipment was insured with time of receipt thereof by the consignee, which
petitioner Philippines First Insurance Co., Inc. against dispensed with the notice requirement.
all risks in the amount of P2,470,213.50, 12 the
consignee filed a formal claim 13 with petitioner for
the damage and losses sustained by the shipment.
After evaluating the invoices, the turn-over survey,
the bad order certificate and other documents, 14
petitioner found the claim to be in order and
compensable under the marine insurance policy.
Consequently, petitioner paid the consignee the sum

cSDHEC

The Court of Appeals reversed and set aside the RTC's


decision. 18 According to the appellate court, there is
no solidary liability between the carrier and the
arrastre operator because it was clearly established
by the court a quo that the damage and losses of the
shipment were attributed to the mishandling by the
arrastre operator in the discharge of the shipment.
The appellate court ruled that the instant case falls

Page 17 of 229
under an exception recognized in Eastern Shipping responsibility of Wallem and before it was turned over
Lines. 19 Hence, the arrastre operator was held solely and delivered to the arrastre operator. 2009jur
liable to the consignee. 2009jur

The trial court, however, found through the testimony

Petitioner raises the following issues:


1.

of Mr. Maximino Velasquez Talens, a cargo surveyor of

Whether or not the Court of Appeals erred in

not holding that as a common carrier, the carrier's


duties extend to the obligation to safely discharge the
cargo from the vessel;

Oceanica Cargo Marine Surveyors Corporation, that


the losses and damage to the cargo were caused by
the mishandling of the arrastre operator. Specifically,
that the torn cargo bags resulted from the use of steel
hooks/spikes in piling the cargo bags to the pallet

Whether or not the carrier should be held board and in pushing the bags by the stevedores of
liable for the cost of the damaged shipment; the arrastre operator to the tug boats then to the
ports. 25 The appellate court affirmed the finding of
IEHDAT
2.

mishandling in the discharge of cargo and it served as


Whether or not Wallem's failure to answer the its basis for exculpating respondents from liability,
extra judicial demand by petitioner for the cost of the rationalizing that with the fault of the arrastre
3.

lost/damaged shipment is an implied admission of operator in the unloading of the cargo established it
the former's liability for said goods;
should bear sole liability for the cost of the
4.

Whether or not the courts below erred in

giving credence to the testimony of Mr. Talens.

carrier.

determining

the

20

Thus,

existence

the
or

standards

absence

EIAHcC

While it is established that damage or losses were

It is beyond question that respondent's vessel is a


common

damaged/lost cargo.

of

for
the

respondent's liability will be gauged on the degree of


diligence required of a common carrier. Moreover, as

incurred by the shipment during the unloading, it is


disputed who should be liable for the damage
incurred at that point of transport. To address this
issue, the pertinent laws and jurisprudence are
examined.

the shipment was an exercise of international trade, Common carriers, from the nature of their business
the provisions of the Carriage of Goods by Sea Act 21 and for reasons of public policy, are bound to observe
(COGSA), together with the Civil Code and the Code of extraordinary diligence in the vigilance over the goods
Commerce, shall apply. 22
The first and second issues raised in the petition will
be resolved concurrently since they are interrelated.
TCEaDI

transported by them. 26 Subject to certain exceptions


enumerated under Article 1734 27 of the Civil Code,
common

carriers

are

responsible

destruction, or deterioration

for

of the

the

loss,

goods. The

extraordinary responsibility of the common carrier

It is undisputed that the shipment was damaged prior lasts from the time the goods are unconditionally
to its receipt by the insured consignee. The damage to placed in the possession of, and received by the
the shipment was documented by the turn-over carrier for transportation until the same are
survey 23 and Request for Bad Order Survey. 24 The delivered, actually or constructively, by the carrier to
turn-over survey, in particular, expressly stipulates the consignee, or to the person who has a right to
that 2,426 bags of the shipment were received by the receive them. 28 HCaDET
arrastre operator in damaged condition. With these
documents, petitioner insists that the shipment
incurred damage or losses while still in the care and

For marine vessels, Article 619 of the Code of


Commerce provides that the ship captain is liable for
the cargo from the time it is turned over to him at the
dock or afloat alongside the vessel at the port of

Page 18 of 229
loading, until he delivers it on the shore or on the In Fireman's Fund Insurance Co. v. Metro Port
discharging wharf at the port of unloading, unless Service, Inc. 35 the Court explained the relationship
agreed otherwise. In Standard Oil Co. of New York v. and responsibility of an arrastre operator to a
Lopez Castelo, 29 the Court interpreted the ship consignee of a cargo, to quote:
captain's liability as ultimately that of the shipowner
by regarding the captain as the representative of the
ship owner.

The legal relationship between the consignee and the


arrastre operator is akin to that of a depositor and
warehouseman.

The

relationship

between

the

Lastly, Section 2 of the COGSA provides that under consignee and the common carrier is similar to that
every contract of carriage of goods by sea, the carrier of the consignee and the arrastre operator. Since it is
in relation to the loading, handling, stowage, carriage, the duty of the ARRASTRE to take good care of the
custody, care, and discharge of such goods, shall be goods that are in its custody and to deliver them in
subject to the responsibilities and liabilities and good condition to the consignee, such responsibility
entitled to the rights and immunities set forth in the also

devolves

upon

the

CARRIER.

Both

the

Act. 30 Section 3 (2) thereof then states that among ARRASTRE and the CARRIER are therefore charged
the carriers' responsibilities are to properly and with and obligated to deliver the goods in good
carefully load, handle, stow, carry, keep, care for, and condition to the consignee. (Emphasis supplied)
discharge the goods carried.

AaIDCS

(Citations omitted)

HIEASa

The above doctrines are in fact expressly incorporated The liability of the arrastre operator was reiterated in
in the bill of lading between the shipper Shanghai Eastern Shipping Lines, Inc. v. Court of Appeals 36
Fareast Business Co., and the consignee, to wit:
4.

PERIOD

OF

RESPONSIBILITY.

with the clarification that the arrastre operator and


The

responsibility of the carrier shall commence from the

the carrier are not always and necessarily solidarily


liable as the facts of a case may vary the rule.

time when the goods are loaded on board the vessel Thus, in this case the appellate court is correct
and shall cease when they are discharged from the insofar as it ruled that an arrastre operator and a
vessel.

carrier may not be held solidarily liable at all times.

The Carrier shall not be liable of loss of or damage to


the goods before loading and after discharging from
the vessel, howsoever such loss or damage arises. 31
On the other hand, the functions of an arrastre
operator involve the handling of cargo deposited on
the wharf or between the establishment of the
consignee or shipper and the ship's tackle. 32 Being
the custodian of the goods discharged from a vessel,
an arrastre operator's duty is to take good care of the
goods and to turn them over to the party entitled to
their possession. 33 TDCcAE

principal work so its drivers/operators or employees


observe

the

standards

and

measures

necessary to prevent losses and damage to shipments


under its custody. 34

of the shipment during its unloading from the vessel?


The aforementioned Section 3 (2) of the COGSA states
that among the carriers' responsibilities are to
properly and carefully load, care for and discharge the
goods carried. The bill of lading covering the subject
shipment likewise stipulates that the carrier's liability
for loss or damage to the goods ceases after its
discharge from the vessel. Article 619 of the Code of
Commerce holds a ship captain liable for the cargo
from the time it is turned over to him until its delivery
at the port of unloading.

Handling cargo is mainly the arrastre operator's


should

But the precise question is which entity had custody

EHSAaD

In a case decided by a U.S. Circuit Court, Nichimen


Company v. M./V. Farland, 37 it was ruled that like
the duty of seaworthiness, the duty of care of the
cargo

is

non-delegable,

38

and

the

carrier

is

Page 19 of 229
accordingly responsible for the acts of the master, the A

And

head

checker

po

and

siyang

crew, the stevedore, and his other agents. It has also nagpapatakbo ng trabaho sa loob ng barko, sir. 42
been held that it is ordinarily the duty of the master
of a vessel to unload the cargo and place it in

xxx

xxx

xxx

readiness for delivery to the consignee, and there is Q


Is he [the head checker] an employee of the
an implied obligation that this shall be accomplished company?
with sound machinery, competent hands, and in such

He is a
manner that no unnecessary injury shall be done A
Philippines,
sir. 43
thereto. 39 And the fact that a consignee is required
to furnish persons to assist in unloading a shipment
may not relieve the carrier of its duty as to such
unloading. 40
The

exercise

of

the

carrier's

custody

and

responsibility over the subject shipment during the


unloading actually transpired in the instant case
during the unloading of the shipment as testified by
Mr. Talens, the cargo surveyor, to quote:
Atty. Repol:

IcDCaT

contractor/checker

of

Wallem

Moreover, the liability of Wallem is highlighted by Mr.


Talen's notes in the Bad Order Inspection, to wit:
"The bad order torn bags, was due to stevedores[']
utilizing steel hooks/spikes in piling the cargo to [the]
pallet board at the vessel's cargo holds and at the pier
designated area before and after discharged that
cause the bags to torn [sic]." 44 (Emphasis supplied)
IcEACH
The records are replete with evidence which show that

Do you agree with me that Wallem Philippines the damage to the bags happened before and after
their discharge 45 and it was caused by the
is a shipping [company]?
stevedores of the arrastre operator who were then
A
Yes, sir.
under the supervision of Wallem.
Q

And, who hired the services of the stevedores?

The checker of the vessel of Wallem, sir. 41

xxx
Q

xxx

xxx

Mr. Witness, during the discharging operation

of this cargo, where was the master of the vessel?

It is settled in maritime law jurisprudence that


cargoes while being unloaded generally remain under
the custody of the carrier. In the instant case, the
damage or losses were incurred during the discharge
of the shipment while under the supervision of the
carrier. Consequently, the carrier is liable for the
damage or losses caused to the shipment. As the cost

On board the vessel, supervising, sir.

of the actual damage to the subject shipment has

And, observed the discharging operation?

damages in the amount of P397,879.69 has to be

Yes, sir.

And, what did the master of the vessel do

when the cargo was being unloaded from the vessel?


cTCADI
A

He would report to the head checker, sir.

long been settled, the trial court's finding of actual


sustained. 2009jur
On the credibility of Mr. Talens which is the fourth
issue, the general rule in assessing credibility of
witnesses is well-settled:
. . . the trial court's evaluation as to the credibility of
witnesses is viewed as correct and entitled to the

He did not send the stevedores to what highest respect because it is more competent to so
manner in the discharging of the cargo from the conclude, having had the opportunity to observe the
Q

vessel?

witnesses' demeanor and deportment on the stand,

Page 20 of 229
and the manner in which they gave their testimonies. Austria-Martinez, * Corona, ** Velasco, Jr. and Brion,
The trial judge therefore can better determine if such JJ., concur.
witnesses were telling the truth, being in the ideal

position to weigh conflicting testimonies. Therefore, 4.


unless the trial judge plainly overlooked certain facts
of substance and value which, if considered, might

FIRST DIVISION

affect the result of the case, his assessment on G.R. No. 182864, January 12, 2015
credibility must be respected. 46 aASEcH
EASTERN SHIPPING LINES, INC., Petitioner, v.
Contrary to petitioner's stance on the third issue,
BPI/MS INSURANCE CORP., & MITSUI SUMITOMO
Wallem's failure to respond to its demand letter does
INSURANCE CO., LTD., Respondents.
not constitute an implied admission of liability. To
borrow the words of Mr. Justice Oliver Wendell D E C I S I O N
Holmes, thus:
PEREZ, J.:
A man cannot make evidence for himself by writing a
letter containing the statements that he wishes to Before this Court is a Petition for Review on
prove. He does not make the letter evidence by Certiorari1 of the Decision2 of the Second Division of
sending it to the party against whom he wishes to the Court of Appeals in CA-G.R. CV No. 88744 dated
prove the facts [stated therein]. He no more can 31 January 2008, modifying the Decision of the
impose a duty to answer a charge than he can impose Regional Trial Court (RTC) by upholding the liability
a duty to pay by sending goods. Therefore a failure to of Eastern Shipping Lines, Inc. (ESLI) but absolving
answer such adverse assertions in the absence of Asian Terminals, Inc. (ATI) from liability and deleting
further circumstances making an answer requisite or the award of attorneys fees.
natural has no effect as an admission. 47
With respect to the attorney's fees, it is evident that
petitioner was compelled to litigate this matter to
protect its interest. The RTC's award of P20,000.00 as
attorney's fees is reasonable.

ADcEST

The facts gathered from the records follow:


On

29

December

Corporation
Insurance

(BPI/MS)
Company

2004,
and
Limited

BPI/MS

Insurance

Mitsui

Sumitomo

(Mitsui)

filed

Complaint3 before the RTC of Makati City against

WHEREFORE, the petition is GRANTED. The Decision ESLI and ATI to recover actual damages amounting to
of the Court of Appeals dated 22 June 2004 and its US$17,560.48 with legal interest, attorneys fees and
Resolution dated 11 October 2004 are REVERSED costs of suit.
and SET ASIDE. Wallem is ordered to pay petitioner
the sum of P397,879.69, with interest thereon at 6%
per annum from the filing of the complaint on 7
October 1996 until the judgment becomes final and
executory. Thereafter, an interest rate of 12% per
annum shall be imposed. 48 Respondents are also
ordered to pay petitioner the amount of P20,000.00
for and as attorney's fees, together with the costs of
the suit.
SO ORDERED.

In their complaint, BPI/MS and Mitsui alleged that on


2 February 2004 at Yokohama, Japan, Sumitomo
Corporation shipped on board ESLIs vessel M/V
Eastern Venus 22 22 coils of various Steel Sheet
weighing 159,534 kilograms in good order and
condition for transportation to and delivery at the
port of Manila, Philippines in favor of consignee
Calamba Steel Center, Inc. (Calamba Steel) located in
Saimsim, Calamba, Laguna as evidenced by a Bill of
Lading with Nos. ESLIYMA001. The declared value of
the shipment was US$83,857.59 as shown by an

Page 21 of 229
Invoice

with

Nos.

KJGE-03-1228-NT/KE3.

The arrastre operator in charge of the handling and

shipment was insured with the respondents BPI/MS discharge of the coils and filed a claim against them.
and Mitsui against all risks under Marine Policy No. When ESLI and ATI refused to pay, Calamba Steel
103-GG03448834.

filed an insurance claim for the total amount of the

On 11 February 2004, the complaint alleged that the


shipment arrived at the port of Manila in an unknown
condition and was turned over to ATI for safekeeping.
Upon withdrawal of the shipment by the Calamba

cargo against BPI/MS and Mitsui as cargo insurers.


As a result, BPI/MS and Mitsui became subrogated in
place of and with all the rights and defenses accorded
by law in favor of Calamba Steel.

Steels representative, it was found out that part of Opposing the complaint, ATI, in its Answer, denied
the shipment was damaged and was in bad order the allegations and insisted that the coils in two
condition such that there was a Request for Bad shipments were already damaged upon receipt from
Order Survey. It was found out that the damage ESLIs vessels. It likewise insisted that it exercised
amounted to US$4,598.85 prompting Calamba Steel due diligence in the handling of the shipments and
to reject the damaged shipment for being unfit for the invoked that in case of adverse decision, its liability
intended purpose.

should not exceed P5,000.00 pursuant to Section

On 12 May 2004 at Kashima, Japan, Sumitomo


Corporation again shipped on board ESLIs vessel
M/V Eastern Venus 25 50 coils in various Steel

7.01, Article VII4 of the Contract for Cargo Handling


Services between Philippine Ports Authority (PPA) and
ATI.5 A cross-claim was also filed against ESLI.

Sheet weighing 383,532 kilograms in good order and On its part, ESLI denied the allegations of the
condition for transportation to and delivery at the complainants and averred that the damage to both
port of Manila, Philippines in favor of the same shipments was incurred while the same were in the
consignee Calamba Steel as evidenced by a Bill of possession

and

custody

of

ATI

and/or

of

the

Lading with Nos. ESLIKSMA002. The declared value consignee or its representatives. It also filed a crossof the shipment was US$221,455.58 as evidenced by claim against ATI for indemnification in case of
Invoice Nos. KJGE-04-1327-NT/KE2. The shipment liability.6chanRoblesvirtualLawlibrary
was insured with the respondents BPI/MS and Mitsui
against all risks under Marine Policy No. 104GG04457785.

To expedite settlement, the case was referred to


mediation but it was returned to the trial court for
further proceedings due to the parties failure to

On 21 May 2004, ESLIs vessel with the second resolve the legal issues as noted in the Mediators
shipment arrived at the port of Manila partly Report

dated

28

June

damaged and in bad order. The coils sustained 2005.7chanRoblesvirtualLawlibrary


further damage during the discharge from vessel to
shore

until

its

turnover

to

ATIs

custody

for

safekeeping.
Upon withdrawal from ATI and delivery to Calamba
Steel, it was found out that the damage amounted to
US$12,961.63. As it did before, Calamba Steel

On 10 January 2006, the court issued a Pre-Trial


Order wherein the following stipulations were agreed
upon by the parties:chanroblesvirtuallawlibrary
Parties admitted the capacity of the parties to sue
and be sued;

rejected the damaged shipment for being unfit for the Parties likewise admitted the existence and due
intended purpose.
execution of the Bill of Lading covering various steel
Calamba Steel attributed the damages on both
shipments to ESLI as the carrier and ATI as the

sheets in coil attached to the Complaint as Annex A;

Page 22 of 229
Parties admitted the existence of the Invoice issued by shipped steel coils, and who thereafter filed formal
Sumitomo Corporation, a true and faithful copy of notices and claims against ESLI and ATI; and (3)
which was attached to the Complaint as Annex B;
Parties likewise admitted the existence of the Marine
Cargo

Policy

issued

by

the

Mitsui

Sumitomo

Insurance Company, Limited, copy of which was


attached to the Complaint as Annex C;

Virgilio

G.

Tiangco,

Jr.,13

the

Marine

Claims

Supervisor of BPI/MS who processed the insurance


claims of Calamba Steel. Along with the Affidavits
were

the

Bills

of

Lading14

covering

the

two

shipments, Invoices,15 Notices of Loss of Calamba


Steel,16 Subrogation Form,17 Insurance Claims,18

[ATI] admitted the existence and due execution of the Survey Reports,19 Turn Over Survey of Bad Order
and
Request
for
Bad
Order
Request for Bad Order Survey dated February 13, Cargoes20
2004, attached to the Complaint as Annex D;

Survey.21chanRoblesvirtualLawlibrary

Insofar as the second cause of action, [ESLI] admitted ESLI, in turn, submitted the Affidavits of Captain
the existence and due execution of the document [Bill Hermelo M. Eduarte,22 Manager of the Operations

of Lading Nos. ESLIKSMA002, Invoice with Nos. Department of ESLI, who monitored in coordination
KJGE-04-1327-NT/KE2 and Marine Cargo Policy with ATI the discharge of the two shipments, and
against all risks on the second shipment] attached to Rodrigo Victoria (Rodrigo),23 the Cargo Surveyor of R
& R Industrial and Marine Services, Inc., who
the Complaint as Annexes E, F and G;

personally surveyed the subject cargoes on board the


[ATI] admitted the existence of the Bill of Lading vessel as well as the manner the ATI employees
together with the Invoices and Marine Cargo Policy. discharged the coils. The documents presented were
[It] likewise admitted by [ATI] are the Turn Over the Bills of Lading, Secretarys Certificate24 of PPA,
Survey of Bad Order Cargoes attached to the granting ATI the duty and privilege to provide arrastre
Complaint as Annexes H, H-1 and J.8
The parties agreed that the procedural issue was
whether there was a valid subrogation in favor of
BPI/MS and Mitsui; and that the substantive issues
were, whether the shipments suffered damages, the

and stevedoring services at South Harbor, Port of


Manila, Contract for Cargo Handling Services,25
Damage Report26 and Turn Over Report made by
Rodrigo.27 ESLI also adopted the Survey Reports
submitted by BPI/MS and Mitsui.

cause of damage, and the entity liable for reparation Lastly, ATI submitted the Affidavits of its Bad Order
of the damages caused.9chanRoblesvirtualLawlibrary Inspector Ramon Garcia (Garcia)29 and Claims
Due to the limited factual matters of the case, the
parties were required to present their evidence
through affidavits and documents. Upon submission
of these evidence, the case was submitted for
resolution.10chanRoblesvirtualLawlibrary

Officer Ramiro De Vera.30 The documents attached to


the submissions were the Turn Over Surveys of Bad
Cargo Order,31 Requests for Bad Order Survey,32
Cargo

Gatepasses

issued

by

ATI,33

Notices

of

Loss/Claims of Calamba Steel34 and Contract for


Cargo

Handling

BPI/MS and Mitsui, to substantiate their claims, Services.35chanRoblesvirtualLawlibrary


submitted the Affidavits of (1) Mario A. Manuel
(Manuel),11 the Cargo Surveyor of Philippine Japan
Marine Surveyors and Sworn Measurers Corporation
who personally examined and conducted the surveys
on the two shipments; (2) Richatto P. Almeda,12 the

On 17 September 2006, RTC Makati City rendered a


decision finding both the ESLI and ATI liable for the
damages sustained by the two shipments. The
dispositive portion reads:chanroblesvirtuallawlibrary

General Manager of Calamba Steel who oversaw and WHEREFORE, judgment is hereby rendered in favor
examined the condition, quantity, and quality of the of [BPI/MS and Mitsui] and against [ESLI Inc.] and

Page 23 of 229
[ATI], jointly and severally ordering the latter to pay dated September 17, 2006 of Branch 138, RTC of
[BPI/MS and Mitsui] the following:

Makati City in Civil Case No. 05-108 is hereby

Actual damages amounting to US$17,560.48 plus 6%


legal interest per annum commencing from the filing
of this complaint, until the same is fully paid;
Attorneys fees in a sum equivalent to 20% of the
amount claimed;

MODIFIED absolving ATI from liability and deleting


the award of attorneys fees. The rest of the decision is
affirmed.41
Before this Court, ESLI seeks the reversal of the
ruling on its liability.
At the outset, and notably, ESLI included among its

Costs of suit.36

arguments the attribution of liability to ATI but it

Aggrieved, ESLI and ATI filed their respective appeals failed to implead the latter as a party to the present
before the Court of Appeals on both questions of fact petition. This non-inclusion was raised by BPI/MS
and

and law.37chanRoblesvirtualLawlibrary

Mitsui

as

an

issue42

Comment/Opposition43

in

its

and

Before the appellate court, ESLI argued that the trial Memorandum:44chanRoblesvirtualLawlibrary
court erred when it found BPI/MS has the capacity to
sue and when it assumed jurisdiction over the case. It For reasons known only to [ESLI], it did not implead

also questioned the ruling on its liability since the ATI as a party respondent in this case when it could
Survey Reports indicated that the cause of loss and have easily done so. Considering the nature of the
damage was due to the rough handling of ATIs arguments raised by petitioner pointing to ATI as
stevedores during discharge from vessel to shore and solely responsible for the damages sustained by the

during loading operation onto the trucks. It invoked subject shipments, it is respectfully submitted that
the limitation of liability of US$500.00 per package as ATI is an indispensable party in this case. Without
provided in Commonwealth Act No. 65 or the Carriage ATI being impleaded, the issue of whether ATI is
of
Goods
by
Sea
Act solely responsible for the damages could not be

determined with finality by this Honorable Court. ATI

(COGSA).38chanRoblesvirtualLawlibrary

certainly deserves to be heard on the issue but it


On the other hand, ATI questioned the capacity to sue could not defend itself because it was not impleaded
of BPI/MS and Mitsui and the award of attorneys fees before this Court. Perhaps, this is the reason why
despite its lack of justification in the body of the [ESLI] left out ATI in this case so that it could not
decision. ATI also imputed error on the part of the rebut while petitioner puts it at fault.45
trial court when it ruled that ATIs employees were

negligent in the ruling of the shipments. It also ESLI in its Reply46 put the blame for the nonof
ATI
to
BPI/MS
and
insisted on the applicability of the provision of exclusion
COGSA

on

limitation

of Mitsui:chanroblesvirtuallawlibrary

liability.39chanRoblesvirtualLawlibrary

[BPI/MS and Mitsui] claim that herein [ESLI] did not

In its Decision,40 the Court of Appeals absolved ATI implead [ATI] as a party respondent in the Petition for
from liability thereby modifying the decision of the Review on Certiorari it had filed. Herein Petitioner
trial

court.

The

dispositive

reads:chanroblesvirtuallawlibrary

portions submits that it is not the obligation of [ESLI] to


implead ATI as the same is already the look out of
[BPI/MS and Mitsui]. If [BPI/MS and Mitsui] believe
that ATI should be made liable, they should have filed

WHEREFORE, the appeal of ESLI is DENIED, while


that of ATI is GRANTED. The assailed Judgment

a Motion for Reconsideration with the Honorable


Court of Appeals. The fact that [BPI/MS and Mitsui]

Page 24 of 229
did not even lift a finger to question the decision of x x x x
the Honorable Court of Appeals goes to show that
[BPI/MS and Mitsui] are not interested as to whether
or not ATI is indeed liable.47

11. The vessel M.V. EASTERN VENUS V 25-S

It is clear from the exchange that both [ESLI] and


[BPI/MS and Mitsui] are aware of the non-inclusion of
ATI, the arrastre operator, as a party to this review of
the Decision of the Court of Appeals. By blaming each
other for the exclusion of ATI, [ESLI] and [BPI/MS and
Mitsui] impliedly agree that the absolution of ATI from
liability is final and beyond review. Clearly, [ESLI] is
the consequential loser. It alone must bear the proven
liability for the loss of the shipment. It cannot shift
the blame to ATI, the arrastre operator, which has
been cleared by the Court of Appeals. Neither can it
argue that the consignee should bear the loss.
Thus confined, we go to the merits of the arguments
of ESLI.

carrying the said shipment of 50 coils of various steel


sheets arrived at the port of Manila and discharged
the said shipment on or about 21 May 2004 to the
arrastre operator [ATI]. I personally noticed that the
50

coils

were

roughly

handled

during

their

discharging from the vessel to the pier of [ATI] and


even during the loading operations of these coils from
the pier to the trucks that will transport the coils to
the consigneess warehouse. During the aforesaid
operations, the employees and forklift operators of
[ESLI] and [ATI] were very negligent in the handling of
the subject cargoes.49 (Emphasis supplied).
ESLI cannot rely only on parts it chooses. The entire
body of evidence should determine the liability of the
parties. From the statements of Manuel, [ESLI] was

First Issue: Liability of ESLI

negligent, whether solely or together with ATI.

ESLI bases of its non-liability on the survey reports To further press its cause, ESLI cites the affidavit of
prepared by BPI/MS and Mitsuis witness Manuel its witness Rodrigo who stated that the cause of the
which found that the cause of damage was the rough damage

was

the

rough

mishandling

by

ATIs

handling on the shipment by the stevedores of ATI stevedores.


during

the

discharging

operations.48

However,

Manuel does not absolve ESLI of liability. The witness


in fact includes ESLI in the findings of negligence.
Paragraphs 3 and 11 of the affidavit of witness
Manuel attribute fault to both ESLI and ATI.

The affidavit of Rodrigo states that his functions as a


cargo surveyor are, (1) getting hold of a copy of the bill
of lading and cargo manifest; (2) inspection and
monitoring of the cargo on-board, during discharging
and after unloading from the vessel; and (3) making a

3. The vessel M.V. EASTERN VENUS V 22-S necessary report of his findings. Thus, upon arrival at
carrying the said shipment of 22 coils of various steel the South Harbor of Manila of the two vessels of ESLI
sheets arrived at the port of Manila and discharged on 11 February 2004 and on 21 May 2004, Rodrigo
the said shipment on or about 11 February 2004 to immediately boarded the vessels to inspect and
the arrastre operator [ATI]. I personally noticed that monitor the unloading of the cargoes. In both
the 22 coils were roughly handled during their instances,

it

was

his

finding

that

there

was

discharging from the vessel to the pier of [ATI] and mishandling on the part of ATIs stevedores which he
even during the loading operations of these coils from reported

as

the

cause

of

the

the pier to the trucks that will transport the coils to damage.50chanRoblesvirtualLawlibrary
the consigneess warehouse. During the aforesaid
operations, the employees and forklift operators of
[ESLI] and [ATI] were very negligent in the handling of
the subject cargoes.

Easily seen, however, is the absence of a crucial point


in determining liability of either or both ESLI and ATI
lack of determination whether the cargo was in a
good order condition as described in the bills of

Page 25 of 229
lading at the time of his boarding. As Rodrigo admits, together with ATIs representative Garcia. According
it was also his duty to inspect and monitor the cargo to Turn Over Survey of Bad Order Cargoes No. 67982,
on-board upon arrival of the vessel. ESLI cannot four coils and one skid were partly dented and
invoke its non-liability solely on the manner the cargo crumpled

prior

to

turnover

by

ESLI

to

ATIs

was discharged and unloaded. The actual condition of possession while a total of eleven coils were partly
the cargoes upon arrival prior to discharge is equally dented and crumpled prior to turnover based on Turn
important and cannot be disregarded. Proof is needed Over Survey Bad Order Cargoes Nos. 68363 and
that the cargo arrived at the port of Manila in good 68365.
order condition and remained as such prior to its
handling by ATI.

Calamba Steel requested for a re-examination of the


damages sustained by the two shipments. Based on

Common carriers, from the nature of their business the Requests for Bad Order Survey Nos. 5826757 and
and on public policy considerations, are bound to 5825458 covering the first shipment dated 13 and 17
observe extraordinary diligence in the vigilance over February 2004, four coils were damaged prior to
the goods transported by them. Subject to certain turnover. The second Request for Bad Order Survey
exceptions enumerated under Article 173451 of the No. 5865859 dated 25 May 2004 also affirmed the
Civil Code, common carriers are responsible for the earlier findings that eleven coils on the second
loss, destruction, or deterioration of the goods. The shipment were damaged prior to turnover.
extraordinary responsibility of the common carrier
lasts from the time the goods are unconditionally
placed in the possession of, and received by the
carrier

for

transportation

until

the

same

are

delivered, actually or constructively, by the carrier to


the consignee, or to the person who has a right to
receive them.52chanRoblesvirtualLawlibrary

In Asian Terminals, Inc., v. Philam Insurance Co.,


Inc.,60 the Court based its ruling on liability on the
Bad Order Cargo and Turn Over of Bad Order. The
Receipt bore a notation B.O. not yet t/over to ATI,
while the Survey stated that the said steel case was
not opened at the time of survey and was accepted by
the

arrastre

in

good

order.

Based

on

these

In maritime transportation, a bill of lading is issued documents, packages in the Asian Terminals, Inc.
by a common carrier as a contract, receipt and case were found damaged while in the custody of the
symbol of the goods covered by it. If it has no notation carrier Westwind Shipping Corporation.
of any defect or damage in the goods, it is considered
as a clean bill of lading. A clean bill of lading
constitutes prima facie evidence of the receipt by the
carrier

of

the

goods

as

therein

described.53chanRoblesvirtualLawlibrary

Mere proof of delivery of the goods in good order to a


common carrier and of their arrival in bad order at
their destination constitutes a prima facie case of
fault or negligence against the carrier. If no adequate
explanation is given as to how the deterioration, loss,

Based on the bills of lading issued, it is undisputed or destruction of the goods happened, the transporter
that ESLI received the two shipments of coils from shall be held responsible.61 From the foregoing, the
shipper Sumitomo Corporation in good condition at fault is attributable to ESLI. While no longer an issue,
the ports of Yokohama and Kashima, Japan. However, it may be nonetheless state that ATI was correctly
upon arrival at the port of Manila, some coils from absolved of liability for the damage.
the two shipments were partly dented and crumpled
as evidenced by the Turn Over Survey of Bad Order

Second Issue: Limitation of Liability

Cargoes No. 67982 dated 13 February 200454 and ESLI assigns as error the appellate courts finding
Turn Over Survey of Bad Order Cargoes Nos. 6836355 and reasoning that the package limitation under the
and 6836556 both dated 24 May 2004 signed by COGSA62 is inapplicable even if the bills of lading
ESLIs representatives, a certain Tabanao and Rodrigo

Page 26 of 229
covering the shipments only made reference to the In line with these maritime law provisions, paragraph
corresponding
specified

invoices.

among

others

Noticeably,
the

the

weight,

invoices 13 of bills of lading issued by ESLI to the shipper


quantity, specifically

provides

similar

description and value of the cargoes, and bore the restriction:chanroblesvirtuallawlibrary


notation Freight Prepaid and As Arranged.63 ESLI
argues that the value of the cargoes was not
incorporated in the bills of lading64 and that there
was no evidence that the shipper had presented to
the carrier in writing prior to the loading of the actual
value of the cargo, and, that there was a no payment
of corresponding freight.65 Finally, despite the fact
that ESLI admits the existence of the invoices, it
denies any knowledge either of the value declared or
of

any

information

contained

therein.66chanRoblesvirtualLawlibrary

The value of the goods, in calculating and adjusting


any claims for which the Carrier may be liable shall,
to avoid uncertainties and difficulties in fixing value,
be deemed to the invoice value of the goods plus
ocean freight and insurance, if paid, Irrespective of
whether any other value is greater or less, and any
partial loss or damage shall be adjusted pro rata on
the basis of such value; provided, however, that
neither the Carrier nor the ship shall in any event be
or become liable for any loss, non-delivery or
misdelivery of or damage or delay to, or in connection

According to the New Civil Code, the law of the with the custody or transportation of the goods in an
country to which the goods are to be transported amount exceeding $500.00 per package lawful money
shall govern the liability of the common carrier for of the United States, or in case of goods not shipped
their loss, destruction or deterioration.67 The Code in packages, per customary freight unit, unless the
takes precedence as the primary law over the rights nature of the goods and a valuation higher than
and obligations of common carriers with the Code of $500.00 is declared in writing by the shipper on
Commerce

and

COGSA

applying delivery to the Carrier and inserted in the bill of

suppletorily.68chanRoblesvirtualLawlibrary

lading and extra freight is paid therein as required by


applicable tariffs to obtain the benefit of such higher
valuation. In which case even if the actual value of

The New Civil Code provides that a stipulation the goods per package or unit exceeds such declared
limiting a common carriers liability to the value of value, the value shall nevertheless be deemed to be

the goods appearing in the bill of lading is binding, the declared value and any Carriers liability shall not
unless the shipper or owner declares a greater exceed such declared value and any partial loss or

value.69 In addition, a contract fixing the sum that damage shall be adjusted pro-rata on the basis
may be recovered by the owner or shipper for the loss, thereof. The Carrier shall not be liable for any loss or
destruction, or deterioration of the goods is valid, if it profit or any consequential or special damage and
is reasonable and just under the circumstances, and shall have the option of replacing any lost goods and
has been fairly and freely agreed upon.

replacing o reconditioning any damage goods. No oral


declaration or agreement shall be evidence of a value

COGSA, on the other hand, provides under Section 4, different


from
that
Subsection 5 that an amount recoverable in case of therein.71chanRoblesvirtualLawlibrary

provided

loss or damage shall not exceed US$500.00 per

package or per customary freight unless the nature x x x x


and value of such goods have been declared by the
shipper before shipment and inserted in the bill of
lading.

Accordingly, the issue whether or not ESLI has limited


liability as a carrier is determined by either absence
or presence of proof that the nature and value of the
goods have been declared by Sumitomo Corporation
and inserted in the bills of lading.

Page 27 of 229
invoice, by way of reference, to the bill of lading
ESLI contends that the invoices specifying the weight,
quantity, description and value of the cargo in
reference to the bills of lading do not prove the fact

provided that the former containing the description of


the nature, value and/or payment of freight charges
is as in this case duly admitted as evidence.

that the shipper complied with the requirements In Unsworth Transport International (Phils.), Inc. v.
mandated by the COGSA. It contends that there must Court of Appeals,75 the Court held that the insertion
be an insertion of this declaration in the bill of lading of an invoice number does not in itself sufficiently
itself to fall outside the statutory limitation of liability.
ESLI asserts that the appellate court erred when it
ruled that there was compliance with the declaration
requirement even if the value of the shipment and fact
of payment were indicated on the invoice and not on
the bill of lading itself.

and convincingly show that petitioner had knowledge


of the value of the cargo. However, the same
interpretation does not squarely apply if the carrier
had been advised of the value of the goods as
evidenced

by

the

invoice

and

payment

of

corresponding freight charges. It would be unfair for


ESLI to invoke the limitation under COGSA when the

There is no question about the declaration of the shipper in fact paid the freight charges based on the
nature, weight and description of the goods on the value of the goods. In Adams Express Company v.
Croninger,76 it was said: Neither is it conformable to

first bill of lading.

plain principles of justice that a shipper may


The bills of lading represent the formal expression of understate the value of his property for the purpose
the parties rights, duties and obligations. It is the of reducing the rate, and then recover a larger value
best evidence of the intention of the parties which is in case of loss. Nor does a limitation based upon an
to be deciphered from the language used in the agreed value for the purpose of adjusting the rate
contract, not from the unilateral post facto assertions conflict with any sound principle of public policy.
of one of the parties, or of third parties who are Conversely, but for the same reason, it is unjust for
strangers to the contract.72 Thus, when the terms of ESLI to invoke the limitation when it is informed that
an agreement have been reduced to writing, it is the shipper paid the freight charges corresponding to
deemed to contain all the terms agreed upon and the value of the goods
there can be, between the parties and their
successors in interest, no evidence of such terms Also, ESLI admitted the existence and due execution
other

than

the

contents

of

written of the Bills of Lading and the Invoice containing the


nature and value of the goods on the second

the

agreement.73chanRoblesvirtualLawlibrary

shipment. As written in the Pre-Trial Order,77 the

As to the non-declaration of the value of the goods on parties, including ESLI, admitted the existence and
the second bill of lading, we see no error on the part due execution of the two Bills of Lading78 together
of the appellate court when it ruled that there was a with the Invoice on the second shipment with Nos.
compliance of the requirement provided by COGSA. KJGE-04-1327-NT/KE279 dated 12 May 2004. On
The declaration requirement does not require that all the first shipment, ESLI admitted the existence of the
the details must be written down on the very bill of Invoice with Nos. KJGE-031228-NT/KE380 dated 2
lading itself. It must be emphasized that all the February 2004.
needed details are in the invoice, which contains the
itemized list of goods shipped to a buyer, stating The effect of admission of the genuineness and due
quantities,
details

prices,

shipping charges,

other execution of a document means that the party whose


sheets.74 signature it bears admits that he voluntarily signed

and

which may contain numerous


Compliance can be attained by incorporating the the document or it was signed by another for him and
with his authority.81chanRoblesvirtualLawlibrary

Page 28 of 229
A review of the bill of ladings and invoice on the Moreover, in Alfelor v. Halasan,85 this Court declared
second shipment indicates that the shipper declared that:chanroblesvirtuallawlibrary
the

nature

and

value

of

the

goods

with

the

corresponding payment of the freight on the bills of


lading. Further, under the caption description of
packages and goods, it states that the description of
the goods to be transported as various steel sheet in
coil with a gross weight of 383,532 kilograms
(89.510 M3). On the other hand, the amount of the
goods is referred in the invoice, the due execution and
genuineness of which has already been admitted by
ESLI, is US$186,906.35 as freight on board with
payment of ocean freight of US$32,736.06 and
insurance

premium

of

US$1,813.17.

From

the

foregoing, we rule that the non- limitation of liability


applies in the present case.

A party who judicially admits a fact cannot later


challenge that fact as judicial admissions are a waiver
of proof; production of evidence is dispensed with. A
judicial admission also removes an admitted fact from
the field of controversy. Consequently, an admission
made in the pleadings cannot be controverted by the
party making such admission and are conclusive as
to such party, and all proofs to the contrary or
inconsistent therewith should be ignored, whether
objection is interposed by the party or not. The
allegations, statements or admissions contained in a
pleading are conclusive as against the pleader. A
party cannot subsequently take a position contrary of
or inconsistent with what was pleaded.86 (Citations

We likewise accord the same binding effect on the omitted)


contents of the invoice on the first shipment.

The admission having been made in a stipulation of

ESLI contends that what was admitted and written on facts at pre-trial by the parties, it must be treated as
the pre-trial order was only the existence of the first a judicial admission. Under Section 4, of Rule 129 of
shipment invoice but not its contents and due the Rules of Court, a judicial admission requires no
execution. It invokes admission of existence but proof.87chanRoblesvirtualLawlibrary
renounces any knowledge of the contents written on
it.82chanRoblesvirtualLawlibrary

It is inconceivable that a shipping company with


maritime experience and resource like the ESLI will

Judicial admissions are legally binding on the party admit the existence of a maritime document like an
making the admissions. Pre-trial admission in civil invoice even if it has no knowledge of its contents or
cases is one of the instances of judicial admissions without having any copy thereof.
explicitly provided for under Section 7, Rule 18 of the
Rules of Court, which mandates that the contents of
the pre-trial order shall control the subsequent
course of the action, thereby, defining and limiting
the issues to be tried. In Bayas v. Sandiganbayan,83
this

Court

emphasized

that:chanroblesvirtuallawlibrary

ESLI also asserts that the notation Freight Prepaid


and As Arranged, does not prove that there was an
actual declaration made in writing of the payment of
freight as required by COGSA. ESLI did not as it
could not deny payment of freight in the amount
indicated in the documents. Indeed, the earlier
discussions on ESLIs admission of the existence and

Once the stipulations are reduced into writing and due execution of the invoices, cover and disprove the
signed by the parties and their counsels, they become argument regarding actual declaration of payment.
binding on the parties who made them. They become The bills of lading bore a notation on the manner of
judicial admissions of the fact or facts stipulated. payment

which

was

Freight

Prepaid

and

As

Even if placed at a disadvantageous position, a party Arranged while the invoices indicated the amount
may not be allowed to rescind them unilaterally, it exactly paid by the shipper to ESLI.chanrobleslaw
must

assume

disadvantage.84

the

consequences

of

the

Page 29 of 229
WHEREFORE, we DENY the Petition for Review on This is an appeal by the plaintiff, Insurance Company
Certiorari. The Decision dated 31 January 2008 and of North America from the order of dismissal entered
Resolution dated 5 May 2008 of the Second Division by the Court of First Instance of Manila, dated June
of the Court of Appeals in CA-G.R. CV. No. 88744 are 30, 1952.
hereby AFFIRMED.

The facts of the case are as follows:

SO ORDERED.cralawlawlibrary
Sereno,

C.J.,

(Chairman),

On May 28, 1952, the Insurance Company of North


Leonardo-De

Castro, America filed a complaint against the Philippine Ports

Peralta,*and Reyes,** JJ., concur.

Terminals, Inc., alleging, among other things, that:


the defendant Philippine Ports Terminals, Inc., was

5.

the contractor and operator of the arrastre service in


the Port of Manila, and as such, was charged with the

FIRST DIVISION

custody and care of all cargoes discharged at the


government piers at Manila with the duty to deliver

[G.R. No. L-6420. July 18, 1955.]


INSURANCE

COMPANY

plaintiff-appellant,

vs.

OF

NORTH

PHILIPPINE

same to their respective owners upon presentation by


AMERICA, the latter of release papers from the agents or owners
PORTS of vessels and the Bureau of Customs; that the

TERMINALS, INC., defendant-appellee.

plaintiff had been informed and therefore alleged that


in the month of September, 1949, the steamship

Gibbs & Chuidian for appellant.

"PRESIDENT

Perkins, Ponce Enrile & Contreras for appellee.

VAN

BUREN"

discharged

into

the

custody of the Philippine Ports Terminals, Inc., one


case of machine knives consigned to the Central Saw
Mill, valued at least P3,796.00 but said merchandise

SYLLABUS

was never delivered by the defendant to said


AND consignee; that the defendant admits the non-delivery
"SHIP" DEFINED. The term "carrier" includes the of the said merchandise to the consignee, Central Saw
1.

WORDS

AND

PHRASES;

"CARRIER"

owner or the character who enters into contract of Mill, Inc., and offered to pay P500.00 for said
carriage with a shipper. The term "ship" means any merchandise instead of its value P3,796.00 which
vessel used for the carriage of goods by sea.
offer was refused; that the plaintiff Insurance
2.

LIMITATION OF ACTION; PHILIPPINES PORTS

TERMINALS INC., IS NOT A CHARACTER; CARRIAGE


OF GOODS BY SEA ACT DOES NOT APPLY. The
Philippines Ports Terminals Inc., is either a character
nor a ship, consequently the period of one year
provided in "Carriage of goods by Sea Act" does not

Company of North America was subrogated to the


rights of the Central Saw Mill, Inc., by virtue of a
receipt dated October 21, 1949; and that the
defendant corporation refused to pay said sum of
P3,796.00. There is a claim by the plaintiff of
P1,000.00 as attorney's fees.

apply. The ordinary period of four years fixed by the The defendant-appellee filed a motion for dismissal on
Code of Civil Procedure will apply within which to file the ground that the complaint was filed after one year
an action against Philippines Ports Terminals for from the time that the cause of action accrued. The
recovery of undelivered goods.
court below dismissed the complaint. The motion of
DECISION
JUGO, J p:

dismissal was based on the provisions of Public Act


No. 521 of the 74th U. S. Congress more commonly
known as "Carriage of Goods by Sea Act". This Act
was expressly made applicable to the Philippines by
Commonwealth Act No. 65 which was approved and

Page 30 of 229
took effect on October 22, 1936. The pertinent [G.R. No. L-6517. November 29, 1954.]
provision of said "Carriage of Goods by Sea Act"
regarding the time for bringing action reads as E. E. ELSER, INC., and ATLANTIC
follows:
"In any event the carrier and the ship shall be
discharged from all liability in respect of loss or
damage unless suit is brought within one year after

MUTUAL

INSURANCE COMPANY, petitioners, vs. COURT OF


APPEALS,

INTERNATIONAL

HARVESTER

COMPANY OF THE PHILIPPINES and ISTHMIAN


STEAMSHIP COMPANY, respondents.

delivery of the goods or the date when the goods Gibbs & Chuidian for petitioners.
should have been delivered: Provided, That if a notice
of loss or damage, either apparent or concealed, is not J. A. Wolfson for respondents.
given as provided for in this section, that fact shall
not affect or prejudice the right of the shipper to

SYLLABUS

bring suit within one year after the delivery of the 1.


CARRIERS; PROVISIONS OF BILL OF LADING
goods or the date when the goods should have been CONTRARY TO CARRIAGE OF GOODS BY SEA ACT
delivered".

It is evident, however, that the defendant Philippine


Ports Terminals, Inc., is not a carrier. Section 1 (a)
and (d) of "Carriage of Goods by Sea Act" defines the
terms "carrier" and "ship" as follows:

ARE NULL AND VOID. Clause 18 of the bill of


lading in question provided that owner should not be
liable for loss or damage of cargo unless written
notice thereof was given to the carrier within 30 days
after receipt of the goods. However, section 3 of the
Carriage of Goods by Sea Act provides that even if a

"The term 'carrier' includes the owner or the charterer notice of loss or damage is not given as required, "that
who enters into a contract of carriage with a shipper.
"The term 'ship' means any vessel used for the
carriage of goods by sea."

fact shall not affect or prejudice the right of the


shipper to bring suit within one year after the delivery
of the goods." Which of these two provisions should
prevail? Held: Clause 18 must of necessity yield to the

The defendant-appellee, Philippine Ports Terminals, provisions of the Carriage of Goods by Sea Act in view
Inc., is neither a charterer nor a ship. Consequently of the proviso contained in the same Act which says:
the "Carriage of Goods by Sea Act" does not apply to "Any clause, covenant, or agreement in a contract of
it. However, the ordinary period of four years fixed by carriage relieving the carrier or the ship from liability

the Code of Civil Procedure will apply. The action in for loss or damage to or in connection with the goods .
. . or lessening such liability otherwise than as
this case has been brought within that time.
provided in this Act, shall be null and void and of no

In view of the foregoing, the order of the lower court effect." (Section 3.) This means that a carrier cannot
dismissing the complaint is hereby reversed and the limit its liability in a manner contrary to what is
case is remanded to the court of origin for further provided for in said Act, and so clause 18 of the bill of
proceedings, with costs against the appellee. It is so lading must of necessity be null and void.
ordered.
2.
ID.;
ID.;
WHEN
CAN
CARRIER
BE
Bengzon, Acting C.J., Padilla, Montemayor, Reyes, A., DISCHARGED FROM LIABILITY FOR LOSS OR
Bautista Angelo, Labrador, Concepcion and Reyes, DAMAGE. A carrier can only be discharged from
J.B.L., JJ., concur.
6.
EN BANC

liability in respect of loss or damage if the suit is not


brought within one year after the delivery of the goods
or the date when the goods should have been
delivered.

Page 31 of 229
3.

ID.; CARRIAGE OF GOODS BY SEA ACT; serve notice thereof upon the carrier within 30 days

EXCEPTION

CONCERNING

ITS

APPLICABILITY; after receipt of the notice of loss or damage as

CASE AT BAR. Granting arguendo that at the time required by clause 18 of the bill of lading which was
the Carriage of Goods by Sea Act of 1936 was issued concerning the shipment of the merchandise
accepted and adopted by the Philippine Government, which had allegedly disappeared. In this respect, the
the Philippines was still a territory or possession of court said that, "appellants unwittingly admitted that
the United States and therefore the trade between the they were late in claiming the indemnity for the loss
two countries was not a foreign trade, still said Act is of the case of the vanishing cream as their written
applicable to the present case it appearing that the claim was made on April 25, 1946, or more than 30
parties

have

expressly

agreed

to

make

and days after they had been fully aware of said loss," and

incorporate the provisions of said Act as an integral because of this failure, the Court said, the action of
part of their contract of carriage. This is an exception petitioners should, and must, fall. Petitioners now
to the rule regarding the applicability of said Act.
DECISION
BAUTISTA ANGELO, J p:

contend that this finding is erroneous in the light of


the provisions of the Carriage of Goods by Sea Act of
1936, which apply to this case, the same having been
made an integral part of the covenants agreed upon
in the bill of lading.

This is a petition for review of a decision of the Court

of Appeals which affirms that of the court of origin There is merit in this contention. If this case were to
dismissing the complaint without pronouncement as be governed by clause 18 of the bill of lading
to costs.

regardless of the provisions of the Carriage of Goods

The facts, as found by the Court of Appeals, are:

Court of Appeals would indeed be correct, but in our

"It appears that in the month of December, 1945 the


goods specified in the Bill of Lading marked as Annex
A, were shipped on the 'S.S. Sea Hydra', of Isthmian
Steamship Company, from New York to Manila, and
were received by the consignee 'Udharam Bazar &
Co.', except one case of vanishing cream valued at
P159.78. The goods were insured against damage or
loss by the 'Atlantic Mutual Insurance Co.' 'Udharam
Bazar and Co.' successively filed claim for the loss
with the Manila Terminal Co., Inc., who denied having
received the goods for custody, and the 'International

by Sea Act of 1936, the conclusion reached by the


opinion this Act cannot be ignored or disregarded in
determining the equities of the parties it appearing
that the same was made an integral part of the bill of
lading by express stipulation. It should be noted, in
this connection, that the Carriage of Goods by Sea
Act of 1936 was accepted and adopted by our
government by the enactment of Commonwealth Act
No. 65 making said Act "applicable to all contracts for
the carriage of goods by sea to and from Philippine
ports in foreign trade." And the pertinent provisions of
the Carriage of Goods by Sea Act of 1936 are:

Harvester Co. of the Philippines', as agent for the "6.


Unless notice of loss or damage and the
shipping company, who answered that the goods were general nature of such loss or damage be given in
landed and delivered to the Customs authorities. writing to the carrier or his agent at the port of
Finally, 'Udharam Bazar & Co.' claimed for indemnity discharge or at the time of the removal of the goods
of the loss from the insurer, 'Atlantic Mutual into the custody of the person entitled to delivery
Insurance Co.', and was paid by the latter's agent 'E. thereof under the contract of carriage, such removal
E. Elser Ins.' the amount involved, that is, P159.78."
As may be noted, the Court of Appeals held that
petitioners have already lost their right to press their
claim against respondents because of their failure to

shall be prima facie evidence of the delivery by the


carrier of the goods as described in the bill of lading.
If the loss or damage is not apparent, the notice must
be given within three days of the delivery.

Page 32 of 229
in said Act, and so clause 18 of the bill of lading must
xxx

xxx

xxx

of necessity be null and void. This interpretation finds


support in a number of cases recently decided by the

"In any event the carrier and the ship shall be American courts. Thus, in Balfour, Guthrie & Co.,
discharged from all liability in respect of loss or Ltd., et al. vs. American-West African Line, Inc. and
damage unless suit is brought within one year after American-West African Line, Inc. vs. Balfour, Guthrie
delivery of the goods or the date when the goods & Co., Ltd., et al., 136 F. 2d. 320, wherein the bill of
should have been delivered: PROVIDED, That if a lading provided that the owner should not be liable
notice of loss or damage, either apparent or for loss of cargo unless written notice thereof was

concealed, is not given as provided for in this section, given within 30 days after the goods should have been
that fact shall not affect or prejudice the right of the delivered and unless written claim therefor was given
shipper to bring suit within one year after the delivery within six months after giving such written notice, the
of the goods or the date when the goods should have United States Circuit Court of Appeals, Second
been delivered. (Section 3; Italics supplied.)

Circuit, in a decision promulgated on August 2, 1943,


made the following ruling:

It would therefore appear from the above that a

carrier can only be discharged from liability in respect "But the Act, section 3(6), 45 U. S. A. section 1303 (6)
of loss or damage if the suit is not brought within one provides that failure to give 'notice of lose or damages'

year after the delivery of the goods or the date when shall not prejudice the right of the shipper to bring
the goods should have been delivered, and that, even suit within one year after the date when the goods

if a notice of loss or damage is not given as required, should have been delivered. To enforce a bill of lading
"that fact shall not affect or prejudice the right of the provision conditioning a shipowner's liability upon the
shipper to bring suit within one year after the delivery filing of written claim of loss, which in turn requires
of the goods." In other words, regardless of whether and depends upon the filing of a prior notice of loss,

the notice of loss or damage has been given, the certainly would do violence to section 3(6). But
shipper can still bring an action to recover said loss further, as a like provision was apparently quite
or damage within one year after the delivery of the customary in bills of lading prior to the act, the
goods, and, as we have stated above, this is contrary reasonable implication of section 3(6) is that failure to
to the provisions of clause 18 of the bill of lading. The file written claim of loss in no event may prejudice
question that now rises is: Which of these two right of suit within a year of the scheduled date for

provisions should prevail? Is it that contained in cargo delivery. This is also to be concluded from
clause 18 of the bill of lading, or that appearing in the section 3(8) 46 U. S. C. A. section 1303(8), that any
Carriage of Goods by Sea Act?

clause in a bill of lading lessening the liability of the

carrier otherwise than as provided in the Act shall be


The answer is not difficult to surmise. That clause 18 null and void. A similar provision in the British
must of necessity yields to the provisions of the Carriage of Goods by Sea Act, 14 & 15 Geo. V. c. 22,
Carriage of Goods by Sea Act in view of the proviso has been interpreted to nullify any requirement of
contained in the same Act which says: "Any clause, written claim as a condition to suit at any time. CF.
covenant, or agreement in a contract of carriage Australian United Steam Navigation Co., Ltd., vs.
relieving the carrier or the ship from liability for loss Hunt (1921) 2 A. C. 351; Coventry Sheppard & Co. vs.
or damage to or in connection with the goods . . . or Larrinaga S. S. Co., 73 Ll. L. Rep. 256." 1
lessening such liability otherwise than as provided in

this Act, shall be null and void and of no effect." But respondents contend that while the United States
(Section 3.) This means that a carrier cannot limit its Carriage of Goods by Sea Act of 1936 was accepted
liability in a manner contrary to what is provided for and

adopted

by

our

government

by

virtue

of

Page 33 of 229
Commonwealth Act No. 65, however, said Act does not "The Philippine Act of 1936 like the U. S. Act of 1936,
have any application to the present case because the applies propio vigore only to foreign commerce to all
shipment in question was made in December, 1945, contracts for the carriage of goods by sea to and from
and arrived in Manila in February, 1946 and at that Philippine ports in foreign trade.
time the Philippines was still a territory or possession
of the United States and, therefore, it may be said
that the trade then between the Philippines and the
United States was not a "foreign trade". In other
words, it is contended that the Carriage of Goods by
Sea Act as adopted by our government is only
applicable "to all contracts for the carriage of goods by
sea to and from Philippine ports in foreign trade,"
and, therefore, it does not apply to the shipment in
question.
Granting

"Prior to Philippine Independence on July 4, 1946,


trade between the Philippines and other, ports and
places under the American Flag, was not, by any
ordinary definition, foreign commerce. Hence, the U.
S. and Philippine Acts did not apply to such trades,
even though conducted under foreign bottoms and
under foreign flag, unless the carrier expressly
exercised the option given by section 13 of the U. S.
Act to carry under the provisions of that Act. The fact
that the U. S. coastwise flag monopoly did not extend

arguendo

that

the

Philippines

was

a to the Philippine trade did not alter the fact that the

territory or possession of the United States for the U. S. Trade with the Islands is domestic." (Knaught,
purposes of said Act and that the trade between the Ocean Bills of Lading, 1947 ed. p. 250) (Italics
Philippines and the United States before the advent of supplied.)
independence was not foreign trade or can only be
considered in a domestic sense, still we are of the
opinion that the Carriage of Goods by Sea Act of 1936
may have application to the present case it appearing
that the parties have expressly agreed to make and
incorporate the provisions of said Act as integral part
of their contract of carriage. This is an exception to

Having reached the foregoing conclusion, it would


appear clear that the action of petitioners has not yet
lapsed or prescribed, as erroneously held by the
Court of Appeals, it appearing that the present action
was brought within one year after the delivery of the
shipment in question.

the rule regarding the applicability of said Act. This is As regards the contention of respondents that
expressly recognized by section 13 of said Act which petitioners have the burden of showing that the loss
contains the following proviso:
complained of did not take place after the goods left
"Nothing in this Act shall be held to apply to contracts
for carriage of goods by sea between any port of the
United States or its possessions, and any other port
of the United States or its possessions: Provided,
however, That any bill of lading or similar document
of title which is evidence of a contract for the carriage
of goods by sea between each ports, containing an
express statement that it shall be subject to the
provisions of this Act, shall be subjected hereto as
fully as if subject hereto by the express provisions of
this Act." (Italics supplied.)
This is also recognized by the very authority cited by
counsel for respondents, who, on this matter, has
made the following comment:

the possession or custody of the carrier because they


failed to give notice of their loss or damage as
required by law, which failure gives rise to the
presumption

that

the

goods

were

delivered

as

described in the bill of lading, suffice it to state that,


according to the Court of Appeals, the required notice
was given by the petitioners to the carrier or its agent
on April 25, 1946. That notice is sufficient to
overcome the above presumption within the meaning
of the law.
Wherefore, the decision appealed from is reversed.
Respondents, other than the Court of Appeals, are
hereby sentenced to pay to the petitioners the sum of
P159.78, with legal interest thereon from the date of
the filing of the complaint, plus the costs of action.

Page 34 of 229
Paras, C. J., Pablo, Bengzon, Padilla, Montemayor, meet the exigencies of maritime hazards but that
Reyes, A., Concepcion and Reyes, J. B. L., JJ., found in the Civil Code, namely, either ten years for
concur.

breach of a written contract or four years for quasidelict. (Arts. 1144 [1] 1146, Civil Code)

7.

DECISION

EN BANC
[G.R. No. L-22491. January 27, 1967.]

BENGZON, J.P., J p:
Yau Yue Commercial Bank Ltd. of Hongkong, referred

DOMINGO ANG, plaintiff-appellant, vs. AMERICAN to hereafter as Yau Yue, agreed to sell 140 packages of
STEAMSHIP AGENCIES, INC., defendant-appellee.

galvanized steel durzinc sheets to one Herminio G.

Teves (the date of said agreement is not shown in the


Juan T. David and M.C. Gunigundo for plaintiff- record here) for the sum of $32,458.26 (US). Said
appellant.
agreement was subject to the following terms and
Ross, Salcedo, Del Rosario, Bito & Misa for
defendant-appellee.

arrangements: (a) the purchase price should be


covered by a bank draft for the corresponding amount
which should be paid by Herminio G. Teves in
exchange for the delivery to him of the corresponding

SYLLABUS

bill of lading to be deposited with a local bank, the

CARRIAGE OF GOODS BY SEA ACT; LOSS Hongkong & Shanghai Bank of Manila; (b) upon
DEFINED. As defined in the Civil Code and as arrival of the articles in Manila, Teves would be
1.

applied to Section 3(6), paragraph 4 of the Carriage of notified and he would have to pay the amount called
Goods by Sea Act, "loss" contemplates merely a for in the corresponding demand draft, after which
situation where no delivery at all was made by the the bill of lading would be delivered to him; and (c)
shipper of the goods because the same had perished, Teves would present said bill of lading to the carrier's
gone out of commerce, or disappeared in such a way agent, American Steamship Agencies, Inc. which
that their existence is unknown or they cannot be would then issue the corresponding "Permit To
recovered. It does not include a situation where there Deliver Imported Articles" to be presented to the
was indeed delivery but delivery to the wrong Bureau of Customs to obtain the release of the
articles.

person, or a misdelivery.

TO Pursuant to said terms and arrangements, Yau Yue,


DISMISS; EFFECT. It is well settled in this through Tokyo Boeki, Ltd. of Tokyo, Japan, shipped
jurisdiction that when a defendant files a motion to the articles at Yawata, Japan, on April 30, 1961
dismiss, he thereby hypothetically admits the truth of aboard the S.S. TENSAI MARU, Manila, belonging to
2.

PLEADING

AND

PRACTICE;

MOTION

the allegations of fact contained in the complaint.

the Nissho Shipping Co., Ltd. of Japan, of which the

American Steamship Agencies, Inc. is the agent in the


SUITS Philippines, under a shipping agreement, Bill of
PREDICATED ON MISDELIVERY; APPLICABLE RULE. Lading No. WM-2, dated April 30, 1961, consigned "to
3.

PRESCRIPTION

OF

ACTIONS;

Where the suit is predicated not upon loss or order of the shipper", with Herminio G. Teves as the
damage but on alleged misdelivery (or conversion) of party to be notified of the arrival of the 140 packages
the goods as in the case at bar, the applicable rule on of galvanize steel durzinc sheets in Manila.
prescription is not the one-year period provided for in

Section 3(6), paragraph 4 of the Carriage of Goods by The bill of lading was indorsed to the order of and
Sea Act, which short period is designed merely to delivered to Yau Yue by the shipper. Upon receipt

Page 35 of 229
thereof, Yau Yue drew a demand draft together with particularly

Section

3(6),

paragraph

4,

which

the bill of lading against Herminio G. Teves, through provides:


the Hongkong & Shanghai Bank.

"In any event, the carrier and the ship shall

When the articles arrived in Manila on or about May discharged from all liability in respect to loss or
9, 1961, Hongkong & Shanghai Bank notified Teves, damage unless suit is brought within one year after
the "notify party" under the bill of lading, of the delivery of the goods or the date when the goods
arrival of the goods and requested payment of the should have been delivered."
demand draft representing the purchase price of the
articles. Teves, however, did not pay the demand
draft, prompting the bank to make the corresponding
protest. The bank likewise returned the bill of lading
and demand draft to Yau Yue which indorsed the said
bill of lading to Domingo Ang.

It argued that the cargo should have been delivered to


the person entitled to the delivery thereof (meaning
the plaintiff) on May 9, 1961, the date of the vessel's
arrival in Manila, and that even allowing a reasonable
time (even one month) after such arrival within which
to make delivery, still, the action commenced on

Meanwhile, despite his non-payment of the purchase October 30, 1963 was filed beyond the prescribed
price of the articles, Teves as able to obtain a bank period of one year.
guaranty

in

favor

of

the

American

Steamship

Agencies, Inc., as carrier's agent, to the effect that he


would surrender the original and negotiable bill of
lading duly indorsed by Yau Yue. On the strength of
this guaranty, Teves succeeded in securing a "Permit
To Deliver Imported Articles" from the carrier's agent,
which he presented to the Bureau of Customs which
in turn released to him the articles covered by the bill
of lading.

By order dated December 21, 1963, copy of which


was received by plaintiff on December 26, 1963, the
lower court dismissed the action on the ground of
prescription. His motion for reconsideration dated
December 26, 1963 having been denied by the lower
court in its order dated January 13, ]964, plaintiff
appealed directly to this Court on a question of law:
Has plaintiff-appellant's cause of action prescribed
under Section 3(6), paragraph 4 of the Carriage of

Subsequently, Domingo Ang claimed for the articles Goods by Sea Act?
from

American

Steamship

Agencies,

Inc.,

by

presenting the indorsed bill of lading, but he was


informed by the latter that it had delivered the
articles to Teves.

The provision of law involved in this case speaks of


"loss or damage". That there was no damage caused
to the goods which were delivered intact to Herminio
G. Teves who did not file any notice of damage, is

On October 30, 1963 Domingo Ang filed a complaint admitted by both parties in this case. What is to be
in the Court of First Instance of Manila against the resolved in order to determine the applicability of
American

Steamship

Agencies,

Inc.,

for

having the prescriptive period of one year to the case at bar

allegedly wrongfully delivered and/or converted the is whether or not there was "loss" of the goods
goods covered by the bill of lading belonging to subject matter of the complaint.
plaintiff Ang, to the damage and prejudice of the
latter.

Nowhere is "loss" defined in the Carriage of Goods by


Sea Act. Therefore, recourse must be had to the Civil

On December 2, 1963, defendant filed a motion to Code which provides in Article 18 thereof that, "In
dismiss upon the ground that plaintiff's cause of matters which are governed by the Code of Commerce
action has prescribed under the Carriage of Goods by and special laws, their deficiency shall be supplied by
Sea

Act

(Commonwealth

Act

No.

65),

more the provisions of this Code."

Page 36 of 229
Article 1189 of the Civil Code defines the word "loss" bill of lading, because the only thing to consider in
in cases where conditions have been imposed with the this question is whether Enrique Aldeguer was
intention of suspending the efficacy of an obligation entitled to get the merchandise or whether, on the
to give. The contract of carriage under consideration contrary, the PNB is the one entitled thereto. Under
entered into by and between American Steamship the facts, the defendant petitioner should not have
Agencies, Inc. and the Yau Yue (which later on delivered the goods to Aldeguer but to the Philippine
endorsed the bill of lading covering the shipment to National Bank. Having made the delivery to Aldeguer,
plaintiff herein Domingo Ang), is one involving an the delivery is a case of misdelivery. If the goods have
obligation to give or to deliver the goods "to the order been delivered, it cannot at the same time be said
of shipper", that is, upon the presentation and that they have not been delivered.
surrender of the bill of lading. This being so, said
article can be applied to the present controversy,
more specifically paragraph 2 thereof which provides
that, ". . . it is understood that a thing is lost when it
perishes, or goes out of commerce, or disappears in
such a way that its existence is unknown or it cannot
be recovered."

"According to the bill of lading which was issued in


the case at bar to the order of the shipper, the carrier
was under a duty not to deliver the merchandise
mentioned

in

the

bill

of

lading

except

upon

presentation of the bill of lading duly endorsed by the


shipper.

(10

C.J.,

259)

Hence,

the

defendant-

petitioner Tan Pho having delivered the goods to

As defined in the Civil Code and as applied to Section Enrique Aldeguer without the presentation by the
3(6), paragraph 4 of the Carriage of Goods by Sea Act, latter of the bill of lading duly endorsed to him by the
"loss" contemplates merely a situation where no shipper, the said defendant made a misdelivery and
delivery at all was made by the shipper of the goods violated the bill of lading, because his duty was not
because

the

same

had

perished,

gone

out

of only to transport the goods entrusted to him safely,

commerce, or disappeared in such away that their but to deliver them to the person indicated in the bill
existence is unknown or they cannot he recovered. It of lading." (Italics supplied)
does not include a situation where there was indeed
delivery but delivery to the wrong person, or a
misdelivery, as alleged in the complaint in this case.

Now, it is well settled in this jurisdiction that when a


defendant files a motion to dismiss, he thereby
hypothetically admits the truth of the allegations of

The distinction between nondelivery and misdelivery fact contained in the complaint (Philippine National
has already been clearly made in reference to bills of Bank vs. Hipolito, et al., L-16463, Jan. 30, 1965;
lading. As this Court said in Tan Pho vs. Hassamal Republic vs. Ramos, L-15484, Jan. 31, 1963; Pascual
Dalamal, 67 Phil. 555, 557-558:
"Considering that the bill of lading covering the goods
in question has been made to order, which means
that said goods cannot be delivered without previous
payment of the value thereof, it is evident that, the
said goods having been delivered to Aldeguer without

vs. Secretary of Public Works & Communications, 110


Phil. 331; Pangan vs. Evening News Publishing Co.,
Inc., 110 Phil. 409). Thus, defendant-appellant having
filed a motion to dismiss, it is deemed to have
admitted, hypothetically, paragraphs 6, 7 and 8 of the
complaint, and these allege:

paying the price of the same, these facts constitutes "6. That, when the said articles arrived in Manila,
misdelivery and not nondelivery, because there was in the defendant authorized the delivery thereof to
fact delivery of merchandise. We do not believe it can Herminio G. Teves, through the issuance of the
be seriously and reasonably argued that what took corresponding Permit to Deliver Imported Articles,
place, as contended by the petitioner is a case of without the knowledge and consent of the plaintiff,
misdelivery with respect to Aldeguer and at the same who is the holder in due course of said bill of lading,
time nondelivery with respect to the PNB who had the notwithstanding the fact that the said Herminio G.

Page 37 of 229
Teves could not surrender the corresponding bill of maritime hazards. In a case where the goods shipped
lading;

were neither lost nor damaged in transit but were, on

"7. That, without any evidence of the fact that


Herminio G. Teves is the holder of the corresponding
bill of lading in due course; without the surrender of
the bill of lading; without the knowledge and consent
of the plaintiff, as holder thereof in due course, and

the contrary, delivered in port to someone who


claimed to be entitled thereto, the situation is
different, and the special need for the short period of
limitation in cases of loss or damage caused by
maritime perils does not obtain.

in violation of the provision on the bill of lading which It follows that for suits predicated not upon loss or
requires that the articles are only to be delivered to damage but on alleged misdelivery (or conversion) of
the person who is the holder in due course of the said the goods, the applicable rule on prescription is that
bill of lading, or his order, the defendant issued the found in the Civil Code, namely, either ten years for
corresponding `Permit To Deliver Imported Articles' in breach of a written contract or four years for quasifavor of the defendant, without the knowledge and delict. (Arts. 1144(1), 1146, Civil Code) In either case,
consent of the plaintiff as holder in due course of said plaintiff's cause of action has not yet prescribed, since
bill

of

lading,

which,

originally

was

Yau

Yue, his right of action would have accrued at the earliest

subsequently, the plaintiff Domingo Ang;


"8. That, as a result of the issuance by the

on May 9, 1961 when the ship arrived in Manila and


he filed suit on October 30, 1963.

defendant of said permit, Herminio G. Teves was able Wherefore, the dismissal order appealed from is
to secure the release of the articles from the Bureau hereby reversed and set aside and this case is
of Customs, which is not legally possible without the remanded to the court a quo for further proceedings.
presentation of said permit to the said Bureau; . . ."

No costs. So ordered.

From the allegations of the complaint, therefore, the Concepcion,

C.J.,

Reyes,

J.B.L.,

Dizon,

Regala,

goods cannot be deemed "lost". They were delivered to Makalintal, Zaldivar, Sanchez and Ruiz Castro, JJ.,
Herminio G. Teves, so that there can only be either concur.
delivery, if Teves really was entitled to receive them or

misdelivery, if he was not so entitled. It is not for Us 8


now to resolve whether or not delivery of the goods to
Teves was proper, that is, whether or not there was
rightful delivery or misdelivery.

SECOND DIVISION
[G.R. No. 119571. March 11, 1998.]

The point that matters here is that the situation is MITSUI O.S.K. LINES LTD., represented by
either delivery or misdelivery, but not nondelivery.
MAGSAYSAY AGENCIES, INC., petitioner, vs.
Thus, the goods were either rightly delivered or
COURT OF APPEALS and LAVINE LOUNGEWEAR
misdelivered, but they were not lost. There being no
MFG. CORP., respondents.
loss or damage to the goods, the afore-quoted
provision of the Carriage of Goods by Sea Act stating Del Rosario & Del Rosario for petitioner.
that "In any event, the carrier and the ship shall be
discharged from all liability in respect of loss or Antonio Audie Z. Bucoy for private respondent.
damage unless suit is brought within one year after

delivery of the goods or the date when the goods SYNOPSIS


should have been delivered," does not apply. The
reason is not difficult to see. Said one-year period of
limitation is designed to meet the exigencies of

Petitioner is a foreign corporation represented by its


agent, Magsaysay Agencies. It entered into a contract
of carriage with private respondent Lavine Mfg. Co. to

Page 38 of 229
transport goods of the latter from Manila to France. the meaning of 3(6), so that as suit was not brought
Petitioner failed in its undertaking to transport the within one year the action was barred.
goods in 28 days from initial loading, hence, private
respondent filed a case for the recovery of damages
before the RTC. Petitioner moved for the dismissal of
the complaint alleging that private respondent cause
of action had prescribed under the Carriage of Goods
by Sea Act (COGSA). It was denied by the RTC. On
petition for certiorari, the Court of Appeals sustained
the trial court's order. Hence this petition raising the
issue of whether or not private respondent's action is
for "loss or damage" to goods shipped, within the
meaning of COGSA.

EcDTIH

Precisely, the question before the trial court is not the


particular scene of "damages" as it refers to the
physical loss or damage of a shipper's goods as
specifically covered by 3(6) of COGSA but petitioner's
potential liability for the damages it has caused in the
general sense and, as such, the matter is governed by
the Civil Code, the Code of Commerce and COGSA,
for the breach of its contract of carriage with private
respondent.

2.

ID.; ID.; ANG V. AMERICAN STEAMSHIP

AGENCIES,

INC.;

MISDELIVERY

DOES

NOT

CONSTITUTE LOSS. In Ang v. American Steamship


Agencies, Inc. the question was whether an action for
the value of goods which had been delivered to a
party other than the consignee is for "loss or damage"
within the meaning of 3(6) of the COGSA. It was held
that there was no loss because the goods had simply
been misdelivered. "Loss" refers to the deterioration or
disappearance of goods.
3.

IHSTDE

CIVIL CODE; PRESCRIPTION; PRESCRIPTION

OF ACTION; NOT GOVERNED BY CARRIAGE OF


GOODS BY SEA ACT (COGSA) BUT BY ART. 1144 OF
THE CIVIL CODE. In the case at bar, there is
neither

deterioration

nor

disappearance

nor

destruction of goods caused by the carrier's breach of


contract. Whatever reduction there may have been in
the value of the goods is not due to their deterioration
or disappearance because they had been damaged in
transit. Indeed, what is in issue in this petition is not

Supreme Court concluded by holding that as the suit the liability of petitioner for its handling of goods as
below

is

not

for

"loss

or

damage"

to

goods provided by 3(6) of the COGSA, but its liability under

contemplated in 3(6), the question of prescription of its contract of carriage with private respondent as
action is governed not by the COGSA but by Art. 1144 covered by laws of more general application. Precisely,
of the Civil Code which provides for a prescriptive the question before the trial court is not the
period of ten years.

CSHDTE

SYLLABUS

particular sense of "damages" as it refers to the


physical loss or damage of a shipper's goods as
specifically covered by 3(6) of COGSA but petitioner's

COMMERCIAL LAW; CARRIAGE OF GOODS potential liability for the damages it has caused in the
BY SEA ACT; LOSS; CONSTRUED. As defined in general sense and, as such, the matter is governed by
the Civil Code and as applied to Section 3(6), the Civil Code, the Code of Commerce and COGSA,
1.

paragraph 4 of the Carriage of Goods by Sea Act, for the breach of its contract of carriage with private
"loss" contemplates merely a situation where no respondent. We concluded by holding that as the suit

delivery at all was made by the shipper of the goods below is not for "loss or damage" to goods
because the same has perished, gone out of contemplated in 3(6), the question of prescription of
commerce, or disappeared in such a way that their action is governed not by the COGSA but by Art. 1144
existence is unknown or they cannot be recovered. of the Civil Code which provides for a prescriptive
Conformably with this concept of what constitutes period of ten years. cDIHES
"loss" or "damage," this Court held in another case
that the deterioration of goods due to delay in their

DECISION

transportation constitutes "loss" or "damage" within MENDOZA, J p:

Page 39 of 229
This is a petition for review on certiorari of the as represented by Magsaysay Agencies, Inc., as
January 25, 1995 decision of the Court of Appeals 1 defendants on the other.
and its resolution of March 22, 1995 denying
petitioner's motion for reconsideration. The appellate
court upheld orders of Branch 68 (Pasig) of the
Regional

Trial

Court,

National

Capital

Judicial

Petitioner filed a motion to dismiss alleging that the


claim against it had prescribed under the Carriage of
Goods by Sea Act.

Region, denying petitioner's motion to dismiss in the The Regional Trial Court, as aforesaid, denied
original action filed against petitioner by private petitioner's motion as well as its subsequent motion
respondent.
for reconsideration. On petition for certiorari, the
Court of Appeals sustained the trial court's orders.

The facts are not in dispute. 2

Hence this petition containing one assignment of

Petitioner Mitsui O.S.K. Lines Ltd. is a foreign error:


corporation represented in the Philippines by its
agent, Magsaysay Agencies. It entered into a contract
of carriage through Meister Transport, Inc., an
international
respondent

freight
Lavine

forwarder,
Loungewear

with

private

Manufacturing

Corporation to transport goods of the latter from


Manila to Le Havre, France. Petitioner undertook to

THE

RESPONDENT

COURT

OF

APPEALS

COMMITTED A SERIOUS ERROR OF LAW IN RULING


THAT

PRIVATE

RESPONDENT'S

AMENDED

COMPLAINT IS (sic) NOT PRESCRIBED PURSUANT


TO SECTION 3(6) OF THE CARRIAGE OF GOODS BY
SEA ACT.

deliver the goods to France 28 days from initial The issue raised by the instant petition is whether
loading. On July 24, 1991, petitioner's vessel loaded private respondent's action is for "loss or damage" to
private respondent's container van for carriage at the goods shipped, within the meaning of 3(6) of the
said port of origin.

Carriage of Goods by Sea Act (COGSA).

However, in Kaoshiung, Taiwan the goods were not Section 3 provides:


transshipped immediately, with the result that the
Unless notice of loss or damage and the
shipment arrived in Le Havre only on November 14, (6)
1991. The consignee allegedly paid only half the value general nature of such loss or damage be given in
of the said goods on the ground that they did not writing to the carrier or his agent at the port of
arrive in France until the "off season" in that country. discharge or at the time of the removal of the goods
The remaining half was allegedly charged to the into the custody of the person entitled to delivery
turn thereof under the contract of carriage, such removal
demanded payment from petitioner through its agent. shall be prima facie evidence of the delivery by the
carrier of the goods as described in the bill of lading.
As petitioner denied private respondent's claim, the If the loss or damage is not apparent, the notice must
account

of

private

respondent

which

in

latter filed a case in the Regional Trial Court on April be given within three days of the delivery.
14, 1992. In the original complaint, private
respondent

impleaded

as

defendants

Meister

Transport, Inc. and Magsaysay Agencies, Inc., the


latter as agent of petitioner Mitsui O.S.K. Lines Ltd.
On May 20, 1993, it amended its complaint by
impleading petitioner as defendant in lieu of its agent.
The

parties

to

the

case

thus

became

Said notice of loss or damage may be endorsed upon


the receipt for the goods given by the person taking
delivery thereof.

private The notice in writing need not be given if the state of


respondent as plaintiff, on one side, and Meister the goods has at the time of their receipt been the
Transport Inc. and petitioner Mitsui O.S.K. Lines Ltd. subject of joint survey or inspection.

Page 40 of 229
In any event the carrier and the ship shall be due to the arrival of the goods in damaged or
discharged from all liability in respect of loss or deteriorated condition, the action is still basically one
damage unless suit is brought within one year after for damage to the goods, and must be filed within the
delivery of the goods or the date when the goods period of one year from delivery or receipt, under the
should have been delivered: Provided, that, if a notice above-quoted provision of the Carriage of Goods by
of loss or damage, either apparent or concealed, is not Sea Act. 6
given as provided for in this section, that fact shall
not affect or prejudice the right of the shipper to

But the Court allowed that

bring suit within one year after the delivery of the There would be some merit in appellant's insistence
goods or the date when the goods should have been that the damages suffered by him as a result of the
delivered.

delay in the shipment of his cargo are not covered by

In the case of any actual or apprehended loss or


damage, the carrier and the receiver shall give all
reasonable facilities to each other for inspecting and
tallying the goods.

the prescriptive provision of the Carriage of Goods by


Sea Act above referred to, if such damages were due,
not to the deterioration and decay of the goods while
in transit, but to other causes independent of the
condition of the cargo upon arrival, like a drop in

In Ang v. American Steamship Agencies, Inc., the their market value . . . . 7


question was whether an action for the value of goods
which had been delivered to a party other than the
consignee is for "loss or damage" within the meaning
of 3(6) of the COGSA. It was held that there was no

The rationale behind limiting the said definitions to


such parameters is not hard to find or fathom. As this
Court held in Ang:

loss because the goods had simply been misdelivered. Said one-year period of limitation is designed to meet
"Loss" refers to the deterioration or disappearance of the exigencies of maritime hazards. In a case where
goods. 3

the goods shipped were neither lost nor damaged in

As defined in the Civil Code and as applied to Section


3(6), paragraph 4 of the Carriage of Goods by Sea Act,
"loss" contemplates merely a situation where no
delivery at all was made by the shipper of the goods
because

the

same

had

perished,

gone

out

of

transit but were, on the contrary, delivered in port to


someone who claimed to be entitled thereto, the
situation is different, and the special need for the
short period of limitation in cases of loss or damage
caused by maritime perils does not obtain. 8

commerce, or disappeared in such a way that their In the case at bar, there is neither deterioration nor
existence is unknown or they cannot be recovered. 4
disappearance nor destruction of goods caused by the
Conformably with this concept of what constitutes
"loss" or "damage," this Court held in another case 5
that the deterioration of goods due to delay in their
transportation constitutes "loss" or "damage" within

carrier's breach of contract. Whatever reduction there


may have been in the value of the goods is not due to
their deterioration or disappearance because they had
been damaged in transit.

the meaning of 3(6), so that as suit was not brought Petitioner contends:
within one year the action was barred:
Although we agree that there are places in the section
Whatever damage or injury is suffered by the goods (Article III) in which the phrase need have no broader
while in transit would result in loss or damage to meaning than loss or physical damage to the goods,
either the shipper or the consignee. As long as it is we disagree with the conclusion that it must so be
claimed, therefore, as it is done here, that the losses limited wherever it is used. We take it that the phrase
or damages suffered by the shipper or consignee were has a uniform meaning, not merely in Section 3, but

Page 41 of 229
throughout the Act; and there are a number of places Manila dismissing the complaint filed in this action
in which the restricted interpretation suggested would on the ground of prescription. Plaintiff-appellant
be inappropriate. For example Section 4(2) [Article claims that defendant-appellee is not allowed to
IV(2) (sic) exempts exempts (sic) the carrier, the ship traverse the allegations contained in the complaint
(sic), from liability "loss or damage" (sic) resulting but must proceed upon the hypothetical assumption
from certain courses beyond their control. 9
Indeed, what is in issue in this petition is not the
liability of petitioner for its handling of goods as
provided by 3(6) of the COGSA, but its liability under
its contract of carriage with private respondent as
covered by laws of more general application.

that all the allegations therein are true. The rule


requiring a party moving for dismissal to admit or
assume the allegations of the complaint is applicable
when the ground for the motion to dismiss is that the
complaint does not state facts sufficient to constitute
a cause of action (Rule 8,section 1 [f]), and not when
the ground is prescription of action, which special

Precisely, the question before the trial court is not the defense is based not on facts appearing in the
particular sense of "damages" as it refers to the complaint but on new matter not disclosed in the
physical loss or damage of a shipper's goods as complaint. The present motion todismiss traverses no
specifically covered by 3(6) of COGSA but petitioner's allegation of the complaint; it sets up as new matter
potential liability for the damages it has caused in the that the goods in question arrived in Manila on July
general sense and, as such, the matter is governed by 17, 1952, on which point the complaint has avoided

the Civil Code, the Code of Commerce and COGSA, making a statement to avoid a fatal objection.
for the breach of its contract of carriage with private Plaintiff-appellant claims that no evidence was
submitted to support this allegation; but the same

respondent.

does not appear to have been denied by plaintiff


We conclude by holding that as the suit below is not appellant. This failure to deny can be interpreted as
for "loss or damage" to goods contemplated in 3(6), admission. Besides, courts can take judicial notice of
the question of prescription of action is governed not the fact that a vessel leaving Japan on June 18, 1952,
by the COGSA but by Art. 1144 of the Civil Code arrived Manila by July 17, 1952. Plaintiff-appellant
which provides for a prescriptive period of ten years.
argues also that the court erred in not considering its
WHEREFORE, the decision of the Court of Appeals is
AFFIRMED.

action suspended by the extrajudicial demand which


took place, according to defendant's own motion to
dismiss, on August 22, 1952. This Court has already

SO ORDERED.

held in a case governed by the Carriage of Goods by

Regalado, Melo, Puno and Martinez, JJ ., concur.

Civil Procedure on prescription should not be made to

Sea Act that the general provisions of the Code of


apply. (Chua Kuy vs. Everett Steamship Corp., 93

9.

Phil., 207; 50 Off. Gaz., [1], 159.) In such a case the

[No. L-11081. April 30, 1958]

general provisions of the new Civil Code (Article 1155)

THE YEK TONG FIRE & MARINE INSURANCE Co.,

have the effect of extending the one-year 1126 period

LTD.,

plaintiff

and

appellant,

cannot be made to apply, as such application would

vs.

PRESIDENT

of prescription fixed in the law. It is desirable that


AMERICAN matters affecting transportation of goods by sea be

LINES, INC., defendant and appellee.


Appeal from an order of the Court of First Instance of

decided in as short a time as possible; the application


of the provisions of Article 1155 of the new Civil Code
would unnecessarily extend the period and permit
delays

in

the

settlement

of

questions

affecting

transportation, contrary to the clear intent and

Page 42 of 229
purpose of the law. Decision appealed from is of Facts). All in all fifty bags out of the 898 bags were
affirmed, with costs. Labrador,

damaged (Annex D-5).

J., ponente.

The 152 bags of resin (102 missing and 50 damaged)


were valued at $12.65 a bag or a total value of

10.

$1,992.80, which amount, at the prevailing rate of


exchange

SECOND DIVISION

of

P3.85

to

the

American

dollar,

is

equivalent to P7,402.78 (Annex I of Stipulation of

[G.R. No. L-27798. June 15, 1977.]

Facts).

(formerly The consignee, through the customs broker, filed on


January 3, 1962 with the Manila Port Service, as
National Carbon Philippines, Inc.), plaintiffarrastre operator, and the American Steamship
appellant, vs. MANILA RAILROAD CO., substituted
Agencies, Inc., as agent of the carrier, a provisional
by the PHILIPPINE NATIONAL RAILWAYS, MANILA
claim advising them that the shipment in question
PORT SERVICE and AMERICAN STEAMSHIP
was "shortlanded, shortdelivered and/or landed in
AGENCIES, INC., defendants-appellees.
bad order" (Annexes E and F of Stipulation of Facts).
UNION

CARBIDE

PHILIPPINES,

INC.

Solicitor General Antonio P. Barredo and Solicitor Formal claims dated June 11, 1962 were made by the
Buenaventura J . Guerrero for appellants.
consignee with the arrastre operator and the agent of
Salcedo, Del Rosario, Bito & Misa for appellee.

the carrier (Annexes I and I-1 of Stipulation of Facts).


The claims were reiterated by the consignee's lawyer

DECISION

in his letters dated September 26, 1962 which were

AQUINO, J p:

operator on October 4, 1962 (Annexes J and J-1 of

received by the carrier's agent and the arrastre

Stipulation of Facts). As the claims were not paid,


This is an admiralty and arrastre case. On December Union Carbide Philippines, Inc. filed a complaint on
18, 1961 the vessel Daishin Maru arrived in Manila December 21, 1962 in the Court of First Instance of
with a cargo of 1,000 bags of synthetic resin Manila against the Manila Railroad Company, the
consigned to General Base Metals, Inc. which later Manila Port Service and the American Steamship
sold the cargo to Union Carbide Philippines, Inc. Agencies, Inc. for the recovery of damages amounting
cdasia

On the following day, December 19, that cargo was


delivered to the Manila Port Service in good order and
condition except for twenty-five bags which were in

to P7,402.78 as the value of the undelivered 102 bags


of resin and the damaged 50 bags plus legal rate of
interest from the filing of the complaint and P1,000 as
attorney's fees.

bad order (Par. IV and Annexes C to C-25 of Union Carbide's complaint was a double-barrelled
Stipulation of Facts).
action or a joinder of two causes of action. One was
On January 20 and February 6 and 8, 1962 eight
hundred ninety-eight (898) bags of resin (out of the
1,000 bags) were delivered by the customs broker to
the consignee. One hundred two bags were missing.
The contents of twenty-five bags were damaged or

an action in admiralty under the Carriage of Goods by


Sea Act against the carrier's agent for the recovery of
P1,217.56 as the value of twenty-five bags of resin
which were damaged before they were landed (Annex
C-25).

pilfered while they were in the custody of the arrastre The other was an action under the management
operator (Par. XII and Annexes D and H of Stipulation contract between the Bureau of Customs and the

Page 43 of 229
Manila Port Service, a subsidiary of the Manila twenty-five (25) bags were damaged while in the
Railroad Company, for the recovery of P6,185.22 as carrier's custody (Annexes C to C-25 and K-1 of
the value of the undelivered 102 bags of resin and Stipulation of Facts).
twenty-five bags, the contents of which were damaged
or pilfered while in the custody of the arrastre
operator.

The one-year period within which the consignee


should sue the carrier is computed from "the delivery
of the goods or the date when the goods should have

The case was submitted for decision on the basis of a been delivered". The Carriage of Goods by Sea Act
stipulation of facts. The trial court in its decision of provides:
January 15, 1964 dismissed the case as to the
carrier's agent on the ground that the action had

"RESPONSIBILITIES AND LIABILITIES

already prescribed because it was not "brought within "SEC. 3.


...
one year after delivery of the goods", as contemplated
Unless notice of loss or damage and the
in section 3(6) of the Carriage of Goods by Sea Act. "(6)
The one-year period was counted from December 19, general nature of such loss or damage be given in
1961 when the cargo was delivered to the arrastre writing to the carrier or his agent at the port of
operator. As above-stated, the action was brought on discharge before or at the time of the removal of the
December 21, 1962 or two days late, according to the goods into the custody of the person entitled to
trial court's reckoning (Civil Case No. 52562).

delivery thereof under the contract of carriage, such

removal shall be prima facie evidence of the delivery


With respect to the consignee's claim against the by the carrier of the goods as described in the bill of
arrastre operator, the trial court found that the lading. If the loss or damage is not apparent, the
provisional claim was filed within the fifteen-day notice must be given within three days of the delivery.
period fixed in paragraph 15 of the arrastre contract.
Yet, in spite of that finding, the trial court dismissed "Said notice of loss or damage may be endorsed upon

the action against the arrastre operator (p. 65, Record the receipt for the goods given by the person taking
delivery thereof.
on Appeal).
Union Carbide appealed to the Court of Appeals on "The notice in writing need not be given if the state of
questions of fact and of law. That Appellate Court the goods has at the time of their receipt been the
elevated the case to this Court because in its opinion subject of joint survey or inspection.
the appeal raises only the legal issue of prescription
(Resolution of May 10, 1967 in CA-G. R. No. 33743R).

"In any event the carrier and the ship shall be


discharged from all liability in respect of loss or
damage unless suit is brought within one year after

Union Carbide contends that the trial court erred (1) delivery of the goods or the date when the goods
in finding that its action was barred by the statute of should have been delivered:
limitations and

(2)

in not holding that the carrier

and the arrastre operator were liable for the value of


the undelivered and damaged cargo.

"Provided, That if a notice of loss or damage, either


apparent or concealed, is not given as provided for in
this section, that fact shall not affect or prejudice the
right of the shipper to bring suit within one year after

the delivery of the goods or the date when the goods


Claim against the carrier's agent. There is no should have been delivered.
question that, as shown in the twenty-five tally
sheets, 975 bags of resin were delivered by the carrier "In the case of any actual or apprehended loss or
in good order to the arrastre operator and that only damage the carrier and the receiver shall give all

Page 44 of 229
reasonable facilities to each other for inspecting and charges for sorting and stacking the goods on wharf
tallying the goods." (Commonwealth Act No. 65, or in shed. cdtai
adopting U.S. Public Act No. 521 of April 16, 1936).

"If the consignees fail to take delivery of their goods

What is the meaning of "delivery" in section 3(6) of the immediately the ship is ready to discharge them, the
Carriage of Goods by Sea Act? The trial court Carrier shall be at liberty to land and warehouse or
construed delivery as referring to the discharge or discharge the said goods into hulk or craft, or at any
landing of the cargo.

other place at the risk and expense of the shippers,

Union Carbide contends that "delivery" does not mean

consignees or owners of the goods without notice.

the discharge of goods or the delivery thereof to the "15.

Notice of Claim. Any claim for loss of or

arrastre operator but the actual delivery of the goods damage to the goods must be preferred in writing to
to the consignee by the customs broker.

the Carrier's Agents at the place of delivery within 3

The carrier contends that delivery means discharge


from the vessel into the custody of the customs
arrastre operator because under sections 1201 and
1206 of the Tariff and Customs Code merchandise
cannot be directly delivered by the carrier to the
consignee

but

should

first

pass

through

the

days after the ship's discharge thereof, and before the


goods are removed from the quay or ship's side or
place of discharge, and in the event of such claim not
being preferred as above specified, the claim shall be
deemed

as

waived,

and

the

Carrier

shall

be

discharged therefrom.

customhouse at a port of entry for the collection of "Suit for the recovery of loss or damage shall not in
customs duties.

any event be maintainable against the Carrier or the

The carrier cites the following provisions of the bill of


lading to support its contention:

ship, unless instituted within one year after the


delivery of the written notice above specified. The
amount of claim shall be restricted to the Cash Value

Delivery. The Carrier retains the option of of the goods at the place and time of original
delivery at all times from ship's side or from craft, shipment plus all charges actually paid thereon, and
"9.

hulk, customhouse, warehouse, wharf or quay, at the all claims for either partial or total loss or damage
risk of the shippers, consignees or owners of the shall be entertained and adjusted upon this basis of
goods,

and

all

expenses

incurred

delivery value." (Annex B)

by

otherwise than from ship's side shall be borne by the


shippers, consignee or owners of the goods.
"11.

Discharge

of

Goods.

The

goods

Tariff and Customs Code allows the delivery of


may

be imported merchandise to the arrastre operator:

discharge, without notice, as soon as the ship is


ready

to

unload,

continuously

day

In this connection, it is pertinent to state that the

and

night,

Sundays and holidays included, on to wharf or quay


or into warehouse, or into hulk, lazaretto or craft or
on any other place and be stored there at the risk and
expense of the shippers, consignees or owners of the
goods, any custom of the port to the contrary
notwithstanding. In any case, the Carrier's liability is
to cease as soon as the goods are lifted from ship's
deck or leave the ship's tackle, any custom of the port
to the contrary notwithstanding. Consignees to pay

"SEC. 1213.

Receiving,

Handling,

Custody

and

Delivery of Articles. The Bureau of Customs shall


have exclusive supervision and control over the
receiving, handling, custody and delivery of articles
on the wharves and piers at all ports of entry and in
the exercise of its functions it is hereby authorized to
acquire, take over, operate and superintend such
plants and facilities as may be necessary for the
receiving, handling, custody and delivery of articles,
and the convenience and comfort of passengers and

Page 45 of 229
the handling of baggage, as well as to acquire fire order that such delivery would discharge the carrier
protection equipment for use in the piers:
"Provided,

That

whenever

in

his

of responsibility. (Notes 50 and 51, 80 C.J.S. 922; 58

judgment

the

C. J. 372 note 24. See 70 Am. Jur. 2nd 613, note 19).

receiving, handling, custody and delivery of articles Under the facts of this case, we held that the one-year
can be carried on by private parties with greater period was correctly reckoned by the trial court from
efficiency, the Commissioner may, after public bidding December 19, 1961, when, as agreed upon by the
and subject to the approval of the department head, parties and as shown in the tally sheets, the cargo
contract with any private party for the service of was discharged from the carrying vessel and delivered
receiving, handling, custody and delivery of articles, to the Manila Port Service. That one-year period
and in such event, the contract may include the sale expired on December 19, 1962. Inasmuch as the
or

lease

of

government-owned

equipment

and action was filed on December 21, 1962, it was barred

facilities used in such service."

by the statute of limitations.

The sensible and practical interpretation is that Defendant American Steamship Agencies, Inc., as
delivery within the meaning of Section 3(6) of the agent of the carrier, has no more liability to the
Carriage of Goods by Sea Law means delivery to the consignee's assignee, Union Carbide Philippines, Inc.,
arrastre operator. That delivery is evidenced by tally in connection with the damaged twenty-five bags of
sheets which show whether the goods were landed in resin.
good order or in bad order, a fact which the consignee
or shipper can easily ascertain through the customs
broker.

Prescription was duly pleaded by the said defendant


in its answer and motion to dismiss. That defense was
correctly entertained by trial court.

To use as basis for computing the one-year period the


delivery to the consignee would be unrealistic and
might generate confusion between the loss or damage
sustained by the goods while in the carrier's custody
and the loss or damage caused to the goods while in
the arrastre operator's possession.
Apparently, Section 3(6) adheres to the common-law
rule that the duty imposed water carriers was merely
to transport from wharf to wharf and that the carrier
was not bound to deliver the goods at the warehouse
of the consignee (Tan Hi vs. United States, 94 Fed.
Supp. 432, 435).

Claim against the arrastre operator. The liability of


the arrastre contractor has a factual and legal basis
different from that of the carrier's. The management
contract between the Manila Port Service and the
Bureau of Customs provides:
"15.

. . .; in any event the CONTRACTOR shall be

relieved and released of any and all responsibility or


liability for loss, damage, misdelivery, and/or nondelivery of goods, unless suit in the court of proper
jurisdiction is brought within a period of one (1) year
from the date of the discharge of the goods, or from
the date when the claim for the value of such goods

In the Tan Hi case, it was held that a requirement of have been rejected or denied by the CONTRACTOR,
Philippine law that all cargo unloaded at Manila be provided that such claim shall have been filed with
delivered to the consignee through the arrastre the CONTRACTOR within fifteen (15) days from the
operator

acting

as

customs'

agent

was

not date of discharge of the last package from the

unreasonable. The common-law requirements as to carrying vessel. . . . ." (Annex A of Stipulation of


the proper delivery of goods by water carrier apply Facts)
only when customs regulations at the port of
destination do not otherwise provide. The delivery
must be in accordance with the usages of the port in

Under the foregoing contractual provisions, the action


against the arrastre operator to enforce liability for
loss of the cargo or damage thereto should be filed

Page 46 of 229
within one year from the date of the discharge of the the two-year period expiring on December 19, 1963,
goods or from the date when the claim for the value of that action was filed on time. The trial court erred in
such goods has been rejected or denied by the dismissing the action against the Manila Port Service
arrastre operator.

and its principal, the Manila Railroad Company.

However, before such action can be filed a condition As shown in the statement of facts, the arrastre
precedent should be complied with and that is, that a operator is responsible for the value of 102 bags of
claim (provisional or final) shall have been previously resin, which were not delivered, and twenty-five bags,
filed with the arrastre operator within fifteen days which were damaged, or a total of one hundred
from the date of the discharge of the last package twenty-seven bags valued at P6,185.22.
from the carrying vessel (Continental Insurance
Company vs. Manila Port Service, L-22208, March 30,
1966, 16 SCRA 425).

The arrastre operator should pay attorney's fees to


the plaintiff for not having satisfied its plainly valid,
just and demandable claim (Art. 2208, Civil Code). We

In this case, the consignee's customs broker filed with fix the attorney's fees and the litigation expenses in
the Manila Port Service as provisional claim advising the sum of one thousand pesos. cdta
the

latter

that

the

cargo

was

"shortlanded,

shortdelivered and/or landed in bad order". That


claim was filed on January 3, 1962 or on the fifteenth
day following December 19, 1961, the date of the
discharge of the last package from the carrying vessel.

WHEREFORE, the trial court's judgment is affirmed


insofar as it dismissed plaintiff-appellant's claim
against defendant American Steamship Agencies, Inc.
on the ground of prescription.

That claim was never formally rejected or denied by The trial court's decision is reversed insofar as it
the Manila Port Service.
dismissed plaintiff's claim against the Manila
Having complied with the condition precedent for the
filing of a claim within the fifteen-day period, Union
Carbide could file the court action within one year,
either from December 19, 1961 or from December 19,
1962. This second date is regarded as the expiration
of the period within which the Manila Port Service
should have acted on the claim (Philippine Education
Co., Inc. vs. Manila Port Service, L-24091, 21 SCRA,
174, 178).
In other words, the claimant or consignee has a twoyear prescriptive period, counted from the date of the

Railroad

Company,

as

arrastre

Manila Port Service, L-23444, October 29, 1971, 42


SCRA 31).
Since the action in this case against the arrastre
operator was filed on December 21, 1962, or within

The

Philippine National Railways, as the successor of the


Manila Railroad Company (Sec. 22, Republic Act No.
4156), is hereby ordered to pay plaintiff Union
Carbide Philippines, Inc. the sum of P6,185.22, as the
value of the 127 bags of resin (102 bags missing and
25 bags damaged), with legal rate of interest from the
filing of the complaint on December 21, 1962 up to
the date of payment, plus P1,000 as attorney's fees
and litigation expenses, and the costs.
SO ORDERED.

discharge of the goods, within which to file the action Fernando


(Chairman),
Barredo,
in the event that the arrastre contractor, as in this Fernandez, JJ ., concur.
case, has not rejected nor admitted liability
(Continental Insurance Company vs. Manila Port Concepcion, Jr., J ., is on leave.
Service, supra. Philippine Education Company vs.

operator.

Antonio

and

Fernandez, J ., was designated to sit in the Second


Division.
11.
FIRST DIVISION

Page 47 of 229
[G.R. No. 61352. February 27, 1987.]

delays

in

the

settlement

of

questions

affecting

transportation, contrary to the clear intent and


DOLE PHILIPPINES, INC., plaintiff-appellant, vs. purpose of the law. x x x."
MARITIME COMPANY OF THE PHILIPPINES,
DECISION
defendant-appellee.
Domingo E. de Lara & Associates for plaintiffappellant.
Bito, Misa and Lozada Law Office for defendantappellee.
SYLLABUS

NARVASA, J p:
This appeal, which was certified to the Court by the
Court of Appeals as involving only questions of law, 1
relates to a claim for loss and/or damage to a
shipment of machine parts sought to be enforced by
the

consignee,

appellant

Dole

Philippines,

Inc.

(hereinafter called Dole) against the carrier, Maritime

MERCANTILE LAW; CARRIAGE OF GOODS BY Company of the Philippines (hereinafter called


SEA ACT; EXTRAJUDICIAL DEMAND DID NOT TOLL Maritime), under the provisions of the Carriage of
ONE YEAR PRESCRIPTIVE PERIOD; CASE AT BAR. Goods by Sea Act. 2
1.

The pivotal issue is whether or not Article 1155 of


the Civil Code providing that the prescription of
actions is interrupted by the making of an extrajudicial written demand by the creditor is applicable

The basic facts are succinctly stated in the order of


the Trial Court 3 dated March 16, 1977, the relevant
portion of which read: cdrep

to actions brought under the Carriage of Goods by "xxx


xxx
xxx
Sea Act. The question has already received a definitive
answer, adverse to the position taken by Dole, in The Before the plaintiff started presenting evidence at
Yek Tong Lin Fire & Marine Insurance Co., Ltd. vs. today's trial, at the instance of the Court the lawyers
American president Lines, Inc. There, in a parallel entered into the following stipulation of facts:
factual situation, where suit to recover for damage to
cargo shipped by vessel from Tokyo to Manila was
filed more than two years after the consignee's receipt
of the cargo, this Court rejected the contention that

1.

The cargo subject of the instant case was

discharged in Dadiangas unto the custody of the


consignee on December 18, 1971;

an extrajudicial demand tolled the prescriptive period 2.


The corresponding claim for the damages
provided for in the Carriage of Goods by Sea Act, viz: sustained by the cargo was filed by the plaintiff with
x x x. "We have already decided that in a case the defendant vessel on May 4, 1972;
governed by the Carriage of Goods by Sea Act, the

On June 11, 1973 the plaintiff filed a


general provisions of the Code of Civil Procedure on 3.
prescription should not be made to apply. (Chua Kuy complaint in the Court of First Instance of Manila,

vs. Everett Steamship Corp., G.R. No. L-5554, May docketed therein as Civil Case No. 91043, embodying
27, 1953.) Similarly, we now hold that in such a case three (3) causes of action involving three (3) separate
the general provisions of the new Civil Code (Art. and different shipments. The third cause of action
1155) cannot be made to apply, as such application therein involved the cargo now subject of this present
would have the effect of extending the one-year period litigation;
of prescription fixed in the law. It is desirable that
matters affecting transportation of goods by sea be
decided in as short a time as possible; the application
of the provisions of Article 1155 of the new Civil Code
would unnecessarily extend the period and permit

4.

On December 11, 1974, Judge Serafin Cuevas

issued an Order in Civil Case No. 91043 dismissing


the first two causes of action in the aforesaid case
with prejudice and without pronouncement as to

Page 48 of 229
costs because the parties had settled or compromised this section, that fact shall not affect or prejudice the
the claims involved therein. The third cause of action right of the shipper to bring suit within one year after
which covered the cargo subject of this case now was the delivery of the goods or the date when the goods
likewise dismissed but without prejudice as it was not should have been delivered.
covered by the settlement. The dismissal of that
complaint containing the three causes of action was
upon a joint motion to dismiss filed by the parties;
5.

Civil Case No. 91043 with respect to the third cause


of action without prejudice, plaintiff instituted this
present complaint on January 6, 1975.
xxx

xxx" 4

defense of prescription under the provisions of the


Carriage of Goods by Sea Act, 5 and following pretrial, moved for a preliminary hearing on said defense.
6 The Trial Court granted the motion, scheduling the
preliminary hearing on April 27, 1977. 7 The record
before the Court does not show whether or not that
hearing was held, but under date of May 6, 1977,
Maritime filed a formal motion to dismiss invoking
once more the ground of prescription. 8 The motion
was opposed by Dole 9 and the Trial Court, after due
the

matter

year period of limitation prescribed in the above-cited


provision. 12 The substance of its argument is that
since the provisions of the Civil Code are, by express
mandate of said Code, suppletory of deficiencies in
governed by the latter, 13 and there being " . . . a

filed an answer pleading inter alia the affirmative

resolved

xxx."

the Code of Commerce and special laws in matters

To the complaint in the subsequent action Maritime

consideration,

xxx

Dole concedes that its action is subject to the one-

Because of the dismissal of the (complaint in

xxx

xxx

in

favor

of

Maritime and dismissed the complaint. 10 Dole


sought a reconsideration, which was denied, 11 and

patent deficiency . . . with respect to the tolling of the


prescriptive period . . ." provided for in the Carriage of
Goods by Sea Act, 14 prescription under said Act is
subject to the provisions of Article 1155 of the Civil
Code on tolling; and because Dole's claim for loss or
damage made on May 4, 1972 amounted to a written
extrajudicial demand which would toll or interrupt
prescription under Article 1155, it operated to toll
prescription also in actions under the Carriage of
Goods by Sea Act. To much the same effect is the
further argument based on Article 1176 of the Civil
Code which provides that the rights and obligations of
common carriers shall be governed by the Code of
Commerce and by special laws in all matters not
regulated by the Civil Code.

thereafter took the present appeal from the order of These arguments might merit weightier consideration
dismissal.
The pivotal issue is whether or not Article 1155 of the
Civil Code providing that the prescription of actions is
interrupted by the making of an extrajudicial written
demand by the creditor is applicable to actions
brought under the Carriage of Goods by Sea Act
which, in its Section 3, paragraph 6, provides that:

were it not for the fact that the question has already
received a definitive answer, adverse to the position
taken by Dole, in The Yek Tong Lin Fire & Marine
Insurance Co., Ltd. vs. American President Lines, Inc.
15 There, in a parallel factual situation, where suit to
recover for damage to cargo shipped by vessel from
Tokyo to Manila was filed more than two years after
the consignee's receipt of the cargo, this Court

". . . the carrier and the ship shall be discharged from rejected the contention that an extrajudicial demand
all liability in respect of loss or damage unless suit is tolled the prescriptive period provided for in the
brought within one year after delivery of the goods or Carriage of Goods by Sea Act, viz:
the date when the goods should have been delivered;
Provided, That, if a notice of loss or damage, either
apparent or conceded, is not given as provided for in

"In the second assignment of error plaintiff-appellant


argues that it was error for the court a quo not to
have considered the action of plaintiff-appellant

Page 49 of 229
suspended by the extrajudicial demand which took one month after that period has expired and its right
place,

according

to

defendant's

own

motion

to of action had prescribed. llcd

dismiss, on August 22, 1952. We notice that while


plaintiff avoids stating any date when the goods
arrived in Manila, it relies upon the allegation made
in the motion to dismiss that a protest was filed on
August 22, 1952 which goes to show that plaintiffappellant's counsel has not been laying the facts
squarely before the court for the consideration of the
merits of the case. We have already decided that in a
case governed by the Carriage of Goods by Sea Act,

Dole's contention that the prescriptive period ". . .


remained tolled as of May 4, 1972 . . . (and that) in
legal contemplation . . . (the) case (Civil Case No.
96353) was filed on January 6, 1975 . . . well within
the one-year prescriptive period in Sec. 3(6) of the
Carriage of Goods by Sea Act," 16 equates tolling with
indefinite suspension. It is clearly fallacious and
merits no consideration.

the general provisions of the Code of Civil Procedure WHEREFORE, the order of dismissal appealed from is
on prescription should not be made to apply. (Chua affirmed, with Costs against the appellant, Dole
Kuy vs. Everett Steamship Corp., G.R. No. L-5554, Philippines, Inc.
May 27, 1953.) Similarly, we now hold that in such a

case the general provisions of the new Civil Code (Art. SO ORDERED.
1155) cannot be made to apply, as such application
would have the effect of extending the one-year period
of prescription fixed in the law. It is desirable that

Yap, Melencio-Herrera, Cruz, Feliciano, Gancayco and


Sarmiento, JJ ., concur.

matters affecting transportation of goods by sea be 12.


decided in as short a time as possible; the application
of the provisions of Article 1155 of the new Civil Code SECOND DIVISION
would unnecessarily extend the period and permit
delays in the settlement of questions affecting [G.R. No. 124050. June 19, 1997.]
transportation, contrary to the clear intent and
purpose of the law. . . ."

MAYER

STEEL

HONGKONG

PIPE

CORPORATION

GOVERNMENT

and

SUPPLIES

Moreover, no different result would obtain even if the DEPARTMENT,


petitioners,
vs.
COURT
OF
Court were to accept the proposition that a written APPEALS, SOUTH SEA SURETY AND INSURANCE
extrajudicial demand does toll prescription under the CO., INC. and the CHARTER
Carriage of Goods by Sea Act. The demand in this CORPORATION, respondents.

INSURANCE

instance would be the claim for damage filed by Dole

with Maritime on May 4, 1972. The effect of that Arturo S. Santos for petitioners.
demand would have been to renew the one-year
R.
Mangahas
&
prescriptive period from the date of its making Stated Conrado

Associates

for

otherwise, under Dole's theory, when its claim was respondents.


received by Maritime, the one-year prescriptive period
was interrupted "tolled" would be the more precise

SYLLABUS

term and began to run anew from May 4, 1972, 1.


COMMERCIAL LAW; CARRIAGE OF GOODS
affording Dole another period of one (1) year counted BY SEA ACT; SEC. 3(6) THEREOF; SUIT AGAINST
from that date within which to institute action on its CARRIER FOR LOSS OR DAMAGE TO GOODS
claim for damage. Unfortunately, Dole let the new PRESCRIBES AFTER ONE YEAR FROM DELIVERY
period lapse without filing action. It instituted Civil OF GOODS; RULE NOT APPLICABLE TO AN
Case No. 91043 only on June 11, 1973, more than INSURER OF THE GOODS. Section 3(6) of the
Carriage of Goods by Sea Act states that the carrier

Page 50 of 229
and the ship shall be discharged from all liability for D E C I S I O N
loss or damage to the goods if no suit is filed within
one year after delivery of the goods or the date when

PUNO, J p:

they should have been delivered. Under this provision, This is a petition for review on certiorari to annul and
only the carrier's liability is extinguished if no suit is set aside the Decision of respondent Court of Appeals
brought within one year. But the liability of the dated December 14, 1995 1 and its Resolution dated

insurer is not extinguished because the insurer's February 22, 1996 2 in CA-G.R. CV No. 45805
liability is based not on the contract of carriage but entitled Mayer Steel Pipe Corporation and Hongkong
on the contract of insurance. A close reading of the Government Supplies Department v. South Sea
law reveals that the Carriage of Goods by Sea Act Surety Insurance Co., Inc. and The Charter Insurance
governs the relationship between the carrier on the Corporation. 3
one hand and the shipper, the consignee and/or the

insurer on the other hand. It defines the obligations In 1983, petitioner Hongkong Government Supplies
of the carrier under the contract of carriage. It does Department (Hongkong) contracted petitioner Mayer
not, however, affect the relationship between the Steel Pipe Corporation (Mayer) to manufacture and
shipper and the insurer. The latter case is governed supply various steel pipes and fittings. From August
to October, 1983, Mayer shipped the pipes and

by the Insurance Code.

fittings to Hongkong as evidenced by Invoice Nos.


ID.; INSURANCE; "ALL RISKS" INSURANCE MSPC-1014, MSPC-1015, MSPC-1025, MSPC-1020,
POLICY
COVERAGE
THEREOF;
INSURER'S MSPC-1017 and MSPC-1022. 4
2.

OBLIGATION THEREUNDER PRESCRIBES IN TEN

YEARS; CASE AT BAR. The ruling in Filipino Prior to the shipping, petitioner Mayer insured the
Merchants should apply only to suits against the pipes and fittings against all risks with private
carrier filed either by the shipper, the consignee or respondents South Sea Surety and Insurance Co.,
the insurer. When the court said in Filipino Inc. (South Sea) and Charter Insurance Corp.
Merchants that Section 3(6) of the Carriage of Goods (Charter). The pipes and fittings covered by Invoice
by Sea Act applies to the insurer, it meant that the Nos. MSPC-1014, 1015 and 1025 with a total amount
insurer, like the shipper, may no longer file a claim of US$212,772.09 were insured with respondent
against the carrier beyond the one-year period South Sea, while those covered by Invoice Nos. 1020,
provided in the law. But it does not mean that the 1017 and 1022 with a total amount of
shipper may no longer file a claim against the insurer US$149,470.00 were insured with respondent
because the basis of the insurer's liability is the Charter.
insurance contract. An insurance contract is a
contract whereby one party, for a consideration
known as the premium, agrees to indemnify another
for loss or damage which he may suffer from a
specified peril. An "all risks" insurance policy covers
all kinds of loss other than those due to willful and
fraudulent act of the insured. Thus, when private
respondents

issued

the

"all

risks"

policies

to

petitioner Mayer, they bound themselves to indemnify


the latter in case of loss or damage to the goods
insured. Such obligation prescribes in ten years, in

Petitioners Mayer and Hongkong jointly appointed


Industrial Inspection (International) Inc. as thirdparty inspector to examine whether the pipes and
fittings are manufactured in accordance with the
specifications in the contract. Industrial Inspection
certified all the pipes and fittings to be in good order
condition before they were loaded in the vessel.
Nonetheless, when the goods reached Hongkong, it
was discovered that a substantial portion thereof was
damaged.

accordance with Article 1144 of the New Civil Code. Petitioners filed a claim against private respondents
ACDIcS
for indemnity under the insurance contract.

Page 51 of 229
Respondent Charter paid petitioner Hongkong the Mayer. However, it set aside the decision of the trial
amount
payment

of

HK$64,904.75.

of

the

Petitioners

balance

of

demanded court and dismissed the complaint on the ground of

HK$299,345.30 prescription. It held that the action is barred under

representing the cost of repair of the damaged pipes. Section 3(6) of the Carriage of Goods by Sea Act since
Private respondents refused to pay because the it was filed only on April 17, 1986, more than two
insurance surveyor's report allegedly showed that the years from the time the goods were unloaded from the
damage is a factory defect.

vessel. Section 3(6) of the Carriage of Goods by Sea

On April 17, 1986, petitioners filed an action against


private

respondents

HK$299,345.30.

For

to

recover
their

the

sum

defense,

of

private

respondents averred that they have no obligation to


pay the amount claimed by petitioners because the
damage to the goods is due to factory defects which
are not covered by the insurance policies.

that the damage to the goods is not due to


defects.

It

also

noted

discharged from all liability in respect of loss or


damage unless suit is brought within one year after
delivery of the goods or the date when the goods
should have been delivered." Respondent court ruled
that this provision applies not only to the carrier but
also

to

the

insurer,

citing

Filipino

Merchants

Insurance Co., Inc. v. Alejandro. 6

The trial court ruled in favor of petitioners. It found


manufacturing

Act provides that "the carrier and the ship shall be

that

the

Hence this petition with the following assignments of


error:

insurance contracts executed by petitioner Mayer and 1.

The respondent Court of Appeals erred in

private respondents are "all risks" policies which holding that petitioners' cause of action had already
insure against all causes of conceivable loss or prescribed

on

the

mistaken

application

of

the

damage. The only exceptions are those excluded in Carriage of Goods by Sea Act and the doctrine of
the policy, or those sustained due to fraud or Filipino Merchants Co., Inc. v. Alejandro (145 SCRA
intentional misconduct on the part of the insured. 42); and
The dispositive portion of the decision states:

2.

The respondent Court of Appeals committed

WHEREFORE, judgment is hereby rendered ordering an error in dismissing the complaint. 7


the defendants jointly and severally, to pay the
plaintiffs the following:
1.

The petition is impressed with merit. Respondent


court erred in applying Section 3(6) of the Carriage of

the sum equivalent in Philippine currency of Goods by Sea Act.

HK$299,345.30 with legal rate of interest as of the


filing of the complaint;
2.

P100,000.00 as and for attorney's fees; and

3.

costs of suit.

SO ORDERED. 5

Section 3(6) of the Carriage of Goods by Sea Act


states that the carrier and the ship shall be
discharged from all liability for loss or damage to the
goods if no suit is filed within one year after delivery
of the goods or the date when they should have been
delivered. Under this provision, only the carrier's
liability is extinguished if no suit is brought within

Private respondents elevated the case to respondent one year. But the liability of the insurer is not
Court of Appeals.
extinguished because the insurer's liability is based
Respondent court affirmed the finding of the trial
court that the damage is not due to factory defect and
that it was covered by the "all risks" insurance
policies issued by private respondents to petitioner

not on the contract of carriage but on the contract of


insurance. A close reading of the law reveals that the
Carriage of Goods by Sea Act governs the relationship
between the carrier on the one hand and the shipper,

Page 52 of 229
the consignee and/or the insurer on the other hand. because the basis of the insurer's liability is the
It defines the obligations of the carrier under the insurance contract. An insurance contract is a
contract of carriage. It does not, however, affect the contract whereby one party, for a consideration
relationship between the shipper and the insurer. The known as the premium, agrees to indemnify another
latter case is governed by the Insurance Code.

for loss or damage which he may suffer from a

Our ruling in Filipino Merchants Insurance Co., Inc.


v. Alejandro 8 and the other cases 9 cited therein
does not support respondent court's view that the
insurer's liability prescribes after one year if no action
for indemnity is filed against the carrier or the
insurer. In that case, the shipper filed a complaint
against the insurer for recovery of a sum of money as
indemnity for the loss and damage sustained by the
insured goods. The insurer, in turn, filed a third-party

specified peril 11 An "all risks" insurance policy


covers all kinds of loss other than those due to willful
and fraudulent act of the insured. 12 Thus, when
private respondents issued the "all risks" policies to
petitioner Mayer, they bound themselves to indemnify
the latter in case of loss or damage to the goods
insured. Such obligation prescribes in ten years, in
accordance with Article 1144 of the New Civil Code.
13 cdasia

complaint against the carrier for reimbursement of IN VIEW WHEREOF, the petition is GRANTED. The
the amount it paid to the shipper. The insurer filed Decision of respondent Court of Appeals dated
the third-party complaint on January 9, 1978, more December

14,

1995

and

its

Resolution

dated

than one year after delivery of the goods on December February 22, 1996 are hereby SET ASIDE and the
17, 1977. The court held that the Insurer was already Decision of the Regional Trial Court is hereby
barred from filing a claim against the carrier because REINSTATED. No costs.
under the Carriage of Goods by Sea Act, the suit
against the carrier must be filed within one year after

SO ORDERED.

delivery of the goods or the date when the goods Regalado, Romero, Mendoza and Torres, Jr., JJ .,
should have been delivered. The court said that "the concur.
coverage of the Act includes the insurer of the goods."

13.

10

The Filipino Merchants case is different from the case FIRST DIVISION
at bar. In Filipino Merchants, it was the insurer which
filed a claim against the carrier for reimbursement of [G.R. No. 145044. June 12, 2008.]
the amount it paid to the shipper. In the case at bar,
it was the shipper which filed a claim against the
insurer. The basis of the shipper's claim is the "all
risks"

insurance

policies

respondents to petitioner Mayer.

issued

by

PHILIPPINE

CHARTER

INSURANCE

CORPORATION, petitioner, vs. NEPTUNE ORIENT

private LINES/OVERSEAS
respondents.

AGENCY

SERVICES,

INC.,

The ruling in Filipino Merchants should apply only to D E C I S I O N


suits against the carrier filed either by the shipper,
the consignee or the insurer. When the court said in

AZCUNA, J p:

Filipino Merchants that Section 3(6) of the Carriage of This is a petition for review on certiorari 1 of the
Goods by Sea Act applies to the insurer, it meant that Resolution of the Court of Appeals (CA) in CA-G.R. CV
the insurer, like the shipper, may no longer file a No. 52855 promulgated on April 13, 2000 granting
claim against the carrier beyond the one-year period respondents' motion for reconsideration dated March
provided in the law. But it does not mean that the 9, 2000. The Resolution held respondents liable for
shipper may no longer file a claim against the insurer

Page 53 of 229
damages to petitioner subject to the limited-liability winds and heavy seas making the vessel pitch and
provision in the bill of lading.

ADEaHT

roll, which caused the subject container with the


cargoes to fall overboard. Respondents contended that

The facts are as follows:

the

occurrence

was

fortuitous

event

which

Garments exempted them from any liability, and that their


Manufacturing Corp. Ltd. shipped from Hong Kong liability, if any, should not exceed US$500 or the limit
three sets of warp yarn on returnable beams aboard of liability in the bill of lading, whichever is lower.
On

September

respondent
Baltimar

30,

Neptune

Orion,

1993,

Orient

for

L.T.

Lines'

transport

vessel,

and

M/V DSacAE

delivery

to

Fukuyama Manufacturing Corporation (Fukuyama) of


No. 7 Jasmin Street, AUV Subdivision, Metro Manila.

In a Decision dated January 12, 1996, the RTC held

The said cargoes were loaded in Container No. IEAU4592750 in good condition under Bill of Lading No.
HKG-0396180. Fukuyama

insured

the

shipment

against all risks with petitioner Philippine Charter


Insurance Corporation (PCIC) under Marine Cargo
Policy No. RN55581 in the amount of P228,085.

the cargoes fell overboard and was lost.


Fukuyama

wrote

letter

to

that

they

observed

the

required

extraordinary

diligence to prevent loss of the subject cargoes in


accordance with the pertinent provisions of the Civil
Code. 3 The dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering the

During the course of the voyage, the container with

Thus,

that respondents, as common carrier, 2 failed to prove

defendants, jointly and severally, to pay the plaintiff


the Peso equivalent as of February 17, 1994 of
HK$55,000.00 or the sum of P228,085.00, whichever

respondent is lower, with costs against the defendants. 4 cSCTID

Overseas Agency Services, Inc. (Overseas Agency), the


agent of Neptune Orient Lines in Manila, and claimed
for the value of the lost cargoes. However, Overseas

Respondents' motion for reconsideration was denied


by the RTC in an Order dated February 19, 1996.

Agency ignored the claim. Hence, Fukuyama sought Respondents appealed the RTC Decision to the CA.
payment from its insurer, PCIC, for the insured value
of the cargoes in the amount of P228,085, which
claim was fully satisfied by PCIC.
On

February

17,

1994,

TaDIHc

Fukuyama

In a Decision promulgated on February 15, 2000, the


CA affirmed the RTC Decision with modification,
thus:

issued

Subrogation Receipt to petitioner PCIC for the latter to


be subrogated in its right to recover its losses from
respondents.

WHEREFORE,

the

assailed

decision

is

hereby

MODIFIED. Appellants Neptune and Overseas are


hereby ordered to pay jointly and severally appellee
PCIC P228,085.00, representing the amount it paid

PCIC demanded from respondents reimbursement of Fukuyama. Costs against the appellants. 5 ESTcIA
the

entire

amount

it

paid

to

Fukuyama,

respondents refused payment.

but

Respondents

moved

for

reconsideration

of

the

Decision of the CA arguing, among others, that their

On March 21, 1994, PCIC filed a complaint for liability was only US$1,500 or US$500 per package
damages against respondents with the Regional Trial under the limited liability provision of the Carriage of
Court (RTC) of Manila, Branch 35.
Respondents

filed

an

Answer

Goods by Sea Act (COGSA).


with

Compulsory In its Resolution dated April 13, 2000, the CA found

Counterclaim denying liability. They alleged that the said argument of respondents to be meritorious.
during the voyage, the vessel encountered strong The dispositive portion of the Resolution reads:

Page 54 of 229
WHEREFORE, the motion is partly granted in the defendants in container IEAU-4592750 that fell
sense that appellants shall be liable to pay appellee overboard during the voyage. 8 TIaCHA
PCIC the value of the three packages lost computed at
the rate of US$500 per package or a total of
US$1,500.00. 6

Moreover, the same Survey Report cited by petitioner


stated:
From the investigation conducted, we noted that

Hence, this petition raising this lone issue:

Capt. S.L. Halloway, Master of MV "BALTIMAR

THE COURT OF APPEALS ERRED IN AWARDING ORION" filed a Note of Protest in the City of Manila,
RESPONDENTS

DAMAGES

SUBJECT

US$500 PER PACKAGE LIMITATION.

TO

THE and was notarized on 06 October 1993.

aIAEcD

aCHDST

Based on Note of Protest, copy attached hereto for

Petitioner contends that the CA erred in awarding your reference, carrier vessel sailed from Hongkong
damages to respondents subject to the US$500 per on 1st October 1993 carrying containers bound for
package limitation since the vessel committed a Manila.
"quasi deviation" which is a breach of the contract of
carriage when it intentionally threw overboard the
container with the subject shipment during the
voyage to Manila for its own benefit or preservation
based on a Survey Report 7 conducted by Mariner's
Adjustment Corporation, which firm was tasked by
petitioner to investigate the loss of the subject
cargoes.

According

to

petitioner,

the

breach

of

contract resulted in the abrogation of respondents'


rights under the contract and COGSA including the
US$500 per package limitation. Hence, respondents

Apparently, at the time the vessel [was] sailing at


about

2400

hours

of

2nd

October

1993,

she

encountered winds and seas such as to cause


occasional moderate to heavy pitching and rolling
deeply at times. At 0154 hours, same day, while in
position Lat. 20 degrees, 29 minutes North, Long. 115
degrees, 49 minutes East, four (4) x 40 ft. containers
were lost/fell overboard. The numbers of these
containers

are

NUSU-3100789,

IEAU-4592750, NUSU-4515404.

TPHU-5262138,

cADEIa

cannot invoke the benefit of the US$500 per package xxx


xxx
xxx
limitation and the CA erred in considering the
limitation and modifying its decision accordingly. Furthermore, during the course of voyage, high winds
and heavy seas were encountered causing the ship to

cCHITA

roll and pitch heavily. The course and speed was

The contention lacks merit.

altered to ease motion of the vessel, causing delay and

The facts as found by the RTC do not support the new


allegation

of

facts

by

petitioner

regarding

loss of time on the voyage.

the xxx
xxx
intentional throwing overboard of the subject cargoes
and quasi deviation. The Court notes that in SURVEYORS REMARKS:
petitioner's Complaint before the RTC, petitioner
alleged as follows:
xxx

xxx

xxx

In view of the foregoing incident, we are of the opinion


that the shipment of 3 cases of Various Warp Yarn on

xxx

Returnable Beams which were containerized onto 40

feet LCL (no. IEAU-4592750) and fell overboard the


In the course of the maritime voyage from subject vessel during heavy weather is an "Actual
Hongkong to Manila subject shipment fell overboard Total Loss". 9 cDCaTH
2.03

while in the custody of the defendants and were never

recovered; it was part of the LCL cargoes packed by The records show that the subject cargoes fell
overboard the ship and petitioner should not vary the

Page 55 of 229
facts of the case on appeal. This Court is not a trier of Neither the carrier nor the ship shall in any event be
facts, and, in this case, the factual finding of the RTC or become liable for any loss or damage to or in
and the CA, which is supported by the evidence on connection with the transportation of goods in an
record, is conclusive upon this Court.

amount exceeding $500 per package lawful money of

As regards the issue on the limited liability of


respondents, the Court upholds the decision of the
CA.

the United States, or in case of goods not shipped in


packages,

per

customary

freight

unit,

or

the

equivalent of that sum in other currency, unless the


nature and value of such goods have been declared by

Since the subject cargoes were lost while being the shipper before shipment and inserted in the bill of
transported by respondent common carrier from lading. This declaration, if embodied in the bill of

Hong Kong to the Philippines, Philippine law applies lading shall be prima facie evidence, but shall be
pursuant to the Civil Code which provides: DCaEAS conclusive on the carrier. CcHDSA
Art. 1753.

The law of the country to which the In this case, Bill of Lading No. 0396180 stipulates:

goods are to be transported shall govern the liability


of the common carrier for their loss, destruction or
deterioration.

Neither the Carrier nor the vessel shall in any event


become liable for any loss of or damage to or in
connection with the transportation of Goods in an

In all matters not regulated by this amount exceeding US$500 (which is the package or
Code, the rights and obligations of common carriers shipping unit limitation under U.S. COGSA) per
shall be governed by the Code of Commerce and by package or in the case of Goods not shipped in
Art. 1766.

special laws.

packages per shipping unit or customary freight,

DTIcSH

unless the nature and value of such Goods have been

The rights and obligations of respondent common declared by the Shipper before shipment and inserted
carrier are thus governed by the provisions of the in this Bill of Lading and the Shipper has paid
Civil Code, and the COGSA, 10 which is a special law, additional charges on such declared value. . . .
applies suppletorily.

TcCEDS

The pertinent provisions of the Civil Code applicable The bill of lading 11 submitted in evidence by
to this case are as follows: HICSTa
petitioner did not show that the shipper in Hong Kong
Art. 1749.

stipulation

that

the

common

carrier's liability is limited to the value of the goods


appearing in the bill of lading, unless the shipper or
owner declares a greater value, is binding.
Art. 1750.

declared the actual value of the goods as insured by


Fukuyama before shipment and that the said value
was inserted in the Bill of Lading, and so no
additional charges were paid. Hence, the stipulation
in the bill of lading that the carrier's liability shall not

A contract fixing the sum that may be exceed US$500 per package applies.

recovered by the owner or shipper for the loss,


destruction, or deterioration of the goods is valid, if it
is reasonable and just under the circumstances, and
has been fairly and freely agreed upon.

SAcaDE

Such

stipulation

in

the

bill

of

lading

limiting

respondents' liability for the loss of the subject


cargoes is allowed under Art. 1749 of the Civil Code,
and Sec. 4, paragraph (5) of the COGSA. Everett

In addition, Sec. 4, paragraph (5) of the COGSA, Steamship Corporation v. Court of Appeals 12 held:
which is applicable to all contracts for the carriage of aHSCcE
goods by sea to and from Philippine ports in foreign
trade, provides:

A stipulation in the bill of lading limiting the common


carrier's liability for loss or destruction of a cargo to a

Page 56 of 229
certain sum, unless the shipper or owner declares a 52855 promulgated on April 13, 2000 is hereby
greater value, is sanctioned by law, particularly AFFIRMED.
Articles 1749 and 1750 of the Civil Code which
provide:
'Art. 1749.

stipulation

that

the

common

TAaEIc

Costs against petitioner.


SO ORDERED.

carrier's liability is limited to the value of the goods Puno, C.J., Carpio, Corona and Leonardo-de Castro,
appearing in the bill of lading, unless the shipper or JJ., concur.
owner declares a greater value, is binding.'
'Art. 1750.

HTDcCE

A contract fixing the sum that may be

EN BANC

recovered by the owner or shipper for the loss, 14.


destruction, or deterioration of the goods is valid, if it

is reasonable and just under the circumstances, and [G.R. No. L-29864. February 28, 1969.]
has been fairly and freely agreed upon.'
Such

limited-liability

clause

has

CHAMBER
also

been NATIONAL

OF

FILIPINO

MARKET

RETAILERS,

VENDORS

INC.,

ASSOCIATION,

consistently upheld by this court in a number of INC., AMBROSIO ILAO, CRISPIN DE GUZMAN,
cases.

Thus,

in

Sea-Land

Service,

Intermediate Appellate Court, we ruled:

Inc.

vs. JOSE J. LAPID and FELICISIMO LAS, petitioners,

DHSaCA

'It seems clear that even if said section 4 (5) of the

vs. HON. ANTONIO J. VILLEGAS, as City Mayor of


Manila, the CITY TREASURER and THE CITY OF

Carriage of Goods by Sea Act did not exist, the MANILA, respondents.
validity and binding effect of the liability limitation
clause in the bill of lading here are nevertheless fully

SYLLABUS

sustainable on the basis alone of the cited Civil Code 1.


REMEDIAL LAW; PLEADINGS; MOTION FOR
Provisions. That said stipulation is just and RECONSIDERATION; DENIAL THEREOF PROPER IN
reasonable is arguable from the fact that it echoes INSTANT CASE. We reiterate our resolution
Art. 1750 itself in providing a limit to liability only if a dismissing the present action for prohibition and, as
greater value is not declared for the shipment in the a
consequence,
We
deny
the
motion
for
bill of lading. To hold otherwise would amount to reconsideration mentioned heretofore, for the reason
questioning the justness and fairness of the law itself. that the relief sought by herein petitioners could be
. . . But over and above that consideration, the just properly secured from the lower court in accordance
and reasonable character of such stipulation is with the provisions of Rule 41 of the Rules of Court,
implicit in it giving the shipper or owner the option of or from this Court in the appealed case G.R. Lavoiding accrual of liability limitation by the simple 29864. The present action was filed as an attempt to
and surely far from onerous expedient of declaring secure from this court the same relief that we had
the nature and value of the shipment in the bill of already denied to the same parties in G.R. No. Llading.' cdasia

29819.

The CA, therefore, did not err in holding respondents R E S O L U T I O N


liable for damages to petitioner subject to the US$500
per package limited liability provision in the bill of DIZON, J p:
lading.
WHEREFORE,

Before Us is a motion for the reconsideration of our


the

petition

is

DENIED.

The resolution of December 3, 1968 dismissing the

Resolution of the Court of Appeals in CA-G.R. CV No.

Page 57 of 229
present action for prohibition "for lack of merit; appear, therefore, that the present action was filed as
appeal in due time is the remedy." cdphil
It appears that on August 14, 1968 petitioners filed
Civil Case No. 73902 against Antonio J. Villegas et al.

an attempt to secure from this court the same relief


that we had already denied to the same parties in
G.R. No. L- 29819. prLL

in the Court of First Instance of Manila to question PREMISES

CONSIDERED,

the

motion

for

the validity of Ordinance No. 6696 later superseded reconsideration filed by petitioners on December 5,
by Ordinance No. 6767 increasing the rental fees of 1968 is hereby denied.
stalls in public markets in said city. A restraining
order was issued by said court but the same was
lifted on November 3, 1968 when, after hearing the
parties, the court rendered judgment dismissing the
case and declaring the questioned ordinance valid.
On November 16, 1968 the therein petitioners

Concepcion,
Zaldivar,

.J

Sanchez,

.,

Reyes,
Ruiz

J.B.L.,

Makalintal,

Castro,

Fernando,

Capistrano, Teehankee and Barredo, JJ ., concur.


15.

perfected their appeal to this Court (G.R. No. L- EN BANC


29819).
[G.R. No. 114222. April 6, 1995.]
Petitioners now allege that upon the lifting of the
restraining
order
mentioned
heretofore,
the FRANCISCO S. TATAD, JOHN H. OSMEA and
respondents in the case who are the same RODOLFO G. BIAZON, petitioners, vs. HON. JESUS
respondents in the present immediately sought to B. GARCIA, JR., in his capacity as the Secretary
enforce the provisions of Ordinance No. 6767 by of the Department of Transportation and
making demands for the payment of the back Communications, and EDSA LRT CORPORATION,
differentials in market rates together with the rentals
at the new rates, with the threat that petitioners

LTD., respondents.

would be ejected summarily from their respective Brillantes (Nachura) Navarro Jumamil Arcilla &
stalls if they refused or failed to pay the rentals and Bello Law Offices for petitioners.
back charges demanded. After receiving such demand

petitioners filed the present action for prohibition to The Solicitor General for respondents.
restrain collection of rentals and possible ejectment.

SYLLABUS

Upon the above facts We reiterate our resolution

REMEDIAL
LAW;
CIVIL
PROCEDURE;
dismissing the present action for prohibition and, as 1.
a
consequence,
We
deny
the
motion
for TAXPAYER'S SUITS; PREVAILING DOCTRINE. The
reconsideration mentioned heretofore, for the reason prevailing doctrines in taxpayer's suits are to allow
that the relief sought by herein petitioners could be taxpayers to question contracts entered into by the

properly secured from the lower court in accordance national government or government-owned or
with the provisions of Rule 41 of the Rules of Court, controlled corporations allegedly in contravention of
or from this Court in the appealed case G.R. L- the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110
29864. As a matter of fact, petitioners' motion for [1994]) and to disallow the same when only municipal

reconsideration expressly states that on November 21, contracts are involved (Bugnay Construction and
1968 they filed in the latter case a motion to reinstate Development Corporation v. Laron, 176 SCRA 240
the restraining order herein before mentioned or to [1989]). For as long as the ruling in Kilosbayan on
issue a writ of preliminary injunction pending appeal, locus standi is not reversed, we have no choice but to
which motion, however, was denied by this Court on follow it and uphold the legal standing of petitioners
the 26th of the same month and year. It would as taxpayers to institute the present action.

Page 58 of 229
2.

POLITICAL LAW; NATIONAL ECONOMY AND one point to another point, their loading and

PATRIMONY;

PUBLIC

UTILITY;

FACILITIES

TO unloading at designated places and the movement of

OPERATE A PUBLIC UTILITY DO NOT NEED A the trains at pre-scheduled times. The right to
FRANCHISE.

Private

respondent

EDSA

LRT operate a public utility may exist independently and

Corporation, Ltd. to whom the contract to construct separately from the ownership of the facilities thereof.
the EDSA LRT III was awarded by public respondent One can own said facilities without operating them as
Secretary

of

DOTC,

is

admittedly

foreign a public utility, or conversely, one may operate a

corporation "duly incorporated and existing under the public utility without owning the facilities used to
laws of Hongkong." However, there is also no dispute serve the public. The devotion of property to serve the
that once the EDSA LRT III is constructed, private public may be done by the owner or by the person in
respondent, as lessor, will turn it over to DOTC, as control thereof who may not necessarily be the owner
lessee, for the latter to operate the system and pay thereof. This dichotomy between the operation of a
rentals for said use. What private respondent owns public utility and the ownership of the facilities used
are the rail tracks, rolling stocks like the coaches, rail to serve the public can be very well appreciated when
stations, terminals and the power plant, not a public we

consider

the

transportation

industry.

utility. While a franchise is needed to operate these Enfranchised airline and shipping companies may
facilities

to

themselves

serve

the

constitute

public,
a

they

public

do

not

utility.

by lease their aircraft and vessels instead of owning

What them themselves.

constitutes a public utility is not their ownership but


their use to serve the public (Iloilo Ice & Cold Storage
Co. v. Public Service Board, 44 Phil. 551, 557558
[1923]). The Constitution, in no uncertain terms,
requires a franchise for the operation of a public
utility. However, it does not require a franchise before
one can own the facilities needed to operate a public
utility so long as it does not operate them to serve the
public.
3.

4.

ID.;

ID.;

ID.;

ID.;

REQUISITE

FILIPINO

NATIONALITY DETERMINED WHEN ENTITY APPLIES


FOR FRANCHISE. Private respondent will not run
the light rail vehicles and collect fees from the riding
public. It will have no dealings with the public and
the public will have no right to demand any services
from it. Indeed, a mere owner and lessor of the
facilities used by a public utility is not a public utility.
Neither are owners of tank, refrigerator, wine, poultry

ID.; ID.; ID.; ID.; OPERATION OF PUBLIC and beer cars who supply cars under contract to

UTILITY

AND

DISTINGUISHED.

OWNERSHIP

In

law,

OF

FACILITIES, railroad companies considered as public utilities.

there

is

clear Even

the

mere

formation

of

public

utility

distinction between the "operation" of a public utility corporation does not ipso facto characterize the
and the ownership of the facilities and equipment corporation as one operating a public utility. The
used to serve the public. Ownership is defined as a moment

for

determining

the

requisite

Filipino

relation in law by virtue of which a thing pertaining to nationality is when the entity applies for a franchise,
one person is completely subjected to his will in certificate or any other form of authorization for that
everything not prohibited by law or the concurrence purpose.
with the rights of another (Tolentino, II Commentaries
and

Jurisprudence

on

the

Civil

Code

of

the

Philippines 45 [1992]). The exercise of the rights


encompassed in ownership is limited by law so that a
property cannot be operated and used to serve the
public as a public utility unless the operator has a
franchise. The operation of a rail system as a public
utility includes the transportation of passengers from

5.

ID.;

ID.;

ID.;

BUILD-OPERATE-AND-

TRANSFER (BOT) SCHEME; BUILD-AND-TRANSFER


(BT) SCHEME; DEFINED AND DISTINGUISHED.
The BOT scheme is expressly defined as one where
the contractor undertakes the construction and
financing of an infrastructure facility, and operates
and maintains the same. The contractor operates the

Page 59 of 229
facility for a fixed period during which it may recover years and when full payment shall have been made to
its expenses and investment in the project plus a and received by private respondent, it shall transfer to
reasonable rate of return thereon. After the expiration DOTC, free from any lien or encumbrances, all its title
of the agreed term, the contractor transfers the to, rights and interest in, the project for only U.S.
ownership and operation of the project to the $1.00 (Revised and Restated Agreement). A lease is a
government. In the BT scheme, the contractor contract where one of the parties binds himself to give
undertakes the construction and financing of the to another the enjoyment or use of a thing for certain
facility, but after completion, the ownership and price and for a period which may be definite or
operation thereof are turned over to the government. indefinite but not longer than 99 years (Civil Code of
The government, in turn, shall pay the contractor its the Philippines, Art. 1643). There is no transfer of
total investment on the project in addition to a ownership at the end of the lease period. But if the
reasonable rate of return. If payment is to be effected parties stipulate that title to the leased premises shall
through amortization payments by the government be transferred to the lessee at the end of the lease
infrastructure

agency

or

local

government

unit period upon the payment of an agreed sum, the lease

concerned, this shall be made in accordance with a becomes a lease-purchase agreement. Furthermore, it
scheme proposed in the bid and incorporated in the is of no significance that the rents shall be paid in
contract (R.A. No. 6957, Sec. 6). Emphasis must be United States currency, not Philippine pesos. The
made that under the BOT scheme, the owner of the EDSA LRT III Project is a high priority project
infrastructure

facility

must

comply

with

the certified by Congress and the National Economic and

citizenship requirement of the Constitution on the Development

Authority

as

falling

under

the

operation of a public utility. No such a requirement is Investment Priorities Plan of Government. It is,
imposed in the BT scheme.
6.

therefore, outside the application of the Uniform

ID.; ID.; ID.; BUILD-LEASE-AND-TRANSFER

Currency Act (R.A. No. 529).

(BLT) SCHEME AND RELATED AGREEMENTS; NOT 7.

ID.; ID.; ID.; AWARD OF CONSTRUCTION MAY

BARRED IN THE BOT LAW (RA 6957). There is no BE MADE BY NEGOTIATION. The fact that the
mention in the BOT Law that the BOT and BT contract for the construction of the EDSA LRT III was
schemes bar any other arrangement for the payment awarded through negotiation and before congressional
by the government of the project cost. The law must approval on January 22 and 23, 1992 of the List of
not be read in such a way as to rule out or unduly National Projects to be undertaken by the private
restrict any variation within the context of the two sector pursuant to the BOT Law does not suffice to
schemes. Indeed, no statute can be enacted to invalidate

the

award.

Subsequent

congressional

anticipate and provide all the fine points and details approval of the list including "rail-based projects
for the multifarious and complex situations that may packaged

with

commercial

development

be encountered in enforcing the law. The BLT scheme opportunities" under which the EDSA LRT III project
in the challenged agreements is but a variation of the falls, amounts to a ratification of the prior award of
BT scheme under the law. As a matter of fact, the the EDSA LRT III contract under the BOT Law.
burden on the government in raising funds to pay for Indeed, where there is a lack of qualified bidders or
the project is made lighter by allowing it to amortize contractors, the award of government infrastructure
payments out of the income from the operation of the contracts may be made by negotiation. Presidential
LRT System. In form and substance, the challenged Decree No. 1594 is the general law on government
agreements provide that rentals are to be paid on a infrastructure contracts while the BOT Law governs
monthly basis according to a schedule of rates particular
through

and

under

the

terms

of

confirmed encouraging

arrangements

or

private

sector

schemes

aimed

participation

at
in

Irrevocable Revolving Letter of Credit. At the end of 25 government infrastructure projects. The two laws are

Page 60 of 229
not inconsistent with each other but are in pari raised as an issue. In all cases where a party enters
materia and should be read together accordingly.
8.

into a contract with the government, he does so, not

ID.; ID.; RA 7718; QUALIFIED APPLICANT

MAY ENTER INTO ANY SCHEME INCLUDING A BLT


ARRANGEMENT. Republic Act No. 7718 recognizes
and defines a BLT scheme in Section 2 thereof.
Section 5-A of the law, expressly allows direct
negotiation of contracts. From the law itself, once an
applicant has prequalified, it can enter into any of the
schemes

enumerated

including

BLT

in

Section

arrangement,

2,

RA

7718,

enumerated

and

defined therein (Sec. 3). Republic Act No. 7718 is a


curative statute. It is intended to provide financial
incentives and "a climate of minimum government
regulations and procedures and specific government
undertakings in support of the private sector" (Sec.
1). A curative statute makes valid that which before
enactment of the statute was invalid. Thus, whatever
doubts

and

alleged

procedural

lapses

private

respondent and DOTC may have engendered and


committed in entering into the questioned contracts,
these have now been cured by R.A. No. 7718.
9.

ID.;

ID.;

ID.;

AGREEMENTS

out of charity and not to lose money, but to gain


pecuniarily. Definitely, the agreements in question
have been entered into by DOTC in the exercise of its
governmental function. DOTC is the primary policy,
planning,

programming,

regulating

and

administrative entity of the Executive branch of


government in the promotion, development and
regulation of dependable and coordinated networks of
transportation and communications systems as well
as in the fast, safe, efficient and reliable postal,
transportation

and

communications

services

(Administrative Code of 1987, Book IV, Title XV, Sec.


2).

It

is

the

particular,

Executive

that

has

department,

the

power,

DOTC

authority

in
and

technical expertise to determine whether or not a


specific transportation or communications project is
necessary, viable and beneficial to the people. The
discretion to award a contract is vested in the
government agencies entrusted with that function.
MENDOZA, J., concurring:

BETWEEN 1.

REMEDIAL

LAW;

CIVIL

PROCEDURE;

PRIVATE RESPONDENT AND DOTC, PRESUMED PARTIES; MEMBERS OF CONGRESS, NO LEGAL


WELL-TAKEN AND TO THE ADVANTAGE OF BOTH STANDING

TO

SUE

PARTIES; GOVERNMENT OFFICIALS CONCERNED, INFRINGEMENT


PRESUMED

TO

HAVE

PERFORMED

IF

OF

THEY

ALLEGE

PREROGATIVES

NO
AS

THEIR LEGISLATORS. J. Mendoza holds that petitioners

FUNCTIONS REGULARLY. The determination by do not have standing to sue. He joins to dismiss the
the proper administrative agencies and officials who petition in this case. Petitioners do not have the right
have

acquired

expertise,

specialized

skills

and to sue, whether as legislators, taxpayers or citizens.

knowledge in the performance of their functions As members of Congress, because they allege no
should be accorded respect, absent any showing of infringement
grave abuse of discretion. Government officials are taxpayers

of

prerogatives

because

as

petitioners

legislators.

allege

neither

As
an

presumed to perform their functions with regularity unconstitutional exercise of the taxing or spending
and strong evidence is necessary to rebut this powers of Congress (Art. VI, 24-25 and 29) nor an
presumption. Petitioners have not presented evidence illegal disbursement of public money. As this Court
on the reasonable rentals to be paid by the parties to pointed out in Bugnay Const. and Dev. Corp. v. Laron,
each other. The matter of valuation is an esoteric field 176 SCRA 240, 251-2-(1989) a party suing as
which is better left to the experts and which this taxpayer

"must

specifically

prove

that

he

has

Court is not eager to undertake. That the grantee of a sufficient interest in preventing the illegal expenditure
government contract will profit therefrom and to that of money raised by taxation and that he will sustain a
extent the government is deprived of the profits if it direct injury as a result of the enforcement of the
engages in the business itself, is not worthy of being questioned statute or contract. It is not sufficient that

Page 61 of 229
he has merely a general interest common to all carefully embodied in Art. VIII, 5 in defining the
members of the public." In that case, it was held that jurisdiction of this Court. The result is to convert the
a contract, whereby a local government leased Court into an office of ombudsman for the ventilation
property to a private party with the understanding of generalized grievances.
that the latter would build a market building and at
the end of the lease would transfer the building to the

FELICIANO, J., dissenting:

lessor, did not involve a disbursement of public funds 1.


POLITICAL LAW; NATIONAL ECONOMY AND
so as to give a taxpayer standing to question the PATRIMONY; PUBLIC UTILITY (EDSA LRT III); PD
legality of the contract. He sees no substantial 1594 ON BIDDING AND RELATED PROVISIONS; NOT
difference, as far as the standing of taxpayers to APPLICABLE TO RA 6957 AND RA 7718.
question public contracts is concerned, between the Presidential Decree No. 1594 dated 11 June 1978

contract there and the build-lease-transfer (BLT) entitled: "Prescribing Policies, Guidelines, Rules and
contract being questioned by petitioners in this case. Regulations
for
Government
Infrastructure
Nor do petitioners have standing to bring this suit as Contracts." More specifically, the majority opinion
citizens.

In

the

cases

in

which

citizens

were invokes paragraph 1 of Section 4 of this Degree which


authorized to sue, this Court found standing because refers to Bidding. I understand the unspoken theory
it thought the constitutional claims pressed for in the majority opinion to be that above Section 4 and
decision to be of "transcendental importance," as in presumably the rest of Presidential Decree No. 1594

fact it subsequently granted relief to petitioners by continue to exist and to run parallel to the provisions
invalidating the challenged statutes or governmental of Republic Act No. 6957, whether in its original form
actions. But in the case at bar, the Court precisely or as amended by Republic Act No. 7718. A principal

finds the opposite by finding petitioners' substantive difficulty with this approach is that Presidential
contentions to be without merit. To the extent Decree No. 1594 purports to apply to all "government
therefore that a party's standing is affected by a contracts for infrastructure and other construction

determination of the substantive merit of the case or projects." But Republic Act No. 6957 as amended by
a preliminary estimate thereof, petitioners in the case Republic Act No. 7718, relates only to "infrastructure
at bar must be held to be without standing. This is in projects" which are financed, constructed, operated

line with our ruling in Lawyers League for a Better and maintained "by the private sector" "through the
Philippines v. Aquino (G.R. Nos. 73748, 73972, build/operate-and-transfer
or
build-and-transfer
73990, May 22, 1986) and In re Bermudez (145 SCRA scheme" under Republic Act No. 6597 and under a
160, 1986) where we dismissed citizens' actions on series of other comparable schemes under Republic
the ground that petitioners had no personality to sue Act No. 7718. In other words, Republic Act No. 6957
and their petitions did not state a cause of action. The and Republic Act No. 7718 must be held, in my view,
holding

that

petitioners

did

not

have

standing to be special statutes applicable to a more limited


followed from the finding that they did not have a field of "infrastructure projects" than the widecause of action. In order that citizens' actions may be ranging scope of application of the general statute,

allowed a party must show that he personally has i.e., Presidential Decree No. 1594. Thus, the high
suffered some actual or threatened injury as a result relevance of the point made by Mr. Justice Davide
of the allegedly illegal conduct of the government; the that Republic Act No. 6957 in specific connection
injury is fairly traceable to the challenged action; and with BOT- and BLT-type of contracts imposed an
the injury is likely to be redressed by a favorable unqualified requirement of public bidding set out in
action. Todays's holding that a citizen, qua citizen, Section 5 thereof. It should also be pointed out that
has standing to question a government contract under Presidential Decree No. 1594, projects may be
unduly expands the scope of public actions and undertaken "by administration or force account or by
sweeps away the case and controversy requirement so

Page 62 of 229
negotiated contract only" (1) "in exceptional cases Filipino

a.

Citizens

(single

proprietorship)

b.

where time is of the essence"; or (2) "where there is Partnership or corporation duly organized under the
lack of bidders or contractors"; or (3) "where there is a laws of the Philippines, and at least seventy five
conclusive

evidence

efficiency

would

be

that

greater

achieved

economy
through

and percent (75%) of the capital stock of which belongs to


these Filipino citizens. 2. Contractors forming themselves

arrangements, and in accordance with provision[s] of into a joint venture, i.e., a group of two or more
laws and acts of the matter." It must, upon the one contractors that intend to be jointly and severally
hand, be noted that the special law Republic Act No. responsible

for

particular

contract,

shall

for

6957 made absolutely no mention of negotiated purposes of bidding/tendering comply with LOI 630,
contracts being permitted to displace the requirement and,

aside

from

being

currently

and

properly

of public bidding. Upon the other hand, Section 5-a, accredited by the Philippine Contractors Accreditation
inserted in Republic Act No. 6957 by the amending Board, shall comply with the provisions of R.A. 4566,
statute Republic Act No. 7718, does not purport to provided

that

joint

ventures

in

which

Filipino

authorize direct negotiation of contracts except in four ownership is less than seventy five percent (75%) may
(4) situations where there is a lack of pre-qualified be prequalified where the structures to be built
contractors or complying bidders. Thus, even under require

the

application

of

techniques

and/or

the amended special statute, entering into contracts technologies which are not adequately possessed by a
by negotiation is not permissible in the other two (2) Filipino entity as defined above. The record of this
categories of cases referred to in Section 4 of case is entirely silent on the extent of Philippine
Presidential Decree No. 1594, i.e., "in exceptional equity in the Edsa LRT Corporation; there is no
cases where time is of the essence" and "when there suggestion that this corporation is organized under
is conclusive evidence that greater economy and Philippine law and is at least seventy-five (75%)
efficiency

would

be

achieved

through

these percent owned by Philippine citizens.

arrangements, etc." The result I reach is that insofar


as BOT, etc. types of contracts are concerned, the
applicable public bidding requirement is that set out
in Republic Act No. 6957 and, with respect to such
type of contracts opened for pre-qualification and
bidding after the date of effectivity of republic Act No.
7718, the provisions of Republic Act No. 7718. The
assailed contract was entered into before Republic Act
No. 7718 was enacted. The difficulties of applying the
provisions of Presidential Decree No. 1594 to the Edsa
LRT-type of contracts are aggravated when one
considers the detailed "Implementing Rules and
Regulations as amended April 1988" issued under
that Presidential Decree. There is no reference at all

2.

ID.;

ID.;

ID.;

PUBLIC

BIDDING,

AN

IMPORTANT REQUIREMENT. Public bidding is the


normal

method

by

which

government

keeps

contractors honest and is able to assure itself that it


would be getting the best possible value for its money
in any construction or similar project. It is not for
nothing that multilateral financial organizations like
the World Bank and the Asian Development Bank
uniformly require projects financed by them to be
implemented and carried out by public bidding.
Public bidding is much too important a requirement
casually to loosen by a latitudinarian exercise in
statutory construction.

in these Presidential Decree No. 1594 Implementing DAVIDE, JR., J., dissenting opinion:
Rules and Regulations to absence of pre-qualified
POLITICAL LAW; NATIONAL ECONOMY AND
applicants and bidders as justifying negotiation of 1.
contracts as distinguished from requiring public PATRIMONY; PUBLIC UTILITY (EDSA LRT III); RA
bidding or a second public bidding. Note also the 6957 (BOT LAW); BUILD-LEASE-AND-TRANSFER
following provision of the same Implementing Rules (BLT) SCHEME, NOT INCLUDED THEREIN.
and Regulations: "IB 1 Prequalification. The following Respondents admit that the assailed contract was
may become contractors for government projects: 1. entered into under R.A. 6957. This law, fittingly

Page 63 of 229
entitled

"An

Construction,

Act

Authorizing

Operation

and

the

Financing, aptly said that in our jurisdiction "public bidding is

Maintenance

of the policy and medium adhered to in Government

Infrastructure Projects by the Private Sector, and For procurement

and

construction

contracts

under

Other Purposes," recognizes only two (2) kinds of existing laws and regulations. It is the accepted
contractual arrangements between the private sector method for arriving at a fair and reasonable price and
and government infrastructure agencies: (a) the ensures

that

overpricing,

favoritism

and

other

Build-Operate-and-Transfer (BOT) scheme and (b) the anomalous practices are eliminated or minimized.
Build-and-Transfer (BT) scheme. This conclusion And any Government contract entered into without
finds support in Section 2 thereof which defines only the required bidding is null and void and cannot
the BOT and BT schemes, in Section 3 which adversely

affect

the

rights

of

third

parties."

explicitly provides for said schemes and in Section 5 (Bartolome C. Fernandez, Jr., A TREATISE ON
which requires public bidding of projects under both GOVERNMENT

CONTRACTS

UNDER

PHILIPPINE

schemes. All prior acts and negotiations leading to LAW 25 [rev. ed. 1991], citing Caltex vs. Delgado
the perfection of the challenged contract were clearly Bros., 96 Phil. 368 [1954]). The Office of the
intended and pursued for such schemes. A Build- President, through then Executive Secretary Franklin
Lease-and-Transfer (BLT) scheme is not authorized Drilon correctly disapproved the contract because no
under the said law, and none of the aforesaid prior public bidding in strict compliance with Section 5 of
acts

and

negotiations

were

designed

for

such R.A. No. 6957 was conducted. Secretary Drilon

unauthorized scheme. Hence, the DOTC is without further bluntly stated that the provision of the
any power or authority to enter into the BLT contract Implementing Rules of said law authorizing negotiated
in question. If it is intended to include a BLT scheme contracts was of doubtful legality. Indeed, it is null
in RA 6957, then it should have so stated, for and void because the law itself does not recognize or
contracts

of

lease

are

not

unknown

in

our allow

negotiated

contracts.

The

mandatory

jurisdiction, and Congress has enacted several laws requirement of public bidding cannot be legally
relating to leases. That the BLT scheme was never dispensed with simply because only one was qualified
intended as a permissible variation "within the to

bid

during

the

prequalification

proceedings.

context" of the BOT and BT schemes is conclusively Section 5 mandates that the BOT or BT contract
established by the passage of R.A. No. 7718 which should be awarded "to the lowest complying bidder,"
amends: a) Section 2 by adding to the original BOT which logically means that there must at least be two
and BT schemes the following schemes: (1) Build- (2) bidders. If this minimum requirement is not met,
own-and operate (BOO) (2) Build-Lease-and-transfer then the proposed bidding should be deferred and a
(BLT)

(3)

Build-transfer-and-operate

(BTO)

(4) new prequalification proceeding be scheduled. Even

Contract-add-and-operate (CAO) (5) Develop-operate- those who were earlier disqualified may by then have
and-transfer

(DOT)

(6)

Rehabilitate-operate-and- qualified because they may have, in the meantime,

transfer (ROT) (7) Rehabilitate-own-and-operate (ROO) exerted efforts to meet all the qualifications. This view
b) Section 3 of R.A. No. 6957 by deleting therefrom of the majority would open the floodgates to the
the phrase "through the build-operate-and-transfer or rigging of prequalification proceedings or to unholy
build-and-transfer scheme."
2.

conspiracies among prospective bidders, which would

ID.; ID.; ID.; PUBLIC BIDDING THEREIN,

MANDATORY ; RA 7718 FOREGOING THE SAME


DOES

NOT

PROVIDE

FOR

RETROACTIVE

APPLICATION. Public bidding is mandatory in R.A.


No. 6957 under Section 5 thereof. The requirement of
public bidding is not an idle ceremony. It has been

even include dishonest government officials. They


could just agree, for a certain consideration, that only
one of them would qualify in order that the latter
would automatically corner the contract and obtain
the award. That Section 5 admits of no exception and
that no bidding could be validly had with only one
bidder

is

likewise

conclusively

shown

by

the

Page 64 of 229
amendments introduced by R.A. No. 7718. Per Light Rail Transit System for EDSA" dated April 22,
Section 7 thereof, a new section denominated as 1992, and the "Supplemental Agreement to the 22
Section 5-A was introduced in R.A. No. 6957 to allow April 1992 Revised and Restated Agreement To Build,
direct negotiation of contracts. Can this amendment Lease and Transfer a Light Rail Transit System for
be given retroactive effect to the challenged contract EDSA" dated May 6, 1993.
so that it may now be considered a permissible
negotiated contract? I submit that it cannot be. R.A.
No. 7718 does not provide that it should be given
retroactive effect to pre-existing contracts. Section 18
thereof says that it "shall take effect fifteen (15) days
after its publication in at least two (2) newspapers of
general circulation." If it were the intention of
Congress to give said act retroactive effect then it
would have so expressly provided. Article 4 of the
Civil Code provides that "[l]aws shall have no

Petitioners Francisco S. Tatad, John H. Osmena and


Rodolfo G. Biazon are members of the Philippine
Senate and are suing in their capacities as Senators
and as taxpayers. Respondent Jesus B. Garcia, Jr. is
the incumbent Secretary of the Department of
Transportation and Communications (DOTC), while
private respondent EDSA LRT Corporation, Ltd. is a
private corporation organized under the laws of
Hongkong. cdll

retroactive effect, unless the contrary is provided." I


The presumption is that all laws operate
prospectively, unless the contrary clearly appears or In 1989, DOTC planned to construct a light railway
is clearly, plainly, and unequivocally expressed or transit line along EDSA, a major thoroughfare in
necessarily implied. In every case of doubt, the doubt Metropolitan Manila, which shall traverse the cities of
will be resolved against the retroactive application of Pasay, Quezon, Mandaluyong and Makati. The plan,
laws.
(Ruben
E.
Agpalo,
STATUTORY referred to as EDSA Light Rail Transit III (EDSA LRT
to III), was intended to provide a mass transit system
amendatory acts, or acts which change an existing along EDSA and alleviate the congestion and growing
statute, Sutherland states: In accordance with the transportation problem in the metropolis.
CONSTRUCTION

225

[2d

ed.

1990]).

As

rule applicable to original acts, it is presumed that


provisions

added

substantive

rights

by

the
are

amendment
intended

to

affecting
operate

prospectively. Provisions added by the amendment


that affect substantive rights will not be construed to
apply to transactions and events completed prior to

On March 3, 1990, a letter of intent was sent by the


Eli Levin Enterprises, Inc., represented by Elijahu
Levin, to DOTC Secretary Oscar Orbos, proposing to
construct the EDSA LRT III on a Build-OperateTransfer (BOT) basis.

its enactment unless the legislature has expressed its On March 15, 1990, Secretary Orbos invited Levin to
intent to that effect or such intent is clearly implied send a technical team to discuss the project with
by the language of the amendment or by the DOTC.
circumstances surrounding its enactment. (1 Frank
E. Horack, Jr., SUTHERLAND'S STATUTES AND On July 9, 1990, Republic Act No. 6957 entitled "An
STATUTORY CONSTRUCTION 434-436 [1943 ed.]).

Act

Authorizing

the

Financing,

Construction,

Operation and Maintenance of Infrastructure Projects

DECISION

by the Private Sector, and For Other Purposes," was


signed by President Corazon C. Aquino. Referred to as

QUIASON, J p:

the Build-Operate-Transfer (BOT) Law, it took effect

This is a petition under Rule 65 of the Revised Rules on October 9, 1990.


of

Court

to

implementing

prohibit
and

respondents

enforcing

the

from

further

"Revised

and

Restated Agreement to Build, Lease and Transfer a

Republic Act No. 6957 provides for two schemes for


the

financing,

construction

and

operation

of

Page 65 of 229
government projects through private initiative and On April 3, 1991, the Committee, charged under the
investment: Build-Operate-Transfer (BOT) or Build- BOT Law with the formulation of the Implementing
Transfer (BT).

Rules and Regulations thereof, approved the same.

In accordance with the provisions of R.A. No. 6957 After evaluating the prequalification bids, the PBAC
and to set the EDSA LRT III project underway, DOTC, issued a Resolution on May 9, 1991 declaring that of
on January 22, 1991 and March 14, 1991, issued the five applicants, only the EDSA LRT Consortium
Department

Orders

Nos.

91-494

and

91-496, "met the requirements of garnering at least 21 points

respectively creating the Prequalification Bids and per criteria [sic], except for Legal Aspects, and
Awards

Committee

(PBAC)

and

the

Technical obtaining an over-all passing mark of at least 82

Committee.

points" (Rollo, p. 146). The Legal Aspects referred to

After its constitution, the PBAC issued guidelines for


the prequalification of contractors for the financing
and implementation of the project. The notice,
advertising

the

prequalification

of

bidders,

provided that the BOT/BT contractor-applicant meet


the requirements specified in the Constitution and
other pertinent laws (Rollo, p. 114).

was Subsequently,

Secretary

Orbos

was

appointed

published in three newspapers of general circulation Executive Secretary to the President of the Philippines
once a week for three consecutive weeks starting and was replaced by Secretary Pete Nicomedes Prado.
February 21, 1991.

The latter sent to President Aquino two letters dated

The deadline set for submission of prequalification


documents was March 21, 1991, later extended to
April

1,

1991.

Five

groups

responded

to

the

invitation: namely, ABB Trazione of Italy, Hopewell


Holdings, Ltd. of Hongkong, Mansteel International of
Mandaue, Cebu, Mitsui & Co., Ltd. of Japan, and
EDSA LRT Consortium, composed of ten foreign and

May 31, 1991 and June 14, 1991, respectively


recommending the award of the EDSA LRT III project
to

the

sole

complying

bidder,

the

EDSA

LRT

Consortium, and requesting for authority to negotiate


with the said firm for the contract pursuant to
paragraph 14(b) of the Implementing Rules and
Regulations of the BOT Law (Rollo, pp. 298-302).

domestic corporations: namely, Kaiser Engineers In July 1991, Executive Secretary Orbos, acting on
International, Inc., ACER Consultants (Far East) Ltd., instructions of the President, issued a directive to the
Freeman Fox, Tradeinvest/CKD Tatra of the Czech DOTC to proceed with the negotiations. On July 16,
and Slovak Federal Republics, TCGI Engineering, All 1991, the EDSA LRT Consortium submitted its bid
Asia Capital and Leasing Corporation, The Salim proposal to DOTC.
Group of Jakarta, E.L. Enterprises, Inc., A.M. Oreta
& Co., Inc., Capitol Industrial Construction Group,
Inc. and F.F. Cruz & Co., Inc. cdrep

Finding this proposal to be in compliance with the bid


requirements, DOTC and respondent EDSA LRT
Corporation, Ltd., in substitution of the EDSA LRT

On the last day for submission of prequalification Consortium, entered into an "Agreement to Build,
documents, the prequalification criteria proposed by Lease and Transfer a Light Rail Transit System for
the Technical Committee were adopted by the PBAC. EDSA" under the terms of the BOT Law (Rollo, pp.
The criteria, totalling 100 percent, are as follows: (a) 147-177).
Legal

aspects

10

percent;

(b)

Management/Organizational capability 30 percent;


(c) Financial capability 30 percent; and (d)
Technical capability 30 percent (Rollo, p. 122).

Secretary Prado, thereafter, requested presidential


approval of the contract. LibLex
In a letter dated March 13, 1992, Executive Secretary
Franklin Drilon, who replaced Executive Secretary
Orbos, informed Secretary Prado that the President

Page 66 of 229
could not grant the requested approval for the Federal Republics and will have a maximum carrying
following reasons: (1) that DOTC failed to conduct capacity of 450,000 passengers a day, or 150 million
actual public bidding in compliance with Section 5 of a year to be achieved through 54 such vehicles
the BOT Law; (2) that the law authorized public operating simultaneously. The EDSA LRT III will run
bidding as the only mode to award BOT projects, and at grade, or street level, on the mid-section of EDSA
the prequalification proceedings was not the public for a distance of 17.8 kilometers from F.B. Harrison,
bidding contemplated under the law; (3) that Item 14 Pasay City to North Avenue, Quezon City. The system
of the Implementing Rules and Regulations of the will have its own power facility (Revised and Restated
BOT Law which authorized negotiated award of Agreement, Sec. 2.3 (ii); Rollo, p. 55). It will also have
contract in addition to public bidding was of doubtful thirteen (13) passenger stations and one depot in the
legality; and (4) that congressional approval of the list 16-hectare government property at North Avenue
of priority projects under the BOT or BT Scheme (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).
provided in the law had not yet been granted at the
time the contract was awarded (Rollo, pp. 178-179).

Private respondent shall undertake and finance the


entire project required for a complete operational light

In view of the comments of Executive Secretary rail transit system (Revised and Restated Agreement,
Drilon, the DOTC and private respondents re- Sec. 4.1; Rollo, p. 58). Target completion date is 1,080
negotiated the agreement. On April 22, 1992, the days
parties

entered

into

"Revised

and

or

approximately

three

years

from

the

Restated implementation date of the contract inclusive of

Agreement to Build, Lease and Transfer a Light Rail mobilization, site works, initial and final testing of the
Transit System for EDSA" (Rollo, pp. 47-78) inasmuch system (Supplemental Agreement, Sec. 5; Rollo, p.
as "the parties [are] cognizant of the fact the DOTC 83). Upon full or partial completion and viability
has full authority to sign the Agreement without need thereof, private respondent shall deliver the use and
of

approval

by

the

President

pursuant

to

the possession of the completed portion to DOTC which

provisions of Executive Order No. 380 and that shall operate the same (Supplemental Agreement,
certain events [had] supervened since November 7, Sec. 5; Revised and Restated Agreement, Sec. 5.1;
1991

which

necessitate[d]

the

revision

of

the Rollo, pp. 61-62, 84). DOTC shall pay private

Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, respondent rentals on a monthly basis through an
represented by Secretary Jesus Garcia vice Secretary Irrevocable Letter of Credit. The rentals shall be
Prado,

and

private

respondent

entered

into

a determined by an independent and internationally

"Supplemental Agreement to the 22 April 1992 accredited inspection firm to be appointed by the
Revised and Restated Agreement to Build, Lease and parties (Supplemental Agreement, Sec. 6; Rollo, pp.
Transfer a Light Rail Transit System for EDSA" so as 85-86). As agreed upon, private respondent's capital
to "clarify their respective rights and responsibilities" shall be recovered from the rentals to be paid by the
and to "submit [the] Supplemental Agreement to the DOTC which, in turn, shall come from the earnings of
President of the Philippines for his approval" (Rollo, the EDSA LRT III (Revised and Restated Agreement,
pp. 79-80).
Secretary Garcia submitted the two Agreements to
President Fidel V. Ramos for his consideration and
approval. In a Memorandum to Secretary Garcia on
May 6, 1993, President Ramos approved the said
Agreements (Rollo, p. 194).
According to the agreements, the EDSA-LRT III will
use light rail vehicles from the Czech and Slovak

Sec. 1, p. 5; Rollo, p. 54). After 25 years and DOTC


shall

have

completed

payment

of

the

rentals,

ownership of the project shall be transferred to the


latter for a consideration of only U.S.$1.00 (Revised
and Restated Agreement, Sec. 11.1; Rollo, p. 67).
LibLex
On May 5, 1994, R.A. No. 7718, an "Act Amending
Certain Sections of Republic Act No. 6957, Entitled

Page 67 of 229
'An Act Authorizing the Financing, Construction, Secretary Garcia and private respondent filed their
Operation and Maintenance of Infrastructure Projects comments separately and claimed that:
by the Private Sector, and for Other Purposes'" was
signed into law by the President. The law was
published in two newspapers of general circulation on
May 12, 1994, and took effect 15 days thereafter or

(1)

Petitioners are not the real parties-in-interest

and have no legal standing to institute the present


petition;

on May 28, 1994. The law expressly recognizes a BLT (2)


The writ of prohibition is not the proper
scheme and allows direct negotiation of BLT remedy and the petition requires ascertainment of
contracts.
facts;
II

(3)

In their petition, petitioners argued that:


"(1)

THE AGREEMENT OF APRIL 22, 1992, AS

AMENDED BY THE SUPPLEMENTAL AGREEMENT


OF MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT
CORPORATION, LTD., A FOREIGN CORPORATION,

The scheme adopted in the Agreements is

actually a build-transfer scheme allowed by the BOT


Law;
(4)

The nationality requirement for public utilities

mandated by the Constitution does not apply to


private respondent;

THE OWNERSHIP OF EDSA LRT III, A PUBLIC (5)


The Agreements executed by and between
UTILITY, VIOLATES THE CONSTITUTION AND, respondents have been approved by President Ramos
HENCE, IS UNCONSTITUTIONAL;
"(2)

THE

and are not disadvantageous to the government;

BUILD-LEASE-TRANSFER

SCHEME (6)
The
PROVIDED IN THE AGREEMENTS IS NOT DEFINED respondent

award

of

the

contract

to

private

through negotiation and not public


NOR RECOGNIZED IN R.A. NO. 6957 OR ITS bidding is allowed by the BOT Law; and
IMPLEMENTING RULES AND REGULATIONS AND,
(7)
Granting that the BOT Law requires public
HENCE, IS ILLEGAL;
bidding, this has been amended by R.A. No. 7718
THE AWARD OF THE CONTRACT ON A passed by the Legislature on May 12, 1994, which
NEGOTIATED BASIS VIOLATES R.A. NO. 6957 AND, provides for direct negotiation as a mode of award of
"(3)

HENCE, IS UNLAWFUL;

infrastructure projects. LexLib

"(4)

THE AWARD OF THE CONTRACT IN FAVOR III


OF RESPONDENT EDSA LRT CORPORATION, LTD.
VIOLATES THE REQUIREMENTS PROVIDED IN THE Respondents claimed that petitioners had no legal
IMPLEMENTING RULES AND REGULATIONS OF THE standing to initiate the instant action. Petitioners,
however, countered that the action was filed by them
BOT LAW AND, HENCE, IS ILLEGAL;
"(5)

THE AGREEMENTS VIOLATE EXECUTIVE

in their capacity as Senators and as taxpayers.

ORDER NO. 380 FOR THEIR FAILURE TO BEAR The prevailing doctrines in taxpayer's suits are to
PRESIDENTIAL APPROVAL AND, HENCE, ARE allow taxpayers to question contracts entered into by
the national government or government-owned or

ILLEGAL AND INEFFECTIVE; AND

controlled corporations allegedly in contravention of


GROSSLY the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110
DISADVANTAGEOUS TO THE GOVERNMENT" (Rollo, [1994]) and to disallow the same when only municipal
"(6)

THE

pp. 15-16).

AGREEMENTS

ARE

contracts are involved (Bugnay Construction and

Page 68 of 229
Development Corporation v. Laron, 176 SCRA 240 The phrasing of the question is erroneous; it is
[1989]).

loaded. What private respondent owns are the rail

For as long as the ruling in Kilosbayan on locus


standi is not reversed, we have no choice but to follow
it and uphold the legal standing of petitioners as
taxpayers to institute the present action.

tracks, rolling stocks like the coaches, rail stations,


terminals and the power plant, not a public utility.
While a franchise is needed to operate these facilities
to serve the public, they do not by themselves
constitute a public utility. What constitutes a public

IV

utility is not their ownership but their use to serve

unconstitutional and invalid for the following reasons:

franchise for the operation of a public utility. However,

the public (Iloilo Ice & Cold Storage Co. v. Public


In the main, petitioners asserted that the Revised and Service Board, 44 Phil. 551, 557-558 [1923]). LexLib
Restated Agreement of April 22, 1992 and the
Supplemental Agreement of May 6, 1993 are The Constitution, in no uncertain terms, requires a
it does not require a franchise before one can own the
the EDSA LRT III is a public utility, and the facilities needed to operate a public utility so long as
ownership and operation thereof is limited by the it does not operate them to serve the public.
(1)

Constitution

to

Filipino

citizens

and

domestic

corporations, not foreign corporations like private Section 11 of Article XII of the Constitution provides:
respondent;

"No franchise, certificate or any other form of

scheme authorization for the operation of a public utility shall


provided in the agreements is not the BOT or BT be granted except to citizens of the Philippines or to
corporations or associations organized under the laws
scheme under the law;
of the Philippines at least sixty per centum of whose
(3)
the contract to construct the EDSA LRT III capital is owned by such citizens, nor shall such
(2)

the

Build-Lease-Transfer

(BLT)

was awarded to private respondent not through franchise, certificate or authorization be exclusive in
public bidding which is the only mode of awarding character or for a longer period than fifty years . . ."
infrastructure projects under the BOT law; and
(Italics supplied).
(4)

the agreements are grossly disadvantageous to In law, there is a clear distinction between the
the government.
"operation" of a public utility and the ownership of
1.

Private respondent EDSA LRT Corporation,

the facilities and equipment used to serve the public.

Ltd. to whom the contract to construct the EDSA LRT Ownership is defined as a relation in law by virtue of
III was awarded by public respondent, is admittedly a which a thing pertaining to one person is completely
foreign corporation "duly incorporated and existing subjected to his will in everything not prohibited by
under the laws of Hongkong" (Rollo, pp. 50, 79). There law or the concurrence with the rights of another
is also no dispute that once the EDSA LRT III is (Tolentino, II Commentaries and Jurisprudence on
constructed, private respondent, as lessor, will turn it the Civil Code of the Philippines 45 [1992]).
over to DOTC, as lessee, for the latter to operate the
The exercise of the rights encompassed in ownership
system and pay rentals for said use.
is limited by law so that a property cannot be

The question posed by petitioners is:


"Can respondent EDSA LRT Corporation, Ltd., a
foreign corporation own EDSA LRT III, a public
utility?" (Rollo, p. 17).

operated and used to serve the public as a public


utility unless the operator has a franchise. The
operation of a rail system as a public utility includes
the transportation of passengers from one point to
another

point,

their

loading

and

unloading

at

Page 69 of 229
designated places and the movement of the trains at Private respondent shall also train DOTC personnel
pre-scheduled times (cf. Arizona Eastern R.R. Co. v. for

familiarization

with

the

operation,

use,

J.A. Matthews, 20 Ariz 282, 180 P. 159, 7 A.L.R. 1149 maintenance and repair of the rolling stock, power
[1919]; United States Fire Ins. Co. v. Northern P.R. plant,

substations,

electrical,

signalling,

Co., 30 Wash 2d. 722, 193 P. 2d 868, 2 A.L.R. 2d communications and all other equipment as supplied
1065 [1948]). cdphil
The right to operate a public utility may exist
independently and separately from the ownership of
the facilities thereof. One can own said facilities
without operating them as a public utility, or
conversely, one may operate a public utility without
owning the facilities used to serve the public. The
devotion of property to serve the public may be done
by the owner or by the person in control thereof who
may not necessarily be the owner thereof.

in the agreement (Revised and Restated Agreement,


Sec. 10; Rollo, pp. 66-67). Training consists of
theoretical and live training of DOTC operational
personnel which includes actual driving of light rail
vehicles

under

simulated

operating

conditions,

control of operations, dealing with emergencies,


collection, counting and securing cash from the fare
collection system (Revised and Restated Agreement,
Annex E, Secs. 2-3). Personnel of DOTC will work
under the direction and control of private respondent
only

during

training

(Revised

and

Restated

This dichotomy between the operation of a public Agreement, Annex E, Sec. 3.1). The training
utility and the ownership of the facilities used to serve objectives, however, shall be such that upon
the public can be very well appreciated when we completion of the EDSA LRT III and upon opening of
consider the transportation industry. Enfranchised normal revenue operation, DOTC shall have in their

airline and shipping companies may lease their employ personnel capable of undertaking training of
aircraft and vessels instead of owning them all new and replacement personnel (Revised and
themselves.

Restated Agreement, Annex E, Sec. 5.1). In other

words, by the end of the three-year construction

While private respondent is the owner of the facilities period and upon commencement of normal revenue
necessary to operate the EDSA LRT III, it admits that operation, DOTC shall be able to operate the EDSA
it is not enfranchised to operate a public utility. LRT III on its own and train all new personnel by
(Revised and Restated Agreement, Sec. 3.2; Rollo, p. itself. Cdpr
57). In view of this incapacity, private respondent and
DOTC agreed that on completion date, private Fees for private

respondent's

services

shall

be

respondent will immediately deliver possession of the included in the rent, which likewise includes the
LRT system by way of lease for 25 years, during which project cost, cost of replacement of plant equipment
period DOTC shall operate the same as a common and spare parts, investment and financing cost, plus
carrier and private respondent shall provide technical a reasonable rate of return thereon (Revised and
maintenance and repair services to DOTC (Revised Restated Agreement, Sec. 1; Rollo, p. 54).
and Restated Agreement, Secs. 3.2, 5.1 and 5.2;
Rollo, pp. 57-58, 61-62). Technical maintenance
consists of providing (1) repair and maintenance
facilities for the depot and rail lines, services for
routine clearing and security; and (2) producing and
distributing maintenance manuals and drawings for
the entire system (Revised and Restated Agreement,
Annex F).

Since, DOTC shall operate the EDSA LRT III, it shall


assume all the obligations and liabilities of a common
carrier. For this purpose, DOTC shall indemnify and
hold harmless private respondent from any losses,
damages, injuries or death which may be claimed in
the operation or implementation of the system, except
losses, damages, injury or death due to defects in the
EDSA LRT III on account of the defective condition of
equipment or facilities or the defective maintenance of

Page 70 of 229
such equipment or facilities (Revised and Restated Even
Agreement, Secs. 12.1 and 12.2; Rollo, p. 68).
In sum, private respondent will not run the light rail
vehicles and collect fees from the riding public. It will
have no dealings with the public and the public will
have no right to demand any services from it.
It is well to point out that the role of private
respondent as lessor during the lease period must be
distinguished from the role of the Philippine Gaming
Management Corporation (PGMC) in the case of
Kilosbayan, Inc. v. Guingona, 232-SCRA 110 (1994).

the

mere

formation

of

public

utility

corporation does not ipso facto characterize the


corporation as one operating a public utility. The
moment

for

determining

the

requisite

Filipino

nationality is when the entity applies for a franchise,


certificate or any other form of authorization for that
purpose (People v. Quasha, 93 Phil. 333 (1953]).
2.

Petitioners further assert that the BLT scheme

under the Agreements in question is not recognized in


the BOT Law and its implementing Rules and
Regulations.

Therein, the Contract of Lease between PGMC and the Section 2 of the BOT Law defines the BOT and BT
Philippine Charity Sweepstakes Office (PCSO) was schemes as follows:
actually a collaboration or joint venture agreement
prescribed under the charter of the PCSO. In the
Contract of Lease, PGMC, the lessor obligated itself to
build, at its own expense, all the facilities necessary
to operate and maintain a nationwide on-line lottery
system from whom PCSO was to lease the facilities
and operate the same. Upon due examination of the
contract, the Court found that PGMC's participation
was not confined to the construction and setting up of
the on-line lottery system. It spilled over to the actual
operation thereof, becoming indispensable to the
pursuit, conduct, administration and control of the
highly technical and sophisticated lottery system. In
effect, the PCSO leased out its franchise to PGMC
which actually operated and managed the same.
LLphil

"(a)

Build-operate-and-transfer

contractual

arrangement

scheme

whereby

the

contractor

undertakes the construction, including financing, of a


given infrastructure facility, and the operation and
maintenance thereof. The contractor operates the
facility over a fixed term during which it is allowed to
charge facility users appropriate tolls, fees, rentals,
and charges sufficient to enable the contractor to
recover its operating and maintenance expenses and
its investment in the project plus a reasonable rate of
return thereon. The contractor transfers the facility to
the government agency or local government unit
concerned at the end of the fixed term which shall not
exceed fifty (50) years. For the construction stage, the
contractor may obtain financing from foreign and/or
domestic sources and/or engage the services of a

Indeed, a mere owner and lessor of the facilities used foreign and/or Filipino constructor [sic]: Provided,
by a public utility is not a public utility (Providence That the ownership structure of the contractor of an
and W.R. Co. v. United States, 46 F. 2d 149, 152 infrastructure facility whose operation requires a
[1930]; Chippewa Power Co. v. Railroad Commission public utility franchise must be in accordance with
of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 the Constitution: Provided, however, That in the case
[1925]; Ellis v. Interstate Commerce Commission, Ill. of corporate investors in the build-operate-and35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 transfer

corporation,

the

citizenship

of

each

[1914]). Neither are owners of tank, refrigerator, wine, stockholder in the corporate investors shall be the
poultry and beer cars who supply cars under contract basis for the computation of Filipino equity in the
to railroad companies considered as public utilities said corporation: Provided, further, That, in the case
(Crystal Car Line v. State Tax Commission, 174 P. 2d of foreign constructors [sic], Filipino labor shall be
984, 987 [1946]).

employed or hired in the different phases of the


construction

where

Filipino

skills

are

available:

Provided, furthermore, that the financing of a foreign

Page 71 of 229
or

foreign-controlled

contractor

from

Philippine If payment is to be effected through amortization

government financing institutions shall not exceed payments by the government infrastructure agency or
twenty percent (20%) of the total cost of the local government unit concerned, this shall be made
infrastructure facility or project: Provided, finally, in accordance with a scheme proposed in the bid and
That financing from foreign sources shall not require incorporated in the contract (R.A. No. 6957, Sec. 6).
a guarantee by the Government or by governmentowned or controlled corporations. The build-operateand-transfer scheme shall include a supply-andoperate situation which is a contractual arrangement
whereby the supplier of equipment and machinery for
a given infrastructure facility, if the interest of the
Government

requires,

operates

the owner of the infrastructure facility must comply


with the citizenship requirement of the Constitution
on the operation of a public utility. No such a
requirement is imposed in the BT scheme.

facility There is no mention in the BOT Law that the BOT


providing in the process technology transfer and and BT schemes bar any other arrangement for the
training to Filipino nationals. cdphil
payment by the government of the project cost. The
(b)

so

Emphasis must be made that under the BOT scheme,

the

Build-and-transfer scheme A contractual

arrangement whereby the contractor undertakes the


construction

including

infrastructure

facility,

completion

the

to

financing,
and

its

government

of

turnover
agency

or

given
after
local

government unit concerned which shall pay the


contractor its total investment expended on the
project, plus a reasonable rate of return thereon. This
arrangement may be employed in the construction of

law must not be read in such a way as to rule out or


unduly restrict any variation within the context of the
two schemes. Indeed, no statute can be enacted to
anticipate and provide all the fine points and details
for the multifarious and complex situations that may
be encountered in enforcing the law (Director of
Forestry v. Muoz, 23 SCRA 1183 [1968]; People v.
Exconde, 101 Phil. 1125 [1957]; United States v.
Tupasi Molina, 29 Phil. 119 [1914]).

any infrastructure project including critical facilities The BLT scheme in the challenged agreements is but
which for security or strategic reasons, must be a variation of the BT scheme under the law.
operated directly by the government" (Italics
As a matter of fact, the burden on the government in
supplied).
raising funds to pay for the project is made lighter by
The BOT scheme is expressly defined as one where allowing it to amortize payments out of the income
the contractor undertakes the construction and from the operation of the LRT System. LibLex
financing of an infrastructure facility, and operates

and maintains the same. The contractor operates the In form and substance, the challenged agreements
facility for a fixed period during which it may recover provide that rentals are to be paid on a monthly basis
its expenses and investment in the project plus a according to a schedule of rates through and under
reasonable rate of return thereon. After the expiration the terms of a confirmed Irrevocable Revolving Letter
of the agreed term, the contractor transfers the of Credit (Supplemental Agreement, Sec. 6; Rollo, p.
ownership and operation of the project to the 85). At the end of 25 years and when full payment
government.

shall have been made to and received by private

respondent, it shall transfer to DOTC, free from any


In the BT scheme, the contractor undertakes the lien or encumbrances, all its title to, rights and
construction and financing of the facility, but after interest in, the project for only U.S. $1.00 (Revised
completion, the ownership and operation thereof are and Restated Agreement, Sec. 11.1; Supplemental
turned over to the government. The government, in Agreement, Sec. 7; Rollo, pp. 67, 87).
turn, shall pay the contractor its total investment on
the project in addition to a reasonable rate of return.

Page 72 of 229
A lease is a contract where one of the parties binds Subsequent
himself to give to another the enjoyment or use of a including

congressional
"rail-based

approval

projects

of

the

packaged

list
with

thing for a certain price and for a period which may commercial development opportunities" (Rollo, p. 310)
be definite or indefinite but not longer than 99 years under which the EDSA LRT III project falls, amounts
(Civil Code of the Philippines, Art. 1643). There is no to a ratification of the prior award of the EDSA LRT III
transfer of ownership at the end of the lease period. contract under the BOT Law.
But if the parties stipulate that title to the leased
premises shall be transferred to the lessee at the end
of the lease period upon the payment of an agreed
sum, the lease becomes a lease-purchase agreement.
LLjur

Petitioners insist that the prequalification process


which led to the negotiated award of the contract
appears to have been rigged from the very beginning
to do away with the usual open international public
bidding

where

qualified

internationally

known

Furthermore, it is of no significance that the rents applicants could fairly participate.


shall be paid in United States currency, not Philippine
pesos. The EDSA LRT III Project is a high priority
project

certified

by

Congress

and

the

National

Economic and Development Authority as falling under


the Investment Priorities Plan of Government (Rollo,
pp. 310-311). It is, therefore, outside the application
of the Uniform Currency Act (R.A. No. 529), which
reads as follows:
"Sec. 1.

Every provision contained in, or made


contracted

prequalification process. Since only one was left, to


conduct a public bidding in accordance with Section
5 of the BOT Law for that lone participant will be an
absurd

and

in

the

Philippines

which

provisions purports to give the obligee the right to


require payment in gold or in a particular kind of coin
or currency other than Philippine currency or in an
amount of money of the Philippines measured
thereby, be as it is hereby declared against public

pointless

exercise

(cf.

Deloso

v.

Sandiganbayan, 217 SCRA 49, 61 [1993]).


Contrary

with respect to, any domestic obligation to wit, any


obligation

The records show that only one applicant passed the

to

the

comments

of

then

Executive

Secretary Drilon, Section 5 of the BOT Law in relation


to Presidential Decree No. 1594 allows the negotiated
award

of

government

infrastructure

projects.

Presidential Decree No. 1594, "Prescribing Policies,


Guidelines, Rules and Regulations for Government
Infrastructure

Contracts,"

allows

the

negotiated

award of government projects in exceptional cases.


Section 4 of the said law reads as follows:

policy, and null, void, and of no effect, and no such "Bidding. Construction projects shall generally be
provision shall be contained in, or made with respect undertaken by contract after competitive public
to, any obligation hereafter incurred. The above bidding.
Projects
may
be
undertaken
by
prohibition shall not apply to (a) . . .; (b) transactions administration or force account or by negotiated
affecting
high-priority
economic
projects
for contract only in exceptional cases where time is of the
agricultural, industrial and power development as essence, or where there is lack of qualified bidders or

may be determined by the National Economic Council contractors, or where there is conclusive evidence
which are financed by or through foreign funds; . . . ." that greater economy and efficiency would be
3.

The fact that the contract for the construction

of the EDSA LRT III was awarded through negotiation


and before congressional approval on January 22 and
23, 1992 of the List of National Projects to be
undertaken by the private sector pursuant to the BOT
Law (Rollo, pp. 309-312) does not suffice to invalidate
the award.

achieved

through

this

arrangement,

and

in

accordance with provision of laws and acts on the


matter, subject to the approval of the Minister of
Public

Works

and

Transportation

and

Communications, the Minister of Public Highways, or


the Minister of Energy, as the case may be, if the
project cost is less than P1 Million, and the President

Page 73 of 229
of the Philippines, upon recommendation of the "(e)

Build-lease-and-transfer

Minister, if the project cost is P1 Million or more arrangement


(Italics supplied).
xxx

whereby

project

contractual

proponent

is

authorized to finance and construct an infrastructure

xxx

or development facility and upon its completion turns

xxx

it over to the government agency or local government

Indeed, where there is a lack of qualified bidders or unit concerned on a lease arrangement for a fixed
contractors, the award of government infrastructure period after which ownership of the facility is
contracts may be made by negotiation. Presidential automatically transferred to the government agency
Decree No. 1594 is the general law on government or local government unit concerned."
infrastructure contracts while the BOT Law governs
particular
encouraging

arrangements

or

private

sector

schemes

aimed

participation

at
in

Section 5-A of the law, which expressly allows direct


negotiation of contracts, provides:

government infrastructure projects. The two laws are "Direct Negotiation of Contracts. Direct negotiation
not inconsistent with each other but are in pari shall be resorted to when there is only one complying
materia and should be read together accordingly. bidder left as defined hereunder.
LibLex

"(a)

If, after advertisement, only one contractor

In the instant case, if the prequalification process was applies

for

prequalification

actually tainted by foul play, one wonders why none of prequalification


the competing firms ever brought the matter before required

to

and

requirements,

submit

bid

after

it

meets
which

proposal

the
it

is

which

is

the PBAC, or intervened in this case before us (cf. subsequently found by the agency/local government
Malayan Integrated Industries Corp. v. Court of unit (LGU) to be complying.
Appeals, 213 SCRA 640 [1992]; Bureau Veritas v.
Office of the President, 205 SCRA 705 [1992]). The
challenged

agreements

have

been

approved

by

President Ramos himself. Although then Executive


Secretary

Drilon

may

have

disapproved

the

"Agreement to Build, Lease and Transfer a Light Rail

"(b)

If,

after

advertisement,

more

than

one

contractor applied for prequalification but only one


meets the prequalification requirements, after which
it submits bid/proposal which is found by the
agency/local government unit (LGU) to be complying.

Transit System for EDSA," there is nothing in our "(c)


If, after prequalification of more than one
laws that prohibits parties to a contract from contractor, only one submits a bid which is found by
renegotiating and modifying in good faith the terms the agency/LGU to be complying.
and conditions thereof so as to meet legal, statutory

If, after prequalification, more than one


the "(d)
circumstances, to require the parties to go back to contractor submit bids but only one is found by the
step one of the prequalification process would just be agency/LGU to be complying. Provided, That, any of
an idle ceremony. Useless bureaucratic "red tape" the disqualified prospective bidder [sic] may appeal
and

constitutional

requirements.

Under

should be eschewed because it discourages private the decision of the implementing agency/LGUs
sector participation, the "main engine" for national prequalification bids and awards committee within
growth and development (R.A. No. 6957, Sec. 1), and fifteen (15) working days to the head of the agency, in
case of national projects or to the Department of the
renders the BOT Law nugatory.
Interior and Local Government, in case of local
Republic Act No. 7718 recognizes and defines a BLT projects from the date the disqualification was made
scheme in Section 2 thereof as:
known to the disqualified bidder: Provided,
furthermore, That the implementing agency/LGUs

Page 74 of 229
concerned should act on the appeal within forty-five It must be noted that as part of the EDSA LRT III
(45) working days from receipt thereof." cdrep

project, private respondent has been granted, for a

Petitioners' claim that the BLT scheme and direct


negotiation of contracts are not contemplated by the
BOT Law has now been rendered moot and academic
by R.A. No. 7718. Sec. 3 of this law authorizes all
government
owned

infrastructure

and

controlled

agencies,

government-

corporations

and

local

government units to enter into contract with any duly


prequalified

proponent

for

the

financing,

construction, operation and maintenance of any


financially

viable

infrastructure

or

development

facility through a BOT, BT, BLT, BOO (Build-own-andoperate),

BTO

(Build-transfer-and-operate),

(Contract-add-operate),
transfer),

ROT

DOT

CAO

(Develop-operate-and-

(Rehabilitate-operate-and-transfer),

and ROO (Rehabilitate-own-operate) (R.A. No. 7718,


Sec. 2 [b-j]).
From

the

period of 25 years, exclusive rights over the depot and


the air space above the stations for development into
commercial premises for lease, sublease, transfer, or
advertising (Supplemental Agreement, Sec. 11; Rollo,
pp. 91-92). For and in consideration of these
development rights, private respondent shall pay
DOTC in Philippine currency guaranteed revenues
generated therefrom in the amounts set forth in the
Supplemental Agreement (Sec. 11; Rollo, p. 93). In
the event that DOTC shall be unable to collect the
guaranteed revenues, DOTC shall be allowed to
deduct any shortfalls from the monthly rent due
private respondent for the construction of the EDSA
LRT III. (Supplemental Agreement, Sec. 11; Rollo, pp.
93-94). All rights, titles, interests and income over all
contracts on the commercial spaces shall revert to
DOTC

law

itself,

once

an

applicant

upon

expiration

of

the

25-year

period

has (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92).

prequalified, it can enter into any of the schemes in


Section 2 thereof, including a BLT arrangement,
enumerated and defined therein (Sec. 3).

The terms of the agreements were arrived at after a


painstaking study by DOTC. The determination by the
proper administrative agencies and officials who have

Republic Act No. 7718 is a curative statute. It is acquired expertise, specialized skills and knowledge
intended to provide financial incentives and "a climate in the performance of their functions should be
of minimum government regulations and procedures accorded respect, absent any showing of grave abuse
and specific government undertakings in support of of discretion (Felipe Ysmael, Jr. & Co. v Deputy
the private sector" (Sec. 1). A curative statute makes Executive Secretary, 190 SCRA 673 [1990]; Board of
valid that which before enactment of the statute was Medical Education v. Alfonso, 176 SCRA 304 [1989]).
invalid. Thus, whatever doubts and alleged procedural
lapses private respondent and DOTC may have
engendered and committed in entering into the
questioned contracts, these have now been cured by
R.A.

No.

7718

(cf.

Development

Bank

of

the

Philippines v. Court of Appeals, 96 SCRA 342 [1980];


Santos v. Duata, 14 SCRA 1041 [1965]; Adong v.
Cheong Seng Gee, 43 Phil. 43 [1922]).
4.
are

disadvantageous

to

the

government

because the rental rates are excessive and private


respondent's development rights over the 13 stations
and the depot will rob DOTC of the best terms during
the most productive years of the project.

functions with regularity and strong evidence is


necessary to rebut this presumption. Petitioners have
not presented evidence on the reasonable rentals to
be paid by the parties to each other. The matter of
valuation is an esoteric field which is better left to the
experts and which this Court is not eager to
undertake.

Lastly, petitioners claim that the agreements


grossly

Government officials are presumed to perform their

That the grantee of a government contract will profit


therefrom and to that extent the government is
deprived of the profits if it engages in the business
itself, is not worthy of being raised as an issue. In all
cases where a party enters into a contract with the

Page 75 of 229
government, he does so, not out of charity and not to find myself unable to join the majority in the welllose money, but to gain pecuniarily. cdrep
5.

written ponencia of Mr. Justice Camilo P. Quiason.

Definitely, the agreements in question have

cdll

been entered into by DOTC in the exercise of its I most respectfully submit that the challenged
governmental function. DOTC is the primary policy, contract is void for at least two reasons: (a) it is an
planning,

programming,

regulating

and ultra-vires act of the Department of Transportation

administrative entity of the Executive branch of and Communications (DOTC) since under R.A. 6957
government in the promotion, development and the DOTC has no authority to enter into a Buildregulation of dependable and coordinated networks of Lease-and-Transfer

(BLT)

contract;

and

(b)

even

transportation and communications systems as well assuming arguendo that it has, the contract was
as in the fast, safe, efficient and reliable postal, entered into without complying with the mandatory
transportation

and

communications

services requirement of public bidding.

(Administrative Code of 1987, Book IV, Title XV, Sec.


2).

It

is

the

particular,

Executive

that

has

the

department,
power,

DOTC

in

authority

and Respondents admit that the assailed contract was


technical expertise to determine whether or not a entered into under R.A. 6957. This law, fittingly
specific transportation or communications project is entitled "An Act Authorizing the Financing,
necessary, viable and beneficial to the people. The Construction, Operation and Maintenance of

discretion to award a contract is vested in the Infrastructure Projects by the Private Sector, and For
government agencies entrusted with that function Other Purposes," recognizes only two (2) kinds of
(Bureau Veritas v. Office of the President, 205 SCRA contractual arrangements between the private sector
705 [1992]).

and government infrastructure agencies: (a) the


Build-Operate-and-Transfer (BOT) scheme and (b) the

WHEREFORE, the petition is DISMISSED.

Build-and-Transfer (BT) scheme. This conclusion

SO ORDERED.

finds support in Section 2 thereof which defines only


the BOT and BT schemes, in Section 3 which

Bellosillo and Kapunan, JJ., concur.


Narvasa,

C.J.,

Bidin,

Melo,

Puno,

explicitly provides for said schemes thus:


Vitug,

and

Francisco, JJ., join Justice Mendoza's concurring


opinion.

SEC. 3.

Private Initiative in Infrastructure.

All government infrastructure agencies, including


government-owned and controlled corporations and

Feliciano and Davide, Jr., JJ., see dissenting opinion.

local government units, are hereby authorized to

Padilla and Regalado, JJ., concur in the result.

contractor for the financing, construction, operation

Romero, J., is on leave.

enter into contract with any duly prequalified private


and

maintenance

of

any

financially

viable

infrastructure facilities through the build-operate-

Mendoza, J., see concurring opinion.

and-transfer or build-and-transfer scheme, subject to

Separate Opinions

supplied).

DAVIDE, JR., J., dissenting:

and in Section 5 which requires public bidding of

After wading through the record of the vicissitudes of


the challenged contract and evaluating the issues
raised and the arguments adduced by the parties, I

the terms and conditions hereinafter set forth. (Italics

projects under both schemes.

Page 76 of 229
All

prior

acts

and negotiations

leading to

the II

perfection of the challenged contract were clearly


intended and pursued for such schemes.
A Build-Lease-and-Transfer (BLT) scheme is not
authorized under the said law, and none of the
aforesaid prior acts and negotiations were designed
for such unauthorized scheme. Hence, the DOTC is
without any power or authority to enter into the BLT
contract in question.

Public bidding is mandatory in R.A. No. 6957. Section


5 thereof reads as follows:
SEC. 5.

Public Bidding of Projects. Upon

approval of the projects mentioned in Section 4 of this


Act, the concerned head of the infrastructure agency
or local government unit shall forthwith cause to be
published, once every week for three (3) consecutive
weeks, in at least two (2) newspapers of general

The majority opinion maintains, however, that since circulation and in at least one (1) local newspaper
"[t]here is no mention in the BOT Law and that the which is circulated in the region, province, city or
BOT and the BT schemes bar any other arrangement municipality in which the project is to be constructed
for the payment by the government of the project a notice inviting all duly prequalified infrastructure
cost," then "[t]he law must not be read in such a way contractors to participate in the public bidding for the
as to rule out or unduly restrict any variation within projects so approved. In the case of a build-operatethe context of the two schemes." This interpretation and-transfer arrangement, the contract shall be
would be correct if the law itself provides room for awarded to the lowest complying bidder based on the
flexibility. We find no such provision in R.A. No. 6957. present value of its proposed tolls, fees, rentals, and
If it intended to include a BLT scheme, then it should charges over a fixed term for the facility to be
have so stated, for contracts of lease are not unknown constructed, operated, and maintained according to
in our jurisdiction, and Congress has enacted several the prescribed minimum design and performance
laws relating to leases. That the BLT scheme was standards,
never intended as a permissible variation "within the purpose,

plans,
the

and

specifications.

For

contractor

shall

winning

this
be

context" of the BOT and BT schemes is conclusively automatically granted by the infrastructure agency or
established by the passage of R.A. No. 7718 which local government unit the franchise to operate and
amends:
a)

Section 2 by adding to the original BOT and

BT schemes the following schemes:

maintain the facility, including the collection of tolls,


fees, rentals, and charges in accordance with Section
6 hereof.
In the case of a build-and-transfer arrangement, the

(1)

Build-own-and operate (BOO)

(2)

Build-lease-and transfer (BLT)

bidder based on the present value of its proposed,

(3)

Build-transfer-and-operate (BTO)

be constructed according to the prescribed minimum

(4)

Contract-add-and-operate (CAO)

(5)

Develop-operate-and-transfer (DOT)

(6)

Rehabilitate-operate-and-transfer (ROT)

(7)

Rehabilitate-own-and-operate (ROO)

b)

Section 3 of R.A. No. 6957 by deleting

therefrom the phrase "through the build-operate-andtransfer or build-and-transfer scheme". LLphil

contract shall be awarded to the lowest complying


schedule of amortization payments for the facility to
design

and

performance

standards,

plans

and

specifications: Provided, however, That a Filipino


constructor who submits an equally advantageous bid
shall be given preference.
A copy of each build-operate-and-transfer or buildand-transfer contract shall forthwith be submitted to
Congress for its information.

Page 77 of 229
The requirement of public bidding is not an idle unholy

conspiracies

among

prospective

bidders,

ceremony. It has been aptly said that in our which would even include dishonest government
jurisdiction "public bidding is the policy and medium officials.
adhered

to

construction

in

Government

contracts

procurement

under

existing

laws

They

could

just

agree,

for

certain

and consideration, that only one of them would qualify in


and order that the latter would automatically corner the

regulations. It is the accepted method for arriving at a contract and obtain the award.
fair

and

reasonable

price

and

ensures

that

overpricing, favoritism and other anomalous practices


are eliminated or minimized. And any Government
contract entered into without the required bidding is
null and void and cannot adversely affect the rights of
third parties." (Bartolome C. Fernandez, Jr., A
TREATISE ON GOVERNMENT CONTRACTS UNDER
PHILIPPINE LAW 25 [rev. ed. 1991], citing Caltex vs.
Delgado Bros., 96 Phil. 368 [1954]).

Secretary Franklin Drilon correctly disapproved the


because

no

public

bidding could be validly had with only one bidder is


likewise conclusively shown by the amendments
introduced by R.A. No. 7718. Per Section 7 thereof, a
new

section

introduced

bidding

in

strict

denominated

in

R.A.

No.

as
6957

Section
to

5-A

allow

was
direct

negotiation of contracts. This new section reads:


SEC. 5-A.

The Office of the President, through then Executive


contract

That Section 5 admits of no exception and that no

Direct Negotiation of Contracts.

Direct negotiation shall be resorted to when there is


only one complying bidder left as defined hereunder.
LLpr

compliance with Section 5 of R.A. No. 6957 was (a)


If, after advertisement, only one contractor
conducted. Secretary Drilon further bluntly stated applies for prequalification requirements, after which

that the provision of the Implementing Rules of said it is required to submit a bid/proposal which is
law authorizing negotiated contracts was of doubtful subsequently found by the agency/local government

legality. Indeed, it is null and void because the law unit (LGU) to be complying.
itself does not recognize or allow negotiated contracts.
(b)
If, after advertisement, more than one
However, the majority opinion posits the view that contractor applied for prequalification but only one
since only private respondent EDSA LRT was meets the prequalification requirements, after which
prequalified, then a public bidding would be "an it submits bid/proposal which is found by the
absurd and pointless exercise." I submit that the agency/local government unit (LGU) to be complying.
mandatory requirement of public bidding cannot be

If, after prequalification of more than one


legally dispensed with simply because only one was (c)
qualified to bid during the prequalification contractor, only one submits a bid which is found by
proceedings. Section 5 mandates that the BOT or BT the agency/LGU to be complying.
contract should be awarded "to the lowest complying
bidder," which logically means that there must at
least be two (2) bidders. If this minimum requirement
is not met, then the proposed bidding should be
deferred and a new prequalification proceeding be
scheduled. Even those who were earlier disqualified
may by then have qualified because they may have, in
the

meantime,

qualifications.

exerted

efforts

to

meet

all

the

(d)

If,

after

prequalification,

more

than

one

contractor submit bids but only one is found by the


agency/LGU to be complying: Provided, That, any of
the disqualified prospective bidder may appeal the
decision

of

the

implementing

agency/LGUs

prequalification bids and awards committee within


fifteen (15) working days to the head of the agency, in
case of national projects or to the Department of the
Interior and Local Government, in case of local

This view of the majority would open the floodgates to projects from the date the disqualification was made
the rigging of prequalification proceedings or to known to the disqualified bidder: Provided,

Page 78 of 229
furthermore, That the implementing agency/LGUs After considerable study and effort, and with much
concerned should act on the appeal within forty-five reluctance, I find I must dissent in the instant case. I
(45) working days from receipt thereof.

agree with many of the things set out in the majority

Can this amendment be given retroactive effect to the


challenged contract so that it may now be considered
a permissible negotiated contract? I submit that it
cannot be R.A. No. 7718 does not provide that it

opinion written by my distinguished brother in the


Court Quiason, J. At the end of the day, however, I
find myself unable to join in the result reached by the
majority.

should be given retroactive effect to pre-existing I join in the dissenting opinion written by Mr. Justice
contracts. Section 18 thereof says that it "shall take Davide, Jr. which is appropriately drawn on fairly
effect fifteen (15) days after its publication in at least narrow grounds. At the same time, I wish to address
two (2) newspapers of general circulation." If it were briefly one of the points made by Mr. Justice Quiason
the intention of Congress to give said act retroactive in the majority opinion in his effort to meet the
effect then it would have so expressly provided. difficulties posed by Davide, Jr., J.
Article 4 of the Civil Code provides that "[l]aws shall
have no retroactive effect, unless the contrary is
provided."
The

refer

to

the

invocation

of

the

provisions

of

Presidential Decree No. 1594 dated 11 June 1978


entitled: "Prescribing Policies, Guidelines, Rules and

presumption

is

that

all

laws

operate Regulations

for

Government

Infrastructure

prospectively, unless the contrary clearly appears or Contracts." More specifically, the majority opinion
is clearly, plainly, and unequivocally expressed or invokes paragraph 1 of Section 4 of this Decree which
necessarily implied. In every case of doubt, the doubt reads as follows:
will be resolved against the retroactive application of
laws.

(Ruben

CONSTRUCTION

E.
225

Agpalo,
[2D.

ed,

STATUTORY
1990]).

As

to

amendatory acts, or acts which change an existing


statute, Sutherland states:

"Sec. 4.

Bidding. Construction projects shall

generally be undertaken by contract after competitive


public bidding. Projects may be undertaken by
administration or force account or by negotiated
contract only in exceptional cases where time is of the

In accordance with the rule applicable to original essence, or where there is lack of qualified bidders or
acts, it is presumed that provisions added by the contractors, or where there is a conclusive evidence
amendment that affecting substantive rights will not that

greater

be construed to apply to transactions and events achieved


completed

prior

to

its

enactment

unless

economy

through

this

and

efficiency

would

be

and

in

arrangement,

the accordance with provisions of laws and acts on the

legislature has expressed its intent to that effect or matter, subject to the approval of the Ministry of
such intent is clearly implied by the language of the Public Works, Transportation and Communications,
amendment or by the circumstances surrounding its the Minister of Public Highways, or the Minister of
enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S Energy, as the case may be, if the project cost is less
STATUTES AND STATUTORY CONSTRUCTION 434- than P1 Million, and of the President

of the

436 [1943 ed.])

of

I vote then to grant the instant petition and to declare

Philippines,

FELICIANO, J ., dissenting:

the

recommendation

the

Minister, if the project cost is P1 Million or more.

void the challenged contract and its supplement. xxx


cdrep

upon

xxx

xxx

I understand the unspoken theory in the majority


opinion to be that above Section 4 and presumably
the rest of Presidential Decree No. 1594 continue to

Page 79 of 229
exist and to run parallel to the provisions of Republic 6957 by the amending statute Republic Act No. 7718,
Act No. 6957, whether in its original form or as does not purport to authorize direct negotiation of
amended by Republic Act No. 7718.

contracts except in four (4) situations where there is a

A principal difficulty with this approach is that


Presidential Decree No. 1594 purports to apply to all
"government contracts for infrastructure and other
construction projects." But Republic Act No. 6957 as
amended by Republic Act No. 7718, relates only to
"infrastructure

projects"

which

are

financed,

constructed, operated and maintained "by the private


sector" "through the build/operate-and-transfer or
build-and-transfer scheme" under Republic Act No.

lack of pre-qualified contractors or complying bidders.


Thus, even under the amended special statute,
entering

into

contracts

by

negotiation

is

not

permissible in the other two (2) categories of cases


referred to in Section 4 of Presidential Decree No.
1594, i.e., "in exceptional cases where time is of the
essence" and "when there is conclusive evidence that
greater economy and efficiency would be achieved
through these arrangements, etc."

6597 and under a series of other comparable schemes The result I reach is that insofar as BOT, etc.-types of
under Republic Act No. 7718. In other words, contracts

are

concerned,

the

applicable

public

Republic Act No. 6957 and Republic Act No. 7718 bidding requirement is that set out in Republic Act
must be held, in my view, to be special statutes No. 6957 and, with respect to such type of contracts
applicable to a more limited field of "infrastructure opened for pre-qualification and bidding after the date
projects" than the wide-ranging scope of application of effectivity of Republic Act No. 7718, the provisions
of the general statute, i.e., Presidential Decree No. of Republic Act No. 7718. The assailed contract was
1594. Thus, the high relevance of the point made by entered into before Republic Act No. 7718 was
Mr. Justice Davide that Republic Act No. 6957 in enacted.
specific connection with BOT- and BLT-type of
contracts imposed an unqualified requirement of
public bidding set out in Section 5 thereof. prLL

The

difficulties

of

applying

the

provisions

of

Presidential Decree No. 1594 to the Edsa LRT-type of


contracts are aggravated when one considers the

It should also be pointed out that under Presidential detailed "Implementing Rules and Regulations as
Decree No. 1594, projects may be undertaken "by amended April 1988" issued under that Presidential
administration or force account or by negotiated Decree. 1 For instance:
contract only"
(1)

"in exceptional cases where time is of the

essence"; or
(2)

"where there is lack of bidders or contractors";

or
(3)

"IB [2.5.2] 2.4.2 By Negotiated Contract


xxx
a.

xxx

xxx'

In times of emergencies arising from natural

calamities where immediate action is necessary to


prevent imminent loss of life and/or property.

"where there is a conclusive evidence that

greater economy and efficiency would be achieved


through these arrangements, and in accordance with
provision[s] of laws and acts on the matter."

b.

Failure to award the contract after competitive

public bidding for valid cause or causes [such as


where the prices obtained through public bidding are
all above the AAE and the bidders refuse to reduce

It must, upon the one hand, be noted that the special their prices to the AAE].
law Republic Act No. 6957 made absolutely no
mention of negotiated contracts being permitted to
displace the requirement of public bidding. Upon the
other hand, Section 5-a, inserted in Republic Act No.

In these cases, bidding may be undertaken through


sealed

canvass

of

at

least

three

(3)

qualified

contractors. Authority to negotiate contracts for

Page 80 of 229
projects under these exceptional cases shall be are not adequately possessed by a Filipino entity as
subject to prior approval by heads of agencies within defined above.
their limits of approving authority.
c.

[The foregoing shall not negate any existing and

Where the subject project is adjacent or future commitments with respect to the bidding and

contiguous to an on-going project and it could be aware of contracts financed partly or wholly with
economically prosecuted by the same contractor funds from international lending institutions like the
provided that he has no negative slippage and has Asian Development Bank and the World Bank as well
demonstrated a satisfactory performance." (Emphasis as from bilateral and other similar sources.]" (Italics
supplied)

supplied)

Note that there is no reference at all in these The record of this case is entirely silent on the extent
Presidential Decree No. 1594 Implementing Rules and of Philippine equity in the Edsa LRT Corporation;
Regulations to absence of pre-qualified applicants and there is no suggestion that this corporation is
bidders as justifying negotiation of contracts as organized under Philippine law and is at least
distinguished from requiring public bidding or a seventy-five
second public bidding. prcd
Note

also

the

following

(75%)

percent

owned

by

Philippine

citizens.
provision

of

the

same Public bidding is the normal method by which a

Implementing Rules and Regulations:

government keeps contractors honest and is able to


assure itself that it would be getting the best possible

"IB 1. Prequalification

value for its money in any construction or similar

The following may become contractors for government project. It is not for nothing that multilateral financial
organizations like the World Bank and the Asian
projects:
Development

1.

Filipino

a.

Citizens (single proprietorship)

Bank

uniformly

require

projects

financed by them to be implemented and carried out


by public bidding. Public bidding is much too
important a requirement casually to loosen by a

Partnership or corporation duly organized latitudinarian exercise in statutory construction.


under the laws of the Philippines, and at least seventy LLjur
b.

five percent (75%) of the capital stock of which


belongs to Filipino citizens.

The instant Petition should be granted and the


challenged contract and its supplement should be

Contractors forming themselves into a joint nullified and set aside. A true public bidding,
venture, i.e., a group of two or more contractors that complete with a new prequalification proceeding,
2.

intend to be jointly and severally responsible for a should be required for the Edsa LRT Project.
particular

contract,

shall

for

purposes

of

bidding/tendering comply with LOI 630, and, aside

MENDOZA, J ., concurring:

from being currently and properly accredited by the I concur in all but Part III of the majority opinion.
Philippine Contractors Accreditation Board, shall Because I hold that petitioners do not have standing
comply with the provisions of R.A. 4566, provided to sue, I join to dismiss the petition in this case. I
that joint ventures in which Filipino ownership is less write only to set forth what I understand the grounds
than seventy five percent (75%) may be prequalified for our decisions on the doctrine of standing are and,
where the structures to be built require the why in accordance with these decisions, petitioners
application of techniques and/or technologies which do not have the right to sue, whether as legislators,
taxpayers or citizens. As members of Congress,

Page 81 of 229
because they allege no infringement of prerogatives as contentions to be without merit. To the extent
legislators. 1 As taxpayers because petitioners allege therefore that a party's standing is affected by a
neither an unconstitutional exercise of the taxing or determination of the substantive merit of the case or
spending powers of Congress (Art. VI, 24-25 and 29) 2 a preliminary estimate thereof, petitioners in the case
nor an illegal disbursement of public money. 3 As this at bar must be held to be without standing. This is in
Court pointed out in Bugnay Const. and Dev. Corp. v. line with our ruling in Lawyers League for a Better
Laron, 4 a party suing as taxpayer "must specifically Philippines v. Aquino 8 and In re Bermudez 9 where
prove that he has sufficient interest in preventing the we dismissed citizens' actions on the ground that
illegal expenditure of money raised by taxation and petitioners had no personality to sue and their
that he will sustain a direct injury as a result of the petitions did not state a cause of action. The holding
enforcement of the questioned statute or contract. It that petitioners did not have standing followed from
is not sufficient that he has merely a general interest the finding that they did not have a cause of action.
common to all members of the public." In that case, it
was held that a contract, whereby a local government
leased

property

to

private

party

with

the

understanding that the latter would build a market


building and at the end of the lease would transfer
the

building

to

the

lessor,

did

not

involve

disbursement of public funds so as to give a taxpayer


standing to question the legality of the contract. I see

In order that citizens' actions may be allowed a party


must show that he personally has suffered some
actual or threatened injury as a result of the allegedly
illegal conduct of the government; the injury is fairly
traceable to the challenged action; and the injury is
likely to be redressed by a favorable action. 10 As the
U.S. Supreme Court has held:

no substantial difference, as far as the standing of Typically, . . . the standing inquiry requires careful
taxpayers to question public contracts is concerned, judicial examination of a complaint's allegation to
between the contract there and the build-lease- ascertain whether the particular plaintiff is entitled to
transfer (BLT) contract being questioned by an adjudication of the particular claims asserted. Is
petitioners in this case.
the injury too abstract, or otherwise not appropriate,
Nor do petitioners have standing to bring this suit as
citizens. In the cases 5 in which citizens were
authorized to sue, this Court found standing because
it thought the constitutional claims pressed for
decision to be of "transcendental importance," as in
fact it subsequently granted relief to petitioners by
invalidating the challenged statutes or governmental
actions. Thus in the Lotto case 6 relied upon by the
majority for upholding petitioners' standing, this
Court took into account the "paramount public
interest" involved which "immeasurably affect[ed] the
social,

economic,

people

and

and

moral

the

well-being

of

counter-productive

the
and

retrogressive effects of the envisioned on-line lottery


system." 7 Accordingly, the Court invalidated the
contract for the operation of lottery. cdrep

by

finding

petitioners'

causation between the illegal conduct and injury too


attenuated? Is the prospect of obtaining relief from
the injury as a result of a favorable ruling too
speculative? These questions and any others relevant
to the standing inquiry must be answered by
reference to the Art III notion that federal courts may
exercise power only "in the last resort, and as a
necessity," Chicago & Grand Trunk R. Co. v. Wellman,
143 US 339, 345, 36 L Ed 176, 12 S Ct 400 (1892),
and only when adjudication is "consistent with a
system of separated powers and the [dispute is one]
traditionally thought to be capable of resolution
through the judicial process," Flast v. Cohen, 392 US
83, 97, 20 L. Ed 2d, 88 S Ct 1942 (1968). See Valley
Forge, 454 US, at 472-473, 70 L Ed 2d 700, 102 S Ct
752. 11

But in the case at bar, the Court precisely finds the


opposite

to be considered judicially cognizable? Is the line of

substantive

Today's holding that a citizen, qua citizen, has


standing to question a government contract unduly

Page 82 of 229
expands the scope of public actions and sweeps away continues to be the operator of the vehicles as regards
the case and controversy requirement so carefully the public and third persons, and as such is directly
embodied in Art. VIII, Sec. 5 in defining the and primarily responsible for the consequences
jurisdiction of this Court. The result is to convert the incident to its operation, so that, in contemplation of
Court into an office of Ombudsman for the ventilation law, such owner/operator of record is the employer of
of generalized grievances. Consistent with the view the driver, the actual operator and employer being
that this case has no merit I submit with respect that considered merely as his agent.
petitioners, as representatives of the public interest,
have no standing. prLL

LABRADOR, J p:

16.

This is a petition for review of the decision of the

EN BANC

Court of Appeals finding petitioner subsidiarily liable


for damages under article 103 of the Revised Penal

[G.R. No. L-17459. September 29, 1962.]


DIWATA

VARGAS,

petitioner,

vs.

Code.

SALVADOR

LANGCAY, CORAZON LANGCAY, HELEN LANGCAY


and JOSE AGUAS, respondents.

R.

Abalos

and

A.

M.

Ramon B. Aguas. Criminally charged with physical


Ronquillo

for injuries, the said Ramon B. Aguas was finally


sentenced by the Court of Appeals, in CA-G.R. No. L7900-R, to 3 months and 6 days of arresto mayor for

SYLLABUS

serious and slight physical injuries through reckless

PUBLIC

UTILITIES;

OWNER/OPERATOR
LIABILITY

at Rizal Avenue, Manila, Corazon and Helen Langcay,


plate No. AC-4859-Quezon City-1955, then driven by

respondents.

1.

At about 8:00 o'clock in the morning of June 5, 1955,


sisters, were hit and injured by a jeepney bearing

Mary Concepcion for petitioner.


Jose

DECISION

FOR

OF

REGISTERED

PASSENGER

DAMAGES

VEHICLES;

INCURRED

AS

CONSEQUENCE OF INJURIES. The registered

imprudence, caused to Corazon and Helen Langcay,


"without

pronouncement

with

respect

to

the

indemnity due to the aggrieved parties, because the


action therefor had been reserved."

owner/operator of a passenger vehicle is jointly and Since the records of the Public Service Commission
severally liable with the driver for damages incurred and the Motor Vehicles Office showed that Diwata
by passengers or third persons as a consequence of Vargas was, at the time of the accident, the owner

injuries (or death) sustained in the operation of said and operator of the jeepney in question, the parents
vehicles. (Montoya vs. Ignacio, 94 Phil., 182; Timbol of Corazon and Helen sued Diwata Vargas and the
vs. Osias, G.R. No. L-7547, April 30, 1955; Vda. de driver for damages. In spite of the defense of appellant

Medina vs. Cresencia, 99 Phil., 506; Necesito vs. Diwata Vargas that prior to the accident, precisely on
Paras, 104 Phil., 75; Erezo vs. Jepte, 102 Phil., 103; August 17, 1953, she had sold the vehicle to Jose B.
Tamayo vs. Aquino, 105 Phil., 949; Rayos vs. Tamayo, Aguas (father of the driver), so that at the time of the
105 Phil., 949; 56 Off. Gaz. [36] 5617).
2.

ID.;

ID.;

ID.;

DIRECT

AND

accident she was no longer the owner of the jeepney,


PRIMARY

LIABILITY OF OPERATOR OF RECORD; ACTUAL


OWNER

AND

EMPLOYER

DEEMED

AGENT

OF

OPERATOR OF RECORD. Regardless of who the


actual owner of a vehicle is, the operator of record

and that, further, the Public Service Commission, on


October 27, 1953, cancelled the certificate of public
convenience issued in her name, the defendants
Diwata Vargas and Ramon B. Aguas were jointly and
severally sentenced to pay damages and attorney's

Page 83 of 229
fees by the Court of First Instance of Manila. Diwata cannot be ascribed to appellant. Accordingly, her
Vargas appealed to the Court of Appeals which liability should be based on article 103 of the Revised
affirmed,

with

modifications,

the

lower

court's Penal Code. . . . therefore, appellant's responsibility is

decision.

merely subsidiary, pursuant to the above cited article

Pertinent parts of the Appeals Court decision are

of the Revised Penal Code."

hereby reproduced for a clearer understanding of the xxx


issue involved in this appeal:
"The

order

of

cancellation

xxx

xxx

" . . . the judgment appealed from is hereby modified


and

revocation

of in the sense that should defendant Ramon B. Aguas

appellant's certificate of public convenience, dated be found insolvent, appellant should pay appellees
October 27, 1953 (exh. 4-D) does not relieve her of the the sum of P953.00 as compensatory damages,
liability

established

by

the

above

quoted

legal P4,000.00 and P500.00 as moral damages suffered by

provisions as clearly and positively construed by the Corazon

and

Helen

Langcay,

respectively,

and

highest tribunal of the land. This order was issued P2,000.00 for attorney's fees. It is also ordered that
motu propio by the Commission in view of appellant's this case be turned to the court of origin not only for
failure to pay the P15.00 supervision and regulation the execution of this decision once it becomes final,
fee and its 50% surcharge, and not for the purpose of but also for further proceedings against Jose B.
transferring the same certificate to Jose B. Aguas. A Aguas, after proper summons, in the third-party
copy of the above mentioned order was furnished complaint

above

mentioned.

Without

special

appellant, so that she cannot profess ignorance of pronouncement as to the payment of the costs."
what she termed the "anomalous operation' of the
jeepney she sold to Jose B. Aguas without the
required authorization or approval of the Public
Service Commission. Appellant's failure to stop the
operation of the vehicle in question and to surrender
to the Motor Vehicles Office the corresponding AC
plates, as ordered by exhibit 4-D, Vargas constitutes a
violation of the Revised Motor Vehicle Law and
Commonwealth Act No. 146, which violation makes
her liability and responsibility clearer and more
inescapable."
xxx

Appellant-petitioner Diwata Vargas brought the case


to this Court on a question of law, alleging that she
cannot be held liable under Art. 103 of the Revised
Penal Code for whatever violation or offense she may
have committed under the Public Service Law and the
Motor Vehicle Law and in the absence of a showing
that she employed the person (driver) who caused the
damage, and that she was engaged in an industry or
a business, and where the evidence prove that the
father (Jose B. Aguas) of the person primarily liable
(Ramon Aguas) is his actual employer.

xxx

xxx

We

hold

that

the

Court

of

Appeals

erred

in

" . . . Appellant's liability stems from and is a form of considering appellant-petitioner Diwata Vargas only
punishment for her failure to comply with section subsidiarily liable under Article 103 of the Revised
20(g) of Commonwealth Act 146 and with 5 of Act Penal Code. This Court, in previous decisions, has
3992. . . ."
xxx

always considered the registered owner/operator of a


xxx

xxx

passenger vehicle, jointly and severally liable with the


driver, for damages incurred by passengers or third

"There is no question that appellees Corazon and persons as a consequence of injuries (or death)
Helen Langcay were not passengers of the jeepney, the sustained in the operation of said vehicles. (Montoya
reckless operation of which resulted in the injuries. vs. Ignacio, G.R. No. L-5868, Dec. 29, 1953; Timbol
Therefore, the direct and immediate liability of a vs. Osias, G.R. No. L-10605, June 30, 1955; Erezo vs.

common carrier as provided for by the Civil Code Jepte, G.R. No. L-9605, Sept. 30, 1957; Tamayo vs.

Page 84 of 229
Aquino, G.R. No. L-12720 May 29, 1959; Rayos vs. The purpose of the principles evolved by the decisions
Tamayo vs. Aquino, G.R. No. L-12720 May 29, 1959.) in these matters will be defeated and thwarted if we
In the case of Erezo vs. Jepte, supra, We held:

entertain the argument of petitioner that she is not


liable because the actual owner and employer was
established by the evidence. In the case of Erezo vs.

" . . . In synthesis, we hold that the registered owner, Jepte, supra, the Court said:
the

defendant

appellant

herein,

is

primarily

responsible for the damage caused . . ." (Emphasis


ours)

" . . . With the above policy in mind the question that


defendant-

appellant

poses

is:

Should

not

the

registered owner be allowed to the trial to prove who


the actual and real owner is, and in accordance with

In the case of Tamayo vs. Aquino, supra, We said:

such proof escape or evade responsibility and lay the

" . . . As Tamayo is the registered owner of the truck, same on the person actually owning the vehicle? We
his responsibility to the public or to any passenger hold with the trial court that the law does not allow
riding in the vehicle or truck must be direct . . . ." him to do so; the law with its aim and policy in mind
(Emphasis ours)
does not believe him directly of the responsibility that
Petitioner argues that there was no showing that she
employed the person (the driver) who caused the
injuries. On the contrary, she argues, the evidence
show that Jose B. Aguas, the father of the driver, is
his actual employer. We believe that it is immaterial
whether or not the driver was actually employed by
the operator of record. It is even not necessary to
prove who the actual owner of the vehicle and the
employer of the driver is. Granting that, in this case,
the father of the driver is the actual owner and that
he is the actual employer, following the well settled
principle that the operator of record continues to be
the operator of the vehicle in contemplation of law, as
regards the public and third persons, and as such is
responsible for the consequences incident to its
operation,

we

owner/operator

must
of

hold

record

and
as

the

consider

such

employer,

in

contemplation of law, of the driver. And, to give effect


to this policy of law as enunciated in the above-cited
decisions of this Court, we must now extend the same
and consider the actual operator and employer as the
agent of the operator of record. In the case of Tamayo
vs. Aquino, supra, this Court said:
" . . . In operating the truck without transfer thereof
having

been

approved

by

the

Public

Service

Commission, the transferee acted merely as agent of


the registered owner. . . ." (Emphasis ours)

the law fixes and places upon him as an incident or


consequence of registration. Were a registered owner
allowed to evade responsibility by proving who the
supposed transferee or owner is, it would be easy for
him by collusion with others or otherwise, to escape
said responsibility and transfer the same to an
indefinite person or to one who possesses no property
with which to respond financially for the damage or
injury done. A victim of recklessness on the public
highways is without means to discover or identify the
person actually causing the injury or damage. He has
no means other than by a recourse to the registration
in the Motor Vehicles Office to determine who is the
owner. The protection that the law aims to extend to
him would become illusory were the registered owner
given the opportunity to escape liability by disproving
his ownership. If the policy of the law is to be enforced
and carried out, the registered owner should not be
allowed to prove the contrary to the prejudice of the
person injured; that is, to prove that a third person or
another has become the owner, so that he may
thereby be relieved of the responsibility to the injured
person."
For the foregoing considerations, we hold that Article
103 is not the law applicable in this case; the
petitioner stands liable, however, on the basis of the
settled principle that as the registered owner, she is
directly and primarily responsible and liable for

Page 85 of 229
damages sustained by passengers or third persons as or to third persons for injuries caused the latter while
a consequence of the negligent or careless operation the vehicle is being driven on the highways or streets.
of the vehicle registered in her name. Petitioner does
not question the amounts of damages granted to
respondents by the Court of Appeals and the same
not appearing to be excessive or unconscionable, they
should be maintained.

3.

ID.;

MOTOR

VEHICLES

OFFICE;

REGISTRATION REQUIRED AS PERMISSION TO USE


PUBLIC HIGHWAY. Registration is required not to
make said registration the operative act by which
ownership in vehicles is transferred as in land

WHEREFORE, the decision of the Court of Appeals is registration


hereby modified, as above indicated. With costs.
Bengzon, C.J., Padilla, Bautista Angelo, Reyes, J.B.L.
and Paredes, JJ., concur.

cases,

because

the

administrative

proceeding of registration does not bear any essential


relation to the contract of sale between the parties
(Chinchilla vs. Rafael and Verdaguer 39 Phil. 886),
but to permit the use and operation of the vehicle

Concepcion, Barrera, Dizon, Regala and Makalintal, upon any public highway (Section 5 (a) Act No. 3992,
as amended).
JJ., did not take part.
17.

4.

FIRST DIVISION

vehicle registration is to identify the owner so that if

VEHICLE REGISTRATION. The main aim of motor

[G.R. No. L-9605. September 30, 1957.]


GAUDIOSO EREZO, ET AL., plaintiffs. GAUDIOSO
EREZO, plaintiff-appellee, vs. AGUEDO JEPTE,

Gesolgon, Matti & Custodio for appellees.


Aguedo Y. Jepte in his own behalf.

is caused, by the vehicle on the public highways,


responsibility therefor can be fixed on a definite
individual, the registered owner.
ID.; ID.; EVIDENCE; REGISTERED OWNER

NOT ALLOWED TO PROVE ACTUAL OWNER OF


VEHICLE; POLICY OF THE LAW. The law does not
allow the registered owner to prove who the actual
owner is; the law, with its claim and policy in mind,
does not relieve him directly of the responsibility that

SYLLABUS
DAMAGES;

any accidents happens, or that any damage or injury

5.

defendant-appellant.

1.

ID.; ID.; IS.; AIM OR PURPOSE OF MOTOR

the law fixes and places upon him as an incident or


MOTOR

VEHICLES;

PUBLIC consequence of registration. Were the registered


SERVICE LAW; REGISTERED OWNER AS ACTUAL owner allowed to evade responsibility by proving who
OWNER. In the dealing with vehicles registered the supposed transferee or owner is, it would be easy
under the Public Service Law, the public has the right for him by collusion with others or otherwise, to
to assume or presume that the registered owner is the escape said responsibility and transfer the same to an
actual owner thereof, for it would be difficult for the indefinite person. or to one who possesses no
Public to enforce the actions that they may have for property with which to respond financially for the
injuries caused to them by the vehicles being damage or injury done.
negligently operated if the public should be required
to prove who the actual owner is.

6.

ID.; ID.; ID.; ID.; ID.; REGISTRATION AS

MEANS TO IDENTIFY PERSON CAUSING INJURY OR

2.

ID.; ID.; REGISTERED OWNER PRIMARILY DAMAGE. A victim of recklessness on the public is
RESPONSIBLE FOR INJURIES. The registered usually without means to discover or identify the
owner of any vehicle, even if not used for a public person actually causing the injury or damage. He has
service, should primarily be responsible to the public no means other than by a recourse to the registration

Page 86 of 229
in the Motor Vehicles Office to determine who is the registered

owner

of

the

truck,

the

defendant-

owner. The protection that the law aims to extend to appellant. The circumstances material to the case are
him would become illusory were the registered owner stated by the court in its decision:
given the opportunity to escape the liability by
disproving his ownership. If the policy of the law is to
be enforced and carried out, the registered owner
should not be allowed to prove the contrary to the
prejudice of the person injured, that is to prove that a
third person or another has become the owner, so
that he may thereby be relieved of the responsibility
to the injured person.
7.
AS

"The defendant does not deny that at the time of the


fatal accident the cargo truck driven by Rodolfo
Espino y Garcia was registered in his name. He,
however, claims that the vehicle belonged to the Port
Brokerage, of which he was the broker at the time of
the accident. He explained, and his explanation was
corroborated by Policarpio Franco, the manager of the
corporation, that the trucks of the corporation were

ID.; MOTOR VEHICLE REGISTERED OWNER registered in his name as a convenient arrangement
PRIMARILY

RESPONSIBLE;

RIGHT

OF so as to enable the corporation to pay the registration

REIMBURSEMENT. The registered owner of a fee with his backpay as a pre-war government
motor vehicle is primarily responsible for the damage employee.

Franco,

however,

admitted

that

the

caused to the vehicle of the plaintiff-appellee but the arrangement was not known to the Motor Vehicles
registered owner has a right to be indemnified by the Office."
real or actual owner of the amount that he may be
required to pay as damage for the injury caused to
the plaintiff-appellant.

The trial court held that as the defendant-appellant


represented himself to be the owner of the truck and
the

DECISION

Motor

Vehicles

Office,

relying

on

his

representation, registered the vehicles in his name,


the Government and all persons affected by the

LABRADOR, J p:

representation had the right to rely on his declaration

Appeal from a judgment of the Court of First Instance of ownership and registration. It, therefore, held that
of Manila ordering defendant to pay plaintiff Gaudioso defendant-appellant is liable because he cannot be

Erezo P3,000 on the death of Ernesto Erezo, son of permitted to repudiate his own declaration. (Section
68 [a], Rule 123, and Art. 1431, New Civil Code.)
plaintiff Gaudioso Erezo.
Defendant-appellant is the registered owner of a six Against the judgment, the defendant has prosecuted
by six truck bearing plate No. TC-1253. On August 9, this appeal claiming that at the time of the accident

1949, while the same was being driven by Rodolfo the relation of employer and employee between the
Espino y Garcia, it collided with a taxicab at the driver and defendant-appellant was not established, it
intersection of San Andres and Dakota Streets, having been proved at the trial that the owner of the
Manila. As the truck went off the street, it hit Ernesto truck was the Port Brokerage, of which defendant-

Erezo and another, and the former suffered injuries, appellant was merely a broker. We find no merit or
as a result of which he died. The driver was justice in the above contention. In previous decisions,

prosecuted for homicide through reckless negligence We already have held that the registered owner of a
in criminal case No. 10663 of the Court of First certificate of public convenience is liable to the public
Instance of Manila. The accused pleaded guilty and for the injuries or damages suffered by passengers or
was sentenced to suffer imprisonment and to pay the third persons caused by the operation of said vehicle,
heirs of Ernesto Erezo the sum of P3,000. As the even though the same had been transferred to a third
amount of the judgment could not be enforced against person. (Montoya vs. Ignacio, 94 Phil., 182, 50 Off.
him,

plaintiff

brought

this

action

against

the Gaz., 108; Roque vs. Malibay Transit Inc., 1 G. R. No.


L-8561, November 18, 1955; Vda. de Medina vs.

Page 87 of 229
Cresencia, 99 Phil., 506, 52 Off. Gaz., [10], 4606.) must carry a registration number, conspicuously
The principle upon which this doctrine is based is displayed, is one of the precautions taken to reduce
that in dealing with vehicles registered under the the danger of injury to pedestrians and other
Public Service Law, the public has the right to travellers

from

the

careless

management

of

assume or presume that the registered owner is the automobiles, and to furnish a means of ascertaining
actual owner thereof, for it would be difficult for the the identity of persons violating the laws and
public to enforce the actions that they may have for ordinances, regulating the speed and operation of
injuries caused to them by the vehicles being machines upon the highways (2 R. C. L. 1176). Not
negligently operated if the public should be required only are vehicles to be registered and that no motor
to prove who the actual owner is. How would the vehicles are to be used or operated without being
public or third persons know against whom to enforce properly registered for the current year, but that
their rights in case of subsequent transfers of the dealers in motor vehicles shall furnish the Motor
vehicles? We do not imply by this doctrine, however, Vehicles Office a report showing the name and
that the registered owner may not recover whatever address of each purchaser of motor vehicle during the
amount he had paid by virtue of his liability to third previous

month

and

the

manufacturer's

serial

persons from the person to whom he had actually number and motor number. (Section 5 [c], Act No.
sold, assigned or conveyed the vehicle.

3992, as amended.)

Under the same principle the registered owner of any Registration is required not to make said registration
vehicle, even if not used for a public service, should the operative act by which ownership in vehicles is
primarily be responsible to the public or to third transferred, as in land registration cases, because the
persons for injuries caused the latter while the vehicle administrative proceeding of registration does not
is being driven on the highways or streets. The bear any essential relation to the contract of sale
members of the Court are in agreement that the between

the

parties

(Chinchilla

vs.

Rafael

and

defendant-appellant should be held liable to plaintiff- Verdaguer, 39 Phil. 888), but to permit the use and
appellee for the injuries occasioned to the latter operation of the vehicle upon any public highway
because of the negligence of the driver, even if the (section 5 [a], Act No. 3992, as amended). The main
defendant- appellant was no longer the owner of the aim of motor vehicle registration is to identify the
vehicle at the time of the damage because he had owner so that if any accident happens, or that any
previously sold it to another. What is the legal basis damage or injury is caused by the vehicle on the
for his (defendant-appellant's) liability?
There is a presumption that the owner of the guilty
vehicle is the defendant-appellant as he is the
registered owner in the Motor Vehicles Office. Should
he not be allowed to prove the truth, that he had sold
it to another and thus shift the responsibility for the
injury to the real and actual owner? The defendant
holds the affirmative of this proposition; the trial
court held the negative.

public highways, responsibility therefor can be fixed


on

definite

individual,

the

registered

owner.

Instances are numerous where vehicles running on


public highways caused accidents or injuries to
pedestrians

or

other

vehicles

without

positive

identification of the owner or drivers, or with very


scant means of identification. It is to forestall these
circumstances, so inconvenient or prejudicial to the
public, that the motor vehicle registration is primarily
ordained, in the interest of the determination of

The Revised Motor Vehicles Law (Act No. 3992, as persons responsible for damages or injuries caused
amended) provides that no vehicle may be used or on public highways.
operated upon any public highway unless the same is
properly registered. It has been stated that the system
of licensing and the requirement that each machine

"'One of the principal purposes of motor vehicles


legislation is identification of the vehicle and of the

Page 88 of 229
operator, in case of accident; and another is that the opportunity to escape liability by disproving his
knowledge

that

means

of

detection

are

always ownership. If the policy of the law is to be enforced

available may act as a deterrent from lax observance and carried out, the registered owner should not be
of the law and of the rules of conservative and safe allowed to prove the contrary to the prejudice of the
operation. Whatever purpose there may be in these person injured, that is, to prove that a third person or
statutes, it is subordinate at the last to the primary another has become the owner, so that he may
purpose of rendering it certain that the violator of the thereby be relieved of the responsibility to the injured
law or of the rules of safety shall not escape because person.
of lack of means to discover him.' The purpose of the
statute is thwarted, and the displayed number
becomes a 'snare and delusion,' if courts would
entertain such defenses as that put forward by
appellee in this case. No responsible person or
corporation

could

be

held

liable

for

the

most

outrageous acts of negligence, if they should be


allowed to place a "middleman' between them and the
public, and escape liability by the manner in which
they recompense their servants." (King vs. Brenham
Automobile Co., 145 S. W. 278, 279.)

The above policy and application of the law may


appear quite harsh and would seem to conflict with
truth and justice. We do not think it is so. A
registered owner who has already sold or transferred
a vehicle has the recourse to a third-party complaint,
in the same action brought against him to recover for
the damage or injury done, against the vendee or
transferee of the vehicle. The inconvenience of the
suit is no justification for relieving him of liability;
said inconvenience is the price he pays for failure to
comply with the registration that the law demands

With the above policy in mind, the question that and requires.
defendant-

appellant

poses

is:

should

not

the

registered owner be allowed at the trial to prove who


the actual and real owner is, and in accordance with
such proof escape or evade responsibility and lay the
same on the person actually owning the vehicle? We
hold with the trial court that the law does not allow
him to do so; the law, with its aim and policy in mind,
does not relieve him directly of the responsibility that

In synthesis, we hold that the registered owner, the


defendant- appellant herein, is primarily responsible
for the damage caused to the vehicle of the plaintiffappellee, but he (defendant-appellant) has a right to
be indemnified by the real or actual owner of the
amount that he may be required to pay as damage for
the injury caused to the plaintiff-appellant.

the law fixes and places upon him as an incident or The judgment appealed from is hereby affirmed, with
consequence of registration. Were a registered owner costs against defendant-appellant.
allowed to evade responsibility by proving who the

supposed transferee or owner is, it would be easy for Pars, C. J., Bengzon, Bautista Angelo, Concepcion,
him, by collusion with others or otherwise, to escape Reyes, J. B. L., Endencia and Felix, JJ., concur.
said responsibility and transfer the same to an
indefinite person, or to one who possesses no

Montemayor, J., concurs in the result.

property with which to respond financially for the 18


damage or injury done. A victim of recklessness on
the public highways is usually without means to THIRD DIVISION
discover or identify the person actually causing the
injury or damage. He has no means other than by a [G.R. No. 162267. July 4, 2008.]
recourse to the registration in the Motor Vehicles
Office to determine who is the owner. The protection
that the law aims to extend to him would become
illusory

were

the

registered

owner

given

PCI LEASING AND FINANCE, INC., petitioner, vs.


UCPB

GENERAL

the respondent.

INSURANCE

CO.,

INC.,

Page 89 of 229
As the 18-wheeler truck is registered under the name

DECISION

of PCI Leasing, repeated demands were made by

AUSTRIA-MARTINEZ, J p:

plaintiff-appellee for the payment of the aforesaid

Before the Court is a Petition for Review on Certiorari


under Rule 45 of the Rules of Court, seeking a
reversal of the Decision 1 of the Court of Appeals (CA)

amounts. However, no payment was made. Thus,


plaintiff-appellee filed the instant case on March 13,
1991. 3

dated December 12, 2003 affirming with modification PCI Leasing and Finance, Inc., (petitioner) interposed
the Decision of the Regional Trial Court (RTC) of the defense that it could not be held liable for the
Makati City which ordered petitioner and Renato collision, since the driver of the truck, Gonzaga, was

Gonzaga (Gonzaga) to pay, jointly and severally, not its employee, but that of its co-defendant Superior
respondent the amount of P244,500.00 plus interest; Gas & Equitable Co., Inc. (SUGECO). 4 In fact, it was
and the CA Resolution 2 dated February 18, 2004 SUGECO, and not petitioner, that was the actual
denying

petitioner's

Motion

TSIDaH

for

Reconsideration. operator of the truck, pursuant to a Contract of Lease

signed by petitioner and SUGECO. 5 Petitioner,


however, admitted that it was the owner of the truck

The facts, as found by the CA, are undisputed:

in question. 6

On October 19, 1990 at about 10:30 p.m., a


Mitsubishi Lancer car with Plate Number PHD-206
owned

by

United

Coconut

Planters

Bank

was

After trial, the RTC rendered its Decision dated April


15, 1999, 7 the dispositive portion of which reads:

traversing the Laurel Highway, Barangay Balintawak, WHEREFORE, premises considered, judgment is
Lipa City. The car was insured with plaintiff-appellee hereby rendered in favor of plaintiff UCPB General
[UCPB General Insurance Inc.], then driven by Insurance [respondent], ordering the defendants PCI
Flaviano Isaac with Conrado Geronimo, the Asst. Leasing and Finance, Inc., [petitioner] and Renato
Manager of said bank, was hit and bumped by an 18- Gonzaga, to pay jointly and severally the former the
wheeler Fuso Tanker Truck with Plate No. PJE-737 following amounts: the principal amount of
and Trailer Plate No. NVM-133, owned by defendants- P244,500.00 with 12% interest as of the filing of this
appellants PCI Leasing & Finance, Inc. allegedly complaint until the same is paid; P50,000.00 as
leased to and operated by defendant-appellant attorney's fees; and P20,000.00 as costs of suit.
Superior Gas & Equitable Co., Inc. (SUGECO) and DHTECc
driven by its employee, defendant appellant Renato
SO ORDERED. 8
Gonzaga.

The impact caused heavy damage to the Mitsubishi Aggrieved by the decision of the trial court, petitioner
Lancer car resulting in an explosion of the rear part appealed to the CA.
of the car. The driver and passenger suffered physical
injuries. However, the driver defendant-appellant
Gonzaga continued on its [sic] way to its [sic]
destination and did not bother to bring his victims to
the hospital.

CacEID

Plaintiff-appellee paid the assured UCPB the amount


of P244,500.00 representing the insurance coverage
of the damaged car.

In its Decision dated December 12, 2003, the CA


affirmed

the

RTC's

decision,

with

certain

modifications, as follows:
WHEREFORE, the appealed decision dated April 15,
1999 is hereby AFFIRMED with modification that the
award of attorney's fees is hereby deleted and the rate
of interest shall be six percent (6%) per annum
computed from the time of the filing of the complaint
in the trial court until the finality of the judgment. If

Page 90 of 229
the adjudged principal and the interest remain However, the registered owner of the vehicle driven by
unpaid thereafter, the interest rate shall be twelve a negligent driver may still be held liable under
percent (12%) per annum computed from the time the applicable

jurisprudence

involving

judgment becomes final and executory until it is fully compulsory

motor

registration

satisfied.
SO ORDERED. 9
Petitioner filed a Motion for Reconsideration which the
CA denied in its Resolution dated February 18, 2004.
Hence, herein Petition for Review.
The issues raised by petitioner are purely legal:

vehicle

laws

on

and

the

liabilities of employers for quasi-delicts under the


Civil Code.
The principle of holding the registered owner of a
vehicle liable for quasi-delicts resulting from its use is
well-established in jurisprudence. Erezo v. Jepte, 12
with Justice Labrador as ponente, wisely explained
the reason behind this principle, thus:
Registration is required not to make said registration

Whether petitioner, as registered owner of a motor the operative act by which ownership in vehicles is
vehicle that figured in a quasi-delict may be held transferred, as in land registration cases, because the
liable, jointly and severally, with the driver thereof, for administrative proceeding of registration does not
the damages caused to third parties. aSADIC
bear any essential relation to the contract of sale
Whether petitioner, as a financing company, is
absolved from liability by the enactment of Republic
Act (R.A.) No. 8556, or the Financing Company Act of
1998.

between

the

parties

(Chinchilla

vs.

Rafael

and

Verdaguer, 39 Phil. 888), but to permit the use and


operation of the vehicle upon any public highway
(section 5 [a], Act No. 3992, as amended). The main
aim of motor vehicle registration is to identify the

Anent the first issue, the CA found petitioner liable for owner so that if any accident happens, or that any
the damage caused by the collision since under the damage or injury is caused by the vehicle on the

Public Service Act, if the property covered by a public highways, responsibility therefor can be fixed
franchise is transferred or leased to another without on a definite individual, the registered owner.

obtaining the requisite approval, the transfer is not Instances are numerous where vehicles running on
binding on the Public Service Commission and, in public highways caused accidents or injuries to
contemplation of law, the grantee continues to be pedestrians or other vehicles without positive
responsible under the franchise in relation to the identification of the owner or drivers, or with very

operation of the vehicle, such as damage or injury to scant means of identification. It is to forestall these
circumstances, so inconvenient or prejudicial to the
third parties due to collisions. 10
public, that the motor vehicle registration is primarily

Petitioner claims that the CA's reliance on the Public ordained, in the interest of the determination of
Service Act is misplaced, since the said law applies persons responsible for damages or injuries caused
only to cases involving common carriers, or those on public highways. STCDaI
which have franchises to operate as public utilities. In
contrast, the case before this Court involves a private "'One of the principal purposes of motor vehicles

commercial vehicle for business use, which is not legislation is identification of the vehicle and of the
operator, in case of accident; and another is that the
offered for service to the general public. 11

knowledge that means of detection are always


Petitioner's contention has partial merit, as indeed, available may act as a deterrent from lax observance
the vehicles involved in the case at bar are not of the law and of the rules of conservative and safe
common carriers, which makes the Public Service Act operation. Whatever purpose there may be in these
inapplicable. cSEAHa
statutes, it is subordinate at the last to the primary

Page 91 of 229
purpose of rendering it certain that the violator of the thereby be relieved of the responsibility to the injured
law or of the rules of safety shall not escape because person.
of lack of means to discover him'. The purpose of the
statute is thwarted, and the displayed number
becomes a 'snare and delusion', if courts would
entertain such defenses as that put forward by
appellee in this case. No responsible person or
corporation

could

be

held

liable

for

the

most

outrageous acts of negligence, if they should be


allowed to place a 'middleman' between them and the
public, and escape liability by the manner in which
they recompense their servants". (King vs. Brenham
Automobile Co., 145 S.W. 278, 279).

SICDAa

The above policy and application of the law may


appear quite harsh and would seem to conflict with
truth and justice. We do not think it is so. A
registered owner who has already sold or transferred
a vehicle has the recourse to a third-party complaint,
in the same action brought against him to recover for
the damage or injury done, against the vendee or
transferee of the vehicle. The inconvenience of the
suit is no justification for relieving him of liability;
said inconvenience is the price he pays for failure to
comply with the registration that the law demands

With the above policy in mind, the question that and requires.
defendant-appellant

poses

is:

should

not

the

registered owner be allowed at the trial to prove who


the actual and real owner is, and in accordance with
such proof escape or evade responsibility and lay the
same on the person actually owning the vehicle? We
hold with the trial court that the law does not allow
him to do so; the law, with its aim and policy in mind,
does not relieve him directly of the responsibility that

In synthesis, we hold that the registered owner, the


defendant-appellant herein, is primarily responsible
for the damage caused to the vehicle of the plaintiffappellee, but he (defendant-appellant) has a right to
be indemnified by the real or actual owner of the
amount that he may be required to pay as damage for
the injury caused to the plaintiff-appellant. 13

the law fixes and places upon him as an incident or The case is still good law and has been consistently
consequence of registration. Were a registered owner cited in subsequent cases. 14 Thus, there is no good
allowed to evade responsibility by proving who the reason to depart from its tenets. ACTESI
supposed transferee or owner is, it would be easy for
him, by collusion with others or otherwise, to escape For damage or injuries arising out of negligence in the

said responsibility and transfer the same to an operation of a motor vehicle, the registered owner may
indefinite person, or to one who possesses no be held civilly liable with the negligent driver either 1)
property with which to respond financially for the subsidiarily, if the aggrieved party seeks relief based
damage or injury done. A victim of recklessness on on a delict or crime under Articles 100 and 103 of the
the public highways is usually without means to Revised Penal Code; or 2) solidarily, if the
discover or identify the person actually causing the complainant seeks relief based on a quasi-delict
injury or damage. He has no means other than by a under Articles 2176 and 2180 of the Civil Code. It is
recourse to the registration in the Motor Vehicles the option of the plaintiff whether to waive completely
Office to determine who is the owner. The protection the filing of the civil action, or institute it with the
that the law aims to extend to him would become criminal action, or file it separately or independently
the of a criminal action; 15 his only limitation is that he
opportunity to escape liability by disproving his cannot recover damages twice for the same act or
ownership. If the policy of the law is to be enforced omission of the defendant. 16
illusory

were

the

registered

owner

given

and carried out, the registered owner should not be


allowed to prove the contrary to the prejudice of the
person injured, that is, to prove that a third person or
another has become the owner, so that he may

In case a separate civil action is filed, the longstanding principle is that the registered owner of a
motor vehicle is primarily and directly responsible for

Page 92 of 229
the consequences of its operation, including the acquires, at the instance of the lessee, machinery,
negligence of the driver, with respect to the public equipment, motor vehicles, appliances, business and
and all third persons. 17 In contemplation of law, the office machines, and other movable or immovable
registered owner of a motor vehicle is the employer of property in consideration of the periodic payment by
its driver, with the actual operator and employer, such the lessee of a fixed amount of money sufficient to
as a lessee, being considered as merely the owner's amortize at least seventy (70%) of the purchase price
agent. 18 This being the case, even if a sale has been or acquisition cost, including any incidental expenses
executed before a tortious incident, the sale, if and a margin of profit over an obligatory period of not
unregistered, has no effect as to the right of the less than two (2) years during which the lessee has
public

and

third

persons

to

recover

from

the the right to hold and use the leased property, . . . but

registered owner. 19 The public has the right to with no obligation or option on his part to purchase
conclusively presume that the registered owner is the the leased property from the owner-lessor at the end
real owner, and may sue accordingly. 20

of the lease contract. 26

In the case now before the Court, there is not even a Petitioner presented a lengthy discussion of the
sale of the vehicle involved, but a mere lease, which purported
remained

unregistered

up

to

the

time

of

the apparently

trend
tends

in
to

other
favor

jurisdictions,
absolving

which

financing

occurrence of the quasi-delict that gave rise to the companies from liability for the consequences of
case. Since a lease, unlike a sale, does not even quasi-delictual acts or omissions involving financially
involve a transfer of title or ownership, but the mere leased property. 27 The petition adds that these
use or enjoyment of property, there is more reason, developments have been legislated in our jurisdiction
therefore, in this instance to uphold the policy behind in Republic Act (R.A.) No. 8556, 28 which provides:
the law, which is to protect the unwitting public and
provide it with a definite person to make accountable
for losses or injuries suffered in vehicular accidents.
21 This is and has always been the rationale behind
compulsory motor vehicle registration under the Land
Transportation and Traffic Code and similar laws,
which, as early as Erezo, has been guiding the courts
in their disposition of cases involving motor vehicular
incidents. It is also important to emphasize that such
principles apply to all vehicles in general, not just
those offered for public service or utility. 22
The Court recognizes that the business of financing
companies

has

legitimate

and

commendable

purpose. 23 In earlier cases, it considered a financial

Section 12.

Liability

of

lessors.

Financing

companies shall not be liable for loss, damage or


injury caused by a motor vehicle, aircraft, vessel,
equipment, machinery or other property leased to a
third person or entity except when the motor vehicle,
aircraft, vessel, equipment or other property is
operated by the financing company, its employees or
agents at the time of the loss, damage or injury.
IHCDAS
Petitioner's argument that the enactment of R.A. No.
8556, especially its addition of the new Sec. 12 to the
old law, is deemed to have absolved petitioner from
liability, fails to convince the Court.

lease or financing lease a legal contract, 24 though These developments, indeed, point to a seeming
subject to the restrictions of the so-called Recto Law emancipation of financing companies from the
or Articles 1484 and 1485 of the Civil Code. 25 In obligation to compensate claimants for losses suffered

previous cases, the Court adopted the statutory from the operation of vehicles covered by their lease.
definition of a financial lease or financing lease, as: Such, however, are not applicable to petitioner and do
SCHIac

[A] mode of extending credit through a non-cancelable


lease contract under which the lessor purchases or

not exonerate it from liability in the present case.

Page 93 of 229
The

new

law,

developments

R.A.
in

No.

foreign

8556,

notwithstanding Thus, the rule remains the same: a sale, lease, or

jurisdictions,

do

not financial lease, for that matter, that is not registered

supersede or repeal the law on compulsory motor with the Land Transportation Office, still does not
vehicle registration. No part of the law expressly bind third persons who are aggrieved in tortious
repeals Section 5 (a) and (e) of R.A. No. 4136, as incidents, for the latter need only to rely on the public
amended,

otherwise

known

as

the

Land registration of a motor vehicle as conclusive evidence

Transportation and Traffic Code, to wit:

of ownership. 30 A lease such as the one involved in

Sec. 5. Compulsory registration of motor vehicles.


(a) All motor vehicles and trailer of any type used or
operated on or upon any highway of the Philippines
must

be

registered

with

the

Bureau

of

Land

Transportation (now the Land Transportation Office,


per Executive Order No. 125, January 30, 1987, and
Executive Order No. 125-A, April 13, 1987) for the
current year in accordance with the provisions of this
Act.

ECDAcS

xxx

the instant case is an encumbrance in contemplation


of law, which needs to be registered in order for it to
bind third parties. 31 Under this policy, the evil
sought to be avoided is the exacerbation of the
suffering of victims of tragic vehicular accidents in
not being able to identify a guilty party. A contrary
ruling will not serve the ends of justice. The failure to
register a lease, sale, transfer or encumbrance,
should not benefit the parties responsible, to the
prejudice of innocent victims.

xxx

xxx

The non-registration of the lease contract between

petitioner and its lessee precludes the former from


Mortgages, attachments, and other encumbrances of enjoying the benefits under Section 12 of R.A. No.
motor vehicles, in order to be valid against third 8556.
(e)

Encumbrances

of

motor

vehicles.

parties must be recorded in the Bureau (now the


Land Transportation Office). Voluntary transactions
or voluntary encumbrances shall likewise be properly
recorded on the face of all outstanding copies of the
certificates of registration of the vehicle concerned.

This ruling may appear too severe and unpalatable to


leasing and financing companies, but the Court
believes that petitioner and other companies so
situated are not entirely left without recourse. They
may resort to third-party complaints against their

mortgages, lessees or whoever are the actual operators of their


attachments, and other encumbrances shall likewise vehicles. In the case at bar, there is, in fact, a
be recorded, and in the absence of such cancellation, provision in the lease contract between petitioner and
Cancellation

or

foreclosure

of

such

no certificate of registration shall be issued without SUGECO to the effect that the latter shall indemnify
the corresponding notation of mortgage, attachment and hold the former free and harmless from any

"liabilities, damages, suits, claims or judgments"

and/or other encumbrances.


xxx
supplied)

xxx

arising from the latter's use of the motor vehicle. 32


xxx (Emphasis

Whether petitioner would act against SUGECO based


on this provision is its own option.

EIcSDC

Neither is there an implied repeal of R.A. No. 4136. As The burden of registration of the lease contract is
a rule, repeal by implication is frowned upon, unless minuscule compared to the chaos that may result if
there is clear showing that the later statute is so registered owners or operators of vehicles are freed
irreconcilably inconsistent and repugnant to the from such responsibility. Petitioner pays the price for
existing law that they cannot be reconciled and made its failure to obey the law on compulsory registration
to stand together. 29 There is nothing in R.A. No. of motor vehicles for registration is a pre-requisite for
4136 that is inconsistent and incapable of any person to even enjoy the privilege of putting a
reconciliation. EIAScH
vehicle on public roads.

Page 94 of 229
WHEREFORE, the petition is DENIED. The Decision laws, Republic Act (R.A.) No. 7477 and R.A. No. 7582.
dated December 12, 2003 and Resolution dated R.A. No. 7477, enacted on 5 May 1992, granted PBS a
February 18, 2004 of the Court of Appeals are legislative franchise to construct, install, maintain
AFFIRMED.

cADEHI

and operate radio and television stations within the


Philippines for a period of 25 years. R.A. No. 7582,

Costs against petitioner.

enacted on 27 May 1992, extended CBS's previous

SO ORDERED.

legislative franchise 1 to operate radio stations for

19.

Section 9 of R.A. No. 7477 and Section 3 of R.A. No.

another 25 years. The CBS and PBS radio networks


Ynares-Santiago, Chico-Nazario, Nachura and Reyes, are two of the three networks that comprise the wellJJ., concur.
known "Bombo Radyo Philippines". 2

7582 contain a common provision predicated on the

SECOND DIVISION

"constitutional mandate to democratize ownership of


public utilities." 3 The common provision states:

[G.R. No. 162272. April 7, 2009.]


SANTIAGO

C.

DIVINAGRACIA,

EaHcDS
petitioner,

vs.

CONSOLIDATED BROADCASTING SYSTEM, INC.

SEC. 9.

Democratization of ownership. In

the constitutional mandate to


and PEOPLE'S BROADCASTING SERVICE, INC., democratize ownership of public utilities, the herein
respondents.
grantee shall make public offering through the stock
DECISION
TINGA, J p:

compliance

with

exchanges of at least thirty percent (30%) of its


common stocks within a period of three (3) years from
the date of effectivity of this Act: Provided, That no

single person or entity shall be allowed to own more


Does the National Telecommunications Commission than five percent (5%) of the stock offerings. 4
(NTC) have jurisdiction over complaints seeking the
cancellation of certificates of public convenience It further appears that following the enactment of
(CPCs) and other licenses it had issued to the holders these franchise laws, the NTC issued four (4)
of duly-issued legislative franchises on the ground Provisional Authorities to PBS and six (6) Provisional
that the franchisees had violated the terms of their Authorities to CBS, allowing them to install, operate
franchises? The Court, in resolving that question, and maintain various AM and FM broadcast stations

takes the opportunity to elaborate on the dynamic in various locations throughout the nation. 5 These
behind the regulation of broadcast media in the Provisional Authorities were issued between 1993 to
Philippines, particularly the interrelationship between 1998, or after the enactment of R.A. No. 7477 and
the twin franchise and licensing requirements. R.A. No. 7582. cSICHD
cCSTHA
I.

Petitioner

Santiago

C.

Divinagracia

filed

two

complaints both dated 1 March 1999 with the NTC,

respectively lodged against PBS 7 and CBS. 8 He


Respondents Consolidated Broadcasting System, Inc. alleged that he was "the actual and beneficial owner
(CBS) and People's Broadcasting Service, Inc. (PBS) of Twelve percent (12%) of the shares of stock" of PBS
were incorporated in 1961 and 1965, respectively. and CBS separately, 9 and that despite the provisions
Both are involved in the operation of radio in R.A. No. 7477 and R.A. No. 7582 mandating the
broadcasting services in the Philippines, they being public offering of at least 30% of the common stocks
the grantees of legislative franchises by virtue of two of PBS and CBS, both entities had failed to make

Page 95 of 229
such offering. Thus, Divinagracia commonly argued and Certificates of Public Convenience it issued to
in his complaints that the failure on the part of PBS legislative

franchise-holders.

That

central

issue

and CBS "to comply with the mandate of their devolves into several narrower arguments, some of
legislative franchise is a misuse of the franchise which hinge on the authority of the NTC to cancel the
conferred upon it by law and it continues to exercise very Provisional Authorities and CPCs which it is
its franchise in contravention of the law to the empowered to issue, as distinguished from the
detriment of the general public and of complainant legislative franchise itself, the cancellation of which
who are unable to enjoy the benefits being offered by Divinagracia points out was not the relief he had
a publicly listed company." 10 He thus prayed for the sought from the NTC. Questions are raised as to
cancellation of all the Provisional Authorities or CPCs whether the complaints did actually constitute a
of PBS and CBS on account of the alleged violation of collateral

attack

on

the

legislative

franchises.

the conditions set therein, as well as in its legislative AacCIT


franchises. 11

Yet this case ultimately rests to a large degree on

On 1 August 2000, the NTC issued a consolidated fundamentals. Divinagracia's case rotates on the
decision dismissing both complaints. 12 While the singular thesis that the NTC has the power to cancel
NTC posited that it had full jurisdiction to revoke or Provisional Authorities and CPCs, or in effect, the
cancel a Provisional Authority or CPC for violations or power to cancel the licenses that allow broadcast
infractions of the terms and conditions embodied stations to operate. The NTC, in its assailed Decision,
therein, 13 it held that the complaints actually expressly admits that it has such power even as it
constituted

collateral

attacks

on

the

legislative refrained from exercising the same. 18 The Court has

franchises of PBS and CBS since the sole issue for yet to engage in a deep inquiry into the question of
determination was whether the franchisees had whether the NTC has the power to cancel the
violated the mandate to democratize ownership in operating licenses of entities to whom Congress has
their respective legislative franchises. The NTC ruled issued franchises to operate broadcast stations,
that it was not competent to render a ruling on that especially on account of an alleged violation of the
issue, the same being more properly the subject of an terms of their franchises. This is the opportune time
action for quo warranto to be commenced by the to examine the issue.
Solicitor General in the name of the Republic of the
Philippines, pursuant to Rule 66 of the Rules of
Court. 14 DacTEH
After the NTC had denied Divinagracia's motion for
reconsideration, 15 he filed a petition for review under
Rule 43 of the Rules of Court with the Court of
Appeals. 16 On 18 February 2004, the Court of
Appeals rendered a decision 17 upholding the NTC.
The appellate court agreed with the earlier conclusion
that the complaints were indeed a collateral attack on

II.
To fully understand the scope and dimensions of the
regulatory realm of the NTC, it is essential to review
the legal background of the regulation process. As
operative fact, any person or enterprise which wishes
to operate a broadcast radio or television station in
the Philippines has to secure a legislative franchise in
the form of a law passed by Congress, and thereafter
a license to operate from the NTC.

AEDcIH

the legislative franchises of CBS and PBS and that a The franchise requirement traces its genesis to Act
quo warranto action was the proper mode to thresh No. 3846, otherwise known as the Radio Control Act,
out the issues raised in the complaints.
enacted in 1931. 19 Section 1 thereof provided that
Hence this petition, which submits as the principal
issue, whether the NTC, with its retinue of regulatory
powers, is powerless to cancel Provisional Authorities

"[n]o

person,

firm,

company,

association

or

corporation shall construct, install, establish, or


operate . . . a radio broadcasting station, without

Page 96 of 229
having first obtained a franchise therefor from the regime

of

government

regulation

whereby

National Assembly . . ." 20 Section 2 of the law broadcasters receive entitlement to exclusive use of
prohibited the construction or installation of any their respective or particular frequencies, with the
station without a permit granted by the Secretary of State correspondingly able by force of law to confine
Public Works and Communication, and the operation all broadcasters to the use of the frequencies assigned
of such station without a license issued by the same to them.
Department

Secretary.

empowered

the

21

Secretary

The

of

law

Public

likewise

Works

and

Communication "to regulate the establishment, use,


and operation of all radio stations and of all forms of
radio communications and transmissions within the
Philippine Islands and to issue such rules and
regulations as may be necessary." 22 SITCEA

cETCID

Still, the dominant jurisprudential rationale for state


regulation of broadcast media is more sophisticated
than a mere recognition of a need for the orderly
administration of the airwaves. After all, a united
broadcast industry can theoretically achieve that goal
through determined self-regulation. The key basis for
regulation is rooted in empiricism "that broadcast

Noticeably, our Radio Control Act was enacted a few frequencies are a scarce resource whose use could be
years after the United States Congress had passed the regulated and rationalized only by the Government."
Radio Act of 1927. American broadcasters themselves This concept was first introduced in jurisprudence in
had asked their Congress to step in and regulate the the U.S. case of Red Lion v. Federal Communications
radio industry, which was then in its infancy. The Commission. 26
absence of government regulation in that market had
led

to

the

emergence

of

hundreds

of

radio

broadcasting stations, each using frequencies of their


choice and changing frequencies at will, leading to
literal chaos on the airwaves. It was the Radio Act of
1927 which introduced a licensing requirement for
American
eventually

broadcast
by

the

stations,
Federal

to

be

overseen

Communications

Commission (FCC). 23

Red

Lion

enunciated

the

most

comprehensive

statement of the necessity of government oversight


over broadcast media. The U.S. Supreme Court
observed that within years from the introduction of
radio broadcasting in the United States, "it became
apparent that broadcast frequencies constituted a
scarce resource whose use could be regulated and
rationalized only by the Government. . . without
government control, the medium would be of little use

This pre-regulation history of radio broadcast stations because of the cacophony of competing voices, none
illustrates the continuing necessity of a government of which could be clearly and predictably heard." The
role in overseeing the broadcast media industry, as difficulties

posed

by

spectrum

scarcity

was

opposed to other industries such as print media and concretized by the U.S. High Court in this manner:
the Internet. 24 Without regulation, the result would EaIDAT
be a free-for-all market with rival broadcasters able
with impunity to sabotage the use by others of the
airwaves. 25 Moreover, the airwaves themselves, the
very medium utilized by broadcast are by their very
nature not susceptible to appropriation, much less be
the object of any claim of private or exclusive
ownership. No private individual or enterprise has the
physical means, acting alone to actualize exclusive
ownership and use of a particular frequency. That
end, desirable as it is among broadcasters, can only
be accomplished if the industry itself is subjected to a

Scarcity is not entirely a thing of the past. Advances


in technology, such as microwave transmission, have
led to more efficient utilization of the frequency
spectrum, but uses for that spectrum have also
grown apace. Portions of the spectrum must be
reserved for vital uses unconnected with human
communication, such as radio-navigational aids used
by aircraft and vessels. Conflicts have even emerged
between such vital functions as defense preparedness
and experimentation in methods of averting midair
collisions through radio warning devices. "Land

Page 97 of 229
mobile services" such as police, ambulance, fire By the same token, as far as the First Amendment is
department, public utility, and other communications concerned those who are licensed stand no better
systems have been occupying an increasingly crowded than those to whom licenses are refused. A license
portion of the frequency spectrum and there are, permits
apart

from

licensed

amateur

radio

broadcasting,

but

the

licensee

has

no

operators' constitutional right to be the one who holds the

equipment, 5,000,000 transmitters operated on the license or to monopolize a radio frequency to the
"citizens' band" which is also increasingly congested. exclusion of his fellow citizens. There is nothing in the
Among the various uses for radio frequency space, First Amendment which prevents the Government
including marine, aviation, amateur, military, and from requiring a licensee to share his frequency with
common carrier users, there are easily enough others and to conduct himself as a proxy or fiduciary
claimants to permit use of the whole with an even with obligations to present those views and voices
smaller allocation to broadcast radio and television which are representative of his community and which
uses than now exists. (citations omitted) 27 SaTAED

would otherwise, by necessity, be barred from the

After interrelating the premise of scarcity of resources

airwaves. 28 ISaTCD

with the First Amendment rights of broadcasters, Red xxx


Lion

concluded

that

government

regulation

of

broadcast media was a necessity:

xxx

xxx

Rather than confer frequency monopolies on a


relatively small number of licensees, in a Nation of

Where there are substantially more individuals who 200,000,000, the Government could surely have
want to broadcast than there are frequencies to decreed that each frequency should be shared among
allocate, it is idle to posit an unabridgeable First all or some of those who wish to use it, each being
Amendment right to broadcast comparable to the assigned a portion of the broadcast day or the
right of every individual to speak, write, or publish. If broadcast week. The ruling and regulations at issue
100 persons want broadcast [395 U.S. 367, 389] here do not go quite so far. They assert that under
licenses but there are only 10 frequencies to allocate, specified circumstances, a licensee must offer to
all of them may have the same "right" to a license; but make available a reasonable amount of broadcast
if there is to be any effective communication by radio, time to those who have a view different from that
only a few can be licensed and the rest must be which has already been expressed on his station. The
barred from the airwaves. It would be strange if the expression of a political endorsement, or of a personal
First Amendment, aimed at protecting and furthering attack while dealing with a controversial public issue,
communications, prevented the Government from simply triggers this time sharing. As we have said, the
making radio communication possible by requiring First Amendment confers no right on licensees to
licenses to broadcast and by limiting the number of prevent

others

licenses so as not to overcrowd the spectrum. frequencies


cDCaTH
This has been the consistent view of the Court.

and

from
no

broadcasting
right

to

an

on

"their"

unconditional

monopoly of a scarce resource which the Government


has denied others the right to use.

Congress unquestionably has the power to grant and In terms of constitutional principle, and as enforced
deny licenses and to eliminate existing stations. No sharing of a scarce resource, the personal attack and
one has a First Amendment right to a license or to political editorial rules are indistinguishable from the
monopolize a radio frequency; to deny a station equal-time provision of 315, a specific enactment of
license because "the public interest" requires it "is not Congress requiring stations to set aside reply time
a denial of free speech".

under specified circumstances and to which the


fairness doctrine and these constituent regulations
are important complements. That provision, which

Page 98 of 229
has been part of the law since 1927, Radio Act of the payment of just compensation for the print space
1927, 18, 44 Stat. 1170, has been held valid by this they may provide under 90.
Court as an obligation of the licensee relieving him of
any power in any way to prevent or censor the
broadcast, and thus insulating him from liability for
defamation. The constitutionality of the statute under
the First Amendment was unquestioned. (citations
omitted) 29 CTSHDI

The argument will not bear analysis. It rests on the


fallacy that broadcast media are entitled to the same
treatment under the free speech guarantee of the
Constitution as the print media. There are important
differences in the characteristics of the two media,
however, which justify their differential treatment for

As made clear in Red Lion, the scarcity of radio free

speech

frequencies made it necessary for the government to limitations


step

in

and

allocate

frequencies

to

purposes.
of

the

Because of
broadcast

the

physical

spectrum,

the

competing government must, of necessity, allocate broadcast

broadcasters. In undertaking that function, the frequencies to those wishing to use them. There is no
government is impelled to adjudge which of the similar justification for government allocation and
competing

applicants

are

worthy

of

frequency regulation of the print media.

allocation. It is through that role that it becomes


legally viable for the government to impose its own
values and goals through a regulatory regime that
extends

beyond

notwithstanding

the

assignation

the

free

of

frequencies,

expression

guarantees

enjoyed by broadcasters. As the government is put in


a position to determine who should be worthy to be
accorded the privilege to broadcast from a finite and
limited spectrum, it may impose regulations to see to
it that broadcasters promote the public good deemed

In

the

allocation

of

limited

TIDaCE
resources,

relevant

conditions may validly be imposed on the grantees or


licensees. The reason for this is that, as already
noted, the government spends public funds for the
allocation and regulation of the broadcast industry,
which it does not do in the case of the print media. To
require the radio and television broadcast industry to
provide free air time for the COMELEC Time is a fair
exchange for what the industry gets. 31

important by the State, and to withdraw that privilege Other rationales may have emerged as well validating
from those who fall short of the standards set in favor state regulation of broadcast media, 32 but the reality
of other worthy applicants. ITScHa
of scarce airwaves remains the primary, indisputable
Such conditions are peculiar to broadcast media
because of the scarcity of the airwaves. Indeed, any
attempt to impose such a regulatory regime on a
medium that is not belabored under similar physical
conditions, such as print media, will be clearly
antithetical

to

democratic

values

and

the

free

expression clause. This Court, which has adopted the


"scarcity of resources" doctrine in cases such as
Telecom & Broadcast Attys. of the Phils., Inc. v.
COMELEC, 30 emphasized the distinction citing Red
Lion:

and indispensable justification for the government


regulatory

role.

The

integration

of

the

scarcity

doctrine into the jurisprudence on broadcast media


illustrates how the libertarian ideal of the free
expression clause may be tempered and balanced by
actualities in the real world while preserving the core
essence of the constitutional guarantee. Indeed,
without government regulation of the broadcast
spectrum, the ability of broadcasters to clearly
express their views would be inhibited by the anarchy
of competition. Since the airwaves themselves are not
susceptible to physical appropriation and private

Petitioners complain that B.P. Blg. 881, 92 singles ownership,

it

is

but

indispensable

that

the

out radio and television stations to provide free air government step in as the guardian of the spectrum.
time. They contend that newspapers and magazines TcSHaD
are not similarly required as, in fact, in Philippine
Press Institute v. COMELEC we upheld their right to

Page 99 of 229
Reference to the scarcity doctrine is necessary to gain certificate or other forms of authority to operate
a full understanding of the paradigm that governs the granted by any office, agency or person, no radio or
state regulation of broadcast media. That paradigm, television station shall be authorized to operated
as it exists in the United States, is contextually without

the

authority

of

the

Board

of

similar to our own, except in one very crucial regard Communications and the Secretary of Public Works

the

dual

franchise/license

requirements

we and Communications or their successors who have

impose.

the right and authority to assign to qualified parties


frequencies, channels or other means of identifying

III.

broadcasting systems; Provided, however, that any

Recall that the Radio Control Act specifically required conflict over, or disagreement with a decision of the
the obtention of a legislative franchise for the aforementioned authorities may be appealed finally to

operation of a radio station in the Philippines. When the Office of the President within fifteen days from the
the Public Service Act was enacted in 1936, the date the decision is received by the party in interest.
Public Service Commission (PSC) was vested with TaDIHc
jurisdiction over "public services", including over
"wire or wireless broadcasting stations." 33 However,
among

those

specifically

exempted

from

the

regulatory reach of the PSC were "radio companies,


except with respect to the fixing of rates." 34 Thus,
following the Radio Control Act, the administrative

A few years later, President Marcos promulgated


Executive Order (E.O.) No. 546, establishing among
others the National Telecommunications Commission.
Section 15 thereof enumerates the various functions
of the NTC.

regulation of "radio companies" remained with the SEC. 15.

Functions of the Commission. The

Secretary of Public Works and Communications. It Commission shall exercise the following functions:
appears that despite the advent of commercial
television in the 1950s, no corresponding amendment
to either the Radio Control Act or the Public Service
Act was passed to reflect that new technology then.
aTEACS

Issue Certificate of Public Convenience for the

operation of communications utilities and services,


radio communications systems, wire or wireless
telephone or telegraph systems, radio and television
broadcasting system and other similar public utilities;

Shortly after the 1972 declaration of martial law,


President Marcos issued Presidential Decree (P.D.) No.
1, which allocated to the Board of Communications
the authority to issue CPCs for the operation of radio
and television broadcasting systems and to grant
permits for the use of radio frequencies for such
broadcasting systems. In 1974, President Marcos
promulgated Presidential Decree No. 576-A, entitled
"Regulating the Ownership and Operation of Radio
and Television Stations and for other Purposes."
Section 6 of that law reads:
SEC. 6.

All

franchises,

grants,

licenses,

permits, certificates or other forms of authority to


operate radio or television broadcasting systems shall
terminate

a.

on

December

31,

1981.

Thereafter,

irrespective of any franchise, grant, license, permit,

b.

Establish, prescribe and regulate areas of

operation of particular operators of public service


communications;

and

determine

and

prescribe

charges or rates pertinent to the operation of such


public utility facilities and services except in cases
where

charges

or

rates

are

established

by

international bodies or associations of which the


Philippines is a participating member or by bodies
recognized by the Philippine Government as the
proper arbiter of such charges or rates;
c.

HDAECI

Grant permits for the use of radio frequencies

for wireless telephone and telegraph systems and


radio communication systems including amateur
radio stations and radio and television broadcasting
systems;

Page 100 of 229


d.

Sub-allocate series of frequencies of bands franchises for the operation of broadcast stations.

allocated by the International Telecommunications Nonetheless, the Court noted that Section 1 of P.D.
Union to the specific services;
e.

No. 576-A had expressly referred to the franchise

Establish and prescribe rules, regulations,

standards, specifications in all cases related to the


issued

Certificate

of

Public

Convenience

and

administer and enforce the same;

requirement in stating that "[n]o radio station or


television channel may obtain a franchise unless it
has sufficient capital on the basis of equity for its
operation for at least one year. . . ." 36 Section 6 of
that law made a similar reference to the franchise

Coordinate and cooperate with government requirement. 37 From those references, the Court
agencies and other entities concerned with any aspect concluded that the franchise requirement under the
f.

involving communications with a view to continuously Radio Control Act was not repealed by P.D. No. 576-A.
improve the communications service in the country; 38 DTESIA
THAECc

Turning to E.O. No. 546, the Court arrived at a

Promulgate such rules and regulations, as similar conclusion, despite a Department of Justice
public safety and interest may require, to encourage a Opinion stating that the 1979 enactment had
with
the
congressional
franchise
larger and more effective use of communications, dispensed
g.

radio and television broadcasting facilities, and to requirement. The Court clarified that the 1989 ruling
maintain effective competition among private entities in Albano v. Reyes, to the effect that "franchises

in these activities whenever the Commission finds it issued by Congress are not required before each and
every public utility may operate" did not dispense
reasonably feasible;
with the franchise requirement insofar as broadcast

h.

Supervise and inspect the operation of radio stations are concerned.


stations and telecommunications facilities;
Our ruling in Albano that a congressional franchise is
i.
Undertake the examination and licensing of not required before "each and every public utility may
radio operators;
j.

Undertake,

operate" should be viewed in its proper light. Where


whenever

necessary,

the

registration of radio transmitters and transceivers;


and

ATcaHS

there is a law such as P.D. No. 576-A which requires a


franchise for the operation of radio and television
stations, that law must be followed until subsequently
repealed. As we have earlier shown, however, there is

Perform such other functions as may be nothing in the subsequent E.O. No. 546 which
evinces an intent to dispense with the franchise
prescribed by law.
k.

requirement. In contradistinction with the case at bar,

These enactments were considered when in 2003 the the law applicable in Albano, i.e., E.O. No. 30, did not
Court definitively resolved that the operation of a require a franchise for the Philippine Ports Authority
radio or television station does require a to take over, manage and operate the Manila
congressional

franchise.

In

Associated International Port Complex and undertake the


Communications & Wireless Services v. NTC, 35 the providing of cargo handling and port related services
Court took note of the confusion then within the thereat. Similarly, in Philippine Airlines, Inc. v. Civil
broadcast industry as to whether the franchise Aeronautics Board, et al., we ruled that a legislative
requirement first ordained in the 1931 Radio Control franchise is not necessary for the operation of
Act remained extant given the enactment of P.D. No. domestic air transport because "there is nothing in
576-A in 1974 and E.O. No. 546 in 1979. Notably, the law nor in the Constitution which indicates that a
neither law had specifically required legislative legislative franchise is an indispensable requirement

Page 101 of 229


for an entity to operate as a domestic air transport 1987 Constitution, the one constitutional provision
operator." Thus, while it is correct to say that concerned with the grant of franchises in the
specified agencies in the Executive Branch have the Philippines. 41 The requirement of a legislative
power to issue authorization for certain classes of franchise
public

utilities,

this

does

not

mean

that

likewise

differentiates

the

Philippine

the broadcast industry from that in America, where there

authorization or CPC issued by the NTC dispenses is no need to secure a franchise from the U.S.
with the requirement of a franchise as this is clearly Congress.
required under P.D. No. 576-A. 39 ECDaAc

It is thus clear that the operators of broadcast

The Court further observed that Congress itself had stations in the Philippines must secure a legislative
accepted it as a given that a legislative franchise is franchise, a requirement imposed by the Radio
still required to operate a broadcasting station in the Control Act of 1931 and accommodated under the
Philippines.

1987 Constitution. At the same time, the Court in

That the legislative intent is to continue requiring a


franchise for the operation of radio and television
broadcasting stations is clear from the franchises
granted by Congress after the effectivity of E.O. No.

Associated Communications referred to another form


of "permission" required of broadcast stations, that is
the CPC issued by the NTC. What is the source of
such requirement?

SHADEC

546 in 1979 for the operation of radio and television The Radio Control Act had also obliged radio
stations. Among these are: (1) R.A. No. 9131 dated broadcast stations to secure a permit from the
April 24, 2001, entitled "An Act Granting the Iddes Secretary of Commerce and Industry 42 prior to the
Broadcast Group, Inc., a Franchise to Construct, construction or installation of any station. 43 Said
Install, Establish, Operate and Maintain Radio and Department

Secretary

was

also

empowered

to

Television Broadcasting Stations in the Philippines"; regulate "the establishment, use and operation of all
(2) R.A. No. 9148 dated July 31, 2001, entitled "An radio

stations

and

of

Act Granting the Hypersonic Broadcasting Center, communications

and

transmission

all

forms

of
within

radio
the

Inc., a Franchise to Construct, Install, Establish, Philippines." 44 Among the specific powers granted to
Operate and Maintain Radio Broadcasting Stations in the Secretary over radio stations are the approval or
the Philippines;" and (3) R.A. No. 7678 dated disapproval of any application for the construction,
February 17, 1994, entitled "An Act Granting the installation, establishment or operation of a radio
Digital Telecommunication Philippines, Incorporated, station 45 and the approval or disapproval of any
a

Franchise

to

Install,

Telecommunications

Operate

Systems

and

Maintain application for renewal of station or operation license.

Throughout

the 46

Philippines." All three franchises require the grantees


to secure a CPCN/license/permit to construct and
operate their stations/systems. Likewise, the Tax
Reform Act of 1997 provides in Section 119 for tax on
franchise of radio and/or television broadcasting
companies . . . 40 IaHCAD
Associated

Communications

As earlier noted, radio broadcasting companies were


exempted from the jurisdiction of the defunct Public
Service Commission except with respect to their rates;
thus, they did not fall within the same regulatory
regime as other public services, the regime which was
characterized by the need for CPC or CPCN. However,

makes

clear

that following the Radio Control Act, it became clear that

presently broadcast stations are still required to radio broadcast companies need to obtain a similar
obtain a legislative franchise, as they have been so license from the government in order to operate, at
since the passage of the Radio Control Act in 1931. that time from the Department of Public Works and
By virtue of this requirement, the broadcast industry Communications.
falls within the ambit of Section 11, Article XII of the

aHcACI

Page 102 of 229


Then, as earlier noted, in 1972, President Marcos administration of the airwaves is a requisite for the
through P.D. No. 1, transferred to the Board of operation of a franchise and is moreover a highly
Communications the function of issuing CPCs for the technical function, Congress has delegated to the NTC
operation

of

radio

and

television

broadcasting the

task

of

administration

over

the

broadcast

systems, as well as the granting of permits for the use spectrum, including the determination of available
of radio frequencies for such broadcasting systems. bandwidths and the allocation of such available
With the creation of the NTC, through E.O. No. 546 in bandwidths among the various legislative franchisees.
1979, that agency was vested with the power to The licensing power of the NTC thus arises from the
"[i]ssue certificate[s] of public convenience for the necessary delegation by Congress of legislative power
operation of. . . radio and television broadcasting geared towards the orderly exercise by franchisees of
system[s]."

47

That

power

remains

extant

and the rights granted them by Congress.

undisputed to date.

ISaTCD

Congress may very well in its wisdom impose

This much thus is clear. Broadcast and television additional obligations on the various franchisees and
stations are required to obtain a legislative franchise, accordingly delegate to the NTC the power to ensure
a requirement imposed by the Radio Control Act and that

the

broadcast

stations

comply

with

their

affirmed by our ruling in Associated Broadcasting. obligations under the law. Because broadcast media
After securing their legislative franchises, stations are enjoys a lesser degree of free expression protection as
required to obtain CPCs from the NTC before they can compared to their counterparts in print, these
operate their radio or television broadcasting systems. legislative restrictions are generally permissible under
Such requirement while traceable also to the Radio the Constitution. Yet no enactment of Congress may
Control Act, currently finds its basis in E.O. No. 546, contravene the Constitution and its Bill of Rights;
the law establishing the NTC.

AaEcHC

hence, whatever restrictions are imposed by Congress

From these same legal premises, the next and most


critical question is whether the NTC has the power to
cancel

the

CPCs

it

has

issued

to

legislative

franchisees.

on broadcast media franchisees remain susceptible to


judicial review and analysis under the jurisprudential
framework for scrutiny of free expression cases
involving the broadcast media.

ScaEIT

The restrictions enacted by Congress on broadcast

IV.

media

franchisees

have

to

pass

the

mettle

of

The complexities of our dual franchise/license regime constitutionality. On the other hand, the restrictions
for broadcast media should be understood within the imposed by an administrative agency such as the NTC

context of separation of powers. The right of a on broadcast media franchisees will have to pass not
particular entity to broadcast over the airwaves is only the test of constitutionality, but also the test of
established by law i.e., the legislative franchise authority and legitimacy, i.e., whether such
and determined by Congress, the branch of restrictions have been imposed in the exercise of duly

government tasked with the creation of rights and delegated legislative powers from Congress. If the
obligations. As with all other laws passed by restriction or sanction imposed by the administrative
Congress, the function of the executive branch of agency cannot trace its origin from legislative
government, to which the NTC belongs, is the delegation, whether it is by virtue of a specific grant

implementation of the law. In broad theory, the legal or from valid delegation of rule-making power to the
obligation of the NTC once Congress has established administrative agency, then the action of such

a legislative franchise for a broadcast media station is administrative agency cannot be sustained. The life
to facilitate the operation by the franchisee of its and authority of an administrative agency emanates
broadcast

stations.

However,

since

the

public solely from an Act of Congress, and its faculties

Page 103 of 229


confined within the parameters set by the legislative regulatory jurisdiction over radio stations, which
branch of government.

included the power to impose fines. In fact, the Public

We earlier replicated the various functions of the NTC,


as established by E.O. No. 546. One can readily notice
that even as the NTC is vested with the power to issue

Service Commission was precluded from exercising


such jurisdiction, except with respect to the fixing of
rates.

CPCs to broadcast stations, it is not expressly vested Then,

DcAEIS
in

1972,

the

regulatory

authority

over

with the power to cancel such CPCs, or otherwise broadcast media was transferred to the Board of
empowered to prevent broadcast stations with duly Communications by virtue of P.D. No. 1, which
issued franchises and CPCs from operating radio or adopted, approved, and made as part of the law of the
television stations.

TIEHDC

land the Integrated Reorganization Plan which was

In contrast, when the Radio Control Act of 1931


maintained a similar requirement for radio stations to
obtain a license from a government official (the
Secretary of Commerce and Industry), it similarly
empowered the government, through the Secretary of
Public Works and Communications, to suspend or
revoke such license, as indicated in Section 3 (m):
SEC. 3.

The Secretary of Public Works and

the construction or manufacture, possession, control,


sale and transfer of radio transmitters or transceivers
transmitter-receiver)

and

Among the cabinet departments affected by the plan


was

the

Department

Communications,

which

of
was

Public

Works

and

now

renamed

the

Department of Public Works, Transportation and


Communication. 50 New regulatory boards under the
administrative supervision of the Department were
created, including the Board of Communications. 51

Communications is hereby empowered, to regulate

(combination

prepared by the Commission on Reorganization. 49

the

establishment, use, the * operation of all radio


stations and of all forms of radio communications and
transmissions within the Philippines. In addition to
the above he shall have the following specific powers
and duties:

The functions of the Board of Communications were


enumerated in Part X, Chapter I, Article III, Sec. 5 of
the Integrated Reorganization Plan. 52 What is
noticeably missing from these enumerated functions
of the Board of Communications is the power to
revoke or cancel CPCs, even as the Board was vested
the power to issue the same. That same pattern held
true in 1976, when the Board of Communications
was abolished by E.O. No. 546. 53 Said executive
order, promulgated by then President Marcos in the

He may, at his direction * bring criminal exercise of his legislative powers, created the NTC but
action against violators of the radio laws or the likewise withheld from it the authority to cancel
regulations and confiscate the radio apparatus in licenses and CPCs, even as it was empowered to issue
(m)

case of illegal operation; or simply suspend or revoke CPCs. Given the very specific functions allocated by
the offender's station or operator licenses or refuse to law to the NTC, it would be very difficult to recognize

renew such licenses; or just reprimand and warn the any intent to allocate to the Commission such
regulatory functions previously granted to the
offenders; 48
Secretary of Public Works and Communications, but
Section 3 (m) begets the question did the NTC not included in the exhaustive list of functions
retain the power granted in 1931 to the Secretary of enumerated in Section 15. DaEcTC
Public Works and Communications to " . . . suspend

or revoke the offender's station or operator licenses or Certainly, petitioner fails to point to any provision of
refuse to renew such licenses"? We earlier adverted to E.O. No. 546 authorizing the NTC to cancel licenses.
the statutory history. The enactment of the Public Neither does he cite any provision under P.D. No. 1 or
Service Act in 1936 did not deprive the Secretary of the Radio Control Act, even if Section 3 (m) of the
latter law provides at least, the starting point of a fair

Page 104 of 229


argument. Instead, petitioner relies on the power A.
granted to the Public Service Commission to revoke
CPCs or CPCNs under Section 16 (m) of the Public
Service Act. 54 That argument has been irrefragably
refuted by Section 14 of the Public Service Act, and
by jurisprudence, most especially RCPI v. NTC. 55 As
earlier noted, at no time did radio companies fall
under

the

jurisdiction

of

the

Public

Service

Commission as they were expressly excluded from its


mandate under Section 14. In addition, the Court
ruled in RCPI that since radio companies, including

It is beyond question that respondents, as with all


other radio and television broadcast stations, find
shelter in the Bill of Rights, particularly Section 3,
Article III of the Constitution. At the same time, as we
have labored earlier to point out, broadcast media
stands, by reason of the conditions of scarcity, within
a different tier of protection from print media, which
unlike broadcast, does not have any regulatory
interaction with the government during its operation.

broadcast stations and telegraphic agencies, were Still, the fact that state regulation of broadcast media
never under the jurisdiction of the Public Service is constitutionally justified does not mean that its
Commission
except
as
to
rate-fixing,
that practitioners are precluded from invoking Section 3,
Commission's authority to impose fines did not carry Article III of the Constitution in their behalf. Far from
over to the NTC even while the other regulatory it. Our democratic way of life is actualized by the
agencies that emanated from the Commission did existence of a free press, whether print media or

retain the previous authority their predecessor had broadcast media. As with print media, free expression
exercised. 56 No provision in the Public Service Act through broadcast media is protected from prior
thus can be relied upon by the petitioner to claim that restraint or subsequent punishment. The franchise
the NTC has the authority to cancel CPCs or licenses. and licensing requirements are mainly impositions of
cASIED
the laws of physics which would stand to periodic
It is still evident that E.O. No. 546 provides no explicit
basis to assert that the NTC has the power to cancel
the licenses or CPCs it has duly issued, even as the
government

office

previously

tasked

with

the

regulation of radio stations, the Secretary of Public


Works and Communications, previously possessed

reassessment as technology advances. The science of


today renders state regulation as a necessity, yet this
should not encumber the courts from accommodating
greater freedoms to broadcast media when doing so
would not interfere with the existing legitimate state
interests in regulating the industry.

TAIcaD

such power by express mandate of law. In order to In FCC v. League of Women Voters of California, 57
sustain petitioner's premise, the Court will be unable the U.S. Supreme Court reviewed a law prohibiting

to rely on an unequivocally current and extant noncommercial broadcast stations that received
provision of law that justifies the NTC's power to funding from a public corporation from "engaging in
cancel CPCs. Petitioner suggests that since the NTC editorializing". The U.S. Supreme Court acknowledged

has the power to issue CPCs, it necessarily has the the differentiated First Amendment standard of review
power to revoke the same. One might also argue that that applied to broadcast media. Still, it struck down
through the general rule-making power of the NTC, the restriction, holding that "[the] regulation
we can discern a right of the NTC to cancel CPCs.
impermissibly sweeps within its prohibition a wide
We must be mindful that the issue for resolution is
not a run-of-the-mill matter which would be settled
with ease with the application of the principles of
statutory construction. It is at this juncture that the
constitutional implications of this case must ascend
to preeminence.

ECDaTI

range of speech by wholly private stations on topics


that do not take a directly partisan stand or that have
nothing whatever to do with federal, state, or local
government." 58 We are similarly able to maintain
fidelity to the fundamental rights of broadcasters even
while upholding the rationale behind the regulatory
regime governing them.

ADcEST

Page 105 of 229


Should petitioner's position that the NTC has the authority of the NTC to cancel CPCs or licenses, if
power to cancel CPCs or licenses it has issued to sustained, will create a permanent atmosphere of a
broadcast stations although they are in the first place less free right to express on the part of broadcast
empowered by their respective franchise to exercise media. So that argument could be sustained, it will
their rights to free expression and as members of a have to withstand the strict scrutiny from this Court.
free press, be adopted broadcast media would be
encumbered by another layer of state restrictions. As
things stand, they are already required to secure a
franchise from Congress and a CPC from the NTC in
order to operate. Upon operation, they are obliged to
comply with the various regulatory issuances of the
NTC, which has the power to impose fees and fines
and other mandates it may deem fit to prescribe in
the exercise of its rule-making power.

concededly

valid

regulatory

must be justified by a compelling state or government


interest, that such law or policy must be narrowly
tailored to achieve that goal or interest, and that the
law or policy must be the least restrictive means for
achieving that interest. It is through that lens that we
examine petitioner's premise that the NTC has the
authority to cancel licenses of broadcast franchisees.
TcHCIS

The fact that broadcast media already labors under


this

Strict scrutiny entails that the presumed law or policy

framework

B.

necessarily creates inhibitions on its practitioners as In analyzing the compelling government interest that
they operate on a daily basis. Newspapers are able to may justify the investiture of authority on the NTC
print out their daily editions without fear that a advocated by petitioner, we cannot ignore the interest

government agency such as the NTC will be able to of the State as expressed in the respective legislative
suspend their publication or fine them based on their franchises of the petitioner, R.A. No. 7477 and R.A.
content. Broadcast stations do already operate with Act No. 7582. Since legislative franchises are

that possibility in mind, and that circumstance extended through statutes, they should receive
ineluctably restrains its content, notwithstanding the recognition as the ultimate expression of State policy.
constitutional right to free expression. However, the What the legislative franchises of respondents express
cancellation of a CPC or license to operate of a is that the Congress, after due debate and
broadcast station, if we recognize that possibility, is deliberation, declares it as State policy that
essentially a death sentence, the most drastic means respondents should have the right to operate
to

inhibit

broadcast

media

from broadcast stations. The President of the Philippines,


exercising the constitutional right to free speech, by affixing his signature to the law, concurs in such
expression and of the press.

practitioner

SCHcaT

State policy.

This judicial philosophy aligns well with the preferred Allowing the NTC to countermand State policy by
mode of scrutiny in the analysis of cases with revoking respondent's vested legal right to operate
dimensions of the right to free expression. When broadcast stations unduly gives to a mere
confronted with laws dealing with freedom of the administrative
agency
veto
power
over
the
mind or restricting the political process, of laws implementation of the law and the enforcement of
dealing with the regulation of speech, gender, or race especially vested legal rights. That concern would not
as well as other fundamental rights as expansion arise if Congress had similarly empowered the NTC
from its earlier applications to equal protection, the with the power to revoke a franchisee's right to
Court has deemed it appropriate to apply "strict operate broadcast stations. But as earlier stated,

scrutiny" when assessing the laws involved or the there is no such expression in the law, and by
legal arguments pursued that would diminish the presuming such right the Court will be acting
efficacy of such constitutional right. The assumed

Page 106 of 229


contrary to the stated State interest as expressed in President or the State can exercise such authority
respondents' legislative franchises.
If

we

examine

the

aCcSDT

particular

through the NTC, which remains an agency within

franchises

of

respondents, it is readily apparent that Congress has


especially invested the NTC with certain powers with
respect to their broadcast operations. Both R.A. No.
7477 59 and R.A. No. 7582 60 require the grantee "to

the executive branch of government, but such can be


exercised only under limited and rather drastic
circumstances. They still do not vest in the NTC the
broad authority to cancel licenses and permits.
CSIHDA

secure from the [NTC] the appropriate permits and These provisions granting special rights to the
licenses

for

its

stations",

barring

the

private President in times of emergency are incorporated in

respondents from "using any frequency in the radio our understanding of the legislated state policy with
spectrum without having been authorized by the respect to the operation by private respondents of
[NTC]." At the same time, both laws provided that their legislative franchises. There are restrictions to
"[the NTC], however, shall not unreasonably withhold the operation of such franchises, and when these
or delay the grant of any such authority."

restrictions are indeed exercised there still may be

An important proviso is stipulated in the legislative


franchises, particularly under Section 5 of R.A. No.
7477 and Section 3 of R.A. No. 7582, in relation to
Section 11 of R.A. No. 3902.

cause

for

the

courts

to

review

whether

said

limitations are justified despite Section 3, Article I of


the Constitution. At the same time, the state policy as
embodied in these franchises is to restrict the
government's

ability

to

impair

the

freedom

to

Right of Government. A special right broadcast of the stations only upon the occurrence of
is hereby reserved to the President of the Philippines, national emergencies or events that compromise the
in times of rebellion, public peril, calamity, national security.
SEC. 5.

emergency, disaster or disturbance of peace and


order, to temporarily take over and operate the
stations of the grantee, temporarily suspend the
operation of any stations in the interest of public
safety, security and public welfare, or authorize the
temporary use and operation thereof by any agency of
the Government, upon due compensation to the
grantee, for the use of said stations during the period
when they shall be so operated.
The

provision

authorizes

the

ACIESH
President

right

of

the

franchisees

to

of

the

operate

their

enterprises and the right to free expression. Such


authority finds corollary constitutional justification as
well under Section 17, Article XII, which allows the
State "in times of national emergency, when the
public interest so requires . . . during the emergency
and

under

reasonable

terms

prescribed

provision does not authorize the President or the


government to cancel the licenses of the respondents.
The temporary nature of the takeover or closure of the
station is emphasized in the provision. That fact
further disengages the provision from any sense that
such delegated authority can be the source of a broad
ruling affirming the right of the NTC to cancel the
licenses of franchisees.

Philippines to exercise considerable infringements on


the

It should be further noted that even the aforequoted

by

it,

With the legislated state policy strongly favoring the


unimpeded operation of the franchisee's stations, it
becomes

with public interest." We do not doubt that the

even

more

difficult

to

discern

what

compelling State interest may be fulfilled in ceding to


the NTC the general power to cancel the franchisee's
CPC's

or

licenses

absent

explicit

statutory

authorization. This absence of a compelling state


interest strongly disfavors petitioner's cause.

temporarily take over or direct the operation of any C.


privately-owned public utility or business affected

aHECST

Page 107 of 229


Now, we shall tackle jointly whether a law or policy being that the abuse of a franchise is a public wrong
allowing the NTC to cancel CPCs or licenses is to be and not a private injury." 65 A forfeiture of a franchise
narrowly tailored to achieve that requisite compelling will have to be declared in a direct proceeding for the
State goal or interest, and whether such a law or purpose brought by the State because a franchise is
policy is the least restrictive means for achieving that granted by law and its unlawful exercise is primarily a
interest.

We

addressed

earlier

the

difficulty

of concern

of

Government.

66

Quo

warranto

is

envisioning the compelling State interest in granting specifically available as a remedy if it is thought that
the NTC such authority. But let us assume for a government corporation has offended against its
argument's sake, that relieving the injury complained corporate charter or misused its franchise. 67
off by petitioner the failure of private respondents
to open up ownership through the initial public
offering mandated by law is a compelling enough
State

interest

to

allow

the

NTC

to

extend

consequences by canceling the licenses or CPCs of


the erring franchisee.

aTIEcA

The Court of Appeals correctly noted that in PLDT v.


NTC, 68 the Court had cited quo warranto as the
appropriate recourse with respect to an allegation by
petitioner therein that a rival telecommunications
competitor had failed to construct its radio system
within the ten (10) years from approval of its

There is in fact a more appropriate, more narrowly- franchise, as mandated by its legislative franchise. 69
tailored and least restrictive remedy that is afforded It is beyond dispute that quo warranto exists as an
by the law. Such remedy is that adverted to by the available and appropriate remedy against the wrong
NTC and the Court of Appeals the resort to quo imputed on private respondents.
warranto proceedings under Rule 66 of the Rules of
Court.

CTEacH

Petitioners argue that since their prayer involves the


cancellation of the provisional authority and CPCs,

Under Section 1 of Rule 66, "an action for the and not the legislative franchise, then quo warranto
usurpation of a public office, position or franchise fails as a remedy. The argument is artificial. The
may be brought in the name of the Republic of the authority of the franchisee to engage in broadcast
Philippines against a person who usurps, intrudes operations is derived in the legislative mandate. To
into, or unlawfully holds or exercises public office, cancel the provisional authority or the CPC is, in
position or franchise." 61 Even while the action is effect, to cancel the franchise or otherwise prevent its
maintained in the name of the Republic, 62 the exercise. By law, the NTC is incapacitated to frustrate
Solicitor General or a public prosecutor is obliged to such mandate by unduly withholding or canceling the
commence such action upon complaint, and upon provisional authority or the CPC for reasons other
good reason to believe that any case specified under than the orderly administration of the frequencies in
Section 1 of Rule 66 can be established by proof. 63 the radio spectrum.
EaHcDS

What should occur instead is the converse. If the

The special civil action of quo warranto is a courts

conclude

that

private

respondents

have

prerogative writ by which the Government can call violated the terms of their franchise and thus issue
upon any person to show by what warrant he holds a the writs of quo warranto against them, then the NTC
public office or exercises a public franchise. 64 It is is obliged to cancel any existing licenses and CPCs
settled that "[t]he determination of the right to the since

these

permits

draw

strength

from

the

exercise of a franchise, or whether the right to enjoy possession of a valid franchise. If the point has not
such privilege has been forfeited by non-user, is more already been made clear, then licenses issued by the
properly the subject of the prerogative writ of quo NTC such as CPCs and provisional authorities are
warranto, the right to assert which, as a rule, belongs junior

to

the

legislative

franchise

enacted

by

to the State 'upon complaint or otherwise', the reason Congress. The licensing authority of the NTC is not

Page 108 of 229


on equal footing with the franchising authority of the reason for this Court to subscribe to the theory that
State through Congress. The issuance of licenses by the NTC has the presumed authority to cancel
the

NTC

implements

the

legislative

franchises licenses and CPCs issued to due holders of legislative

established by Congress, in the same manner that franchise to engage in broadcast operations.
the executive branch implements the laws of Congress
rather than creates its own laws. And similar to the
inability of the executive branch to prevent the V.
implementation of laws by Congress, the NTC cannot,
without clear and proper delegation by Congress, An entire subset of questions may arise following this
prevent the exercise of a legislative franchise by decision, involving issues or situations not presently
withholding or canceling the licenses of the before us. We wish to make clear that the only aspect
franchisee.

of the regulatory jurisdiction of the NTC that we are

CTEacH

ruling upon is its presumed power to cancel


And the role of the courts, through quo warranto provisional authorities, CPCs or CPCNs and other
proceedings, neatly complements the traditional such licenses required of franchisees before they can
separation of powers that come to bear in our engage in broadcast operations. Moreover, our
analysis. The courts are entrusted with the conclusion that the NTC has no such power is borne

adjudication of the legal status of persons, the final not simply from the statutory language of E.O. No.
arbiter of their rights and obligations under law. The 546 or the respective stipulations in private
question of whether a franchisee is in breach of the respondents' franchises, but moreso, from the
franchise specially enacted for it by Congress is one application of the strict scrutiny standard which,
inherently suited to a court of law, and not for an despite its weight towards free speech, still involves
administrative agency, much less one to which no the analysis of the competing interests of the
such function has been delegated by Congress. In the regulator and the regulated. EcAHDT
same way that availability of judicial review over laws
does not preclude Congress from undertaking its own In resolving the present questions, it was of marked
remedial measures by appropriately amending laws, impact to the Court that the presumed power to
the viability of quo warranto in the instant cases does cancel would lead to utterly fatal consequences to the
own constitutional right to expression, as well as the
prerogative by abrogating the legislative franchises of legislated right of these franchisees to broadcast.
respondents should it be distressed enough by the Other regulatory measures of less drastic impact will
not

preclude

Congress

from

enforcing

its

franchisees' violation of the franchises extended to have to be assessed on their own terms in the proper
cases, and our decision today should not be accepted
them. ACTESI
or cited as a blanket shearing of the NTC's regulatory
Evidently, the suggested theory of petitioner to jurisdiction. In addition, considering our own present
address his plaints simply overpowers the delicate recognition of legislative authority to regulate
balance of separation of powers, and unduly grants broadcast media on terms more cumbersome than
superlative prerogatives to the NTC to frustrate the print media, it should not be discounted that
exercise of the constitutional freedom speech, Congress may enact amendments to the organic law
expression, and of the press. A more narrowly-tailored of the NTC that would alter the legal milieu from
relief that is responsive to the cause of petitioner not which we adjudicated today.
only

exists,

but

is

in

fact

tailor-fitted

to

the

constitutional framework of our government and the Still, the Court sees all benefit and no detriment in
adjudication of legal and constitutional rights. Given striking this blow in favor of free expression and of
the current status of the law, there is utterly no the press. While the ability of the State to broadly

Page 109 of 229


regulate broadcast media is ultimately dictated by SYNOPSIS
physics, regulation with a light touch evokes a
democracy mature enough to withstand competing
viewpoints

and

tastes.

Perhaps

unwittingly,

the

position advocated by petitioner curdles a most vital


sector of the press broadcast media within the
heavy hand of the State. The argument is not
warranted by law, and it betrays the constitutional
expectations on this Court to assert lines not drawn
and connect the dots around throats that are free to
speak.

AICDSa

Petitioners purchased two (2) TWA tickers in Bangkok,


Thailand. Said tickers are for Los Angeles New York
Boston St. Louis-Chicago. On August 27, 1990
petitioners Purita and Carmina S. Mapa departed for
Boston, taking a connecting flight on TWA's carrier
TW 0901 from JFK Airport, checking in seven (7)
pieces of luggage at the TWA counter in the JFK
Airport. Upon arriving in Boston petitioners Purita
and Carmina proceeded to the carousel to claim their
baggages and found only three (3) out of the seven

WHEREFORE, the instant petition is DENIED. No they checked in. Despite TWA's assurance that their
pronouncement as to costs.

luggages would be located within 48 hours, the same


were never found. The total value of the lost items

SO ORDERED.
Quisumbing,

amounted to $11,283.79. TWA offered to settle the


Carpio

Morales,

Velasco,

Jr.

Peralta, * JJ., concur.

and case by giving petitioners two options; (a)


transportation credit for future TWA travel or (b) cash
settlement. Petitioners chose the first option, however,

CONVENTION FOR THE UNIFICATION OF TWA disregarded petitioners' option and unilaterally
CERTAIN RULES RELATING TO INTERNAL
CARRIAGE

BY

AIR

declared the payment of $2,560.00 as constituting

full satisfaction of petitioners' claim. Petitioners

(WARSAW accepted the check for $2,560 as partial payment for

CONVENTION)

the actual cost of their lost baggages. Despite


demands by petitioners respondent TWA failed and
refused without just cause to indemnify and redress

MEANING

OF

TRANSPORTATION

petitioners for grave injury and damages they have

INTERNATIONAL suffered.

Petitioners filed with the trial court a complaint for

20.

damages. The trial court dismissed the case for lack

THIRD DIVISION

Convention. The trial court held that the Warsaw

of jurisdiction in light of Article 28(1) of the Warsaw


Convention is applicable in case at bar, since the

[G.R. No. 122308. July 8, 1997.]


PURITA

S.

MAPA,

CARMINA

Philippines and the United States are parties to the


S.

MAPA

and

CORNELIO P. MAPA, petitioners, vs. COURT OF


APPEALS

AND

TRANS-WORLD

AIRLINES INC.,

respondents.
Angara, Abello, Concepcion, Regala & Cruz for
petitioners.

convention, the contracts of transportation come


within the meaning of "International Transportation."
The trial court also held that the Philippines, not
being one of the places specified in Art. 28 (1) of the
Warsaw Convention where the complaint may be
instituted then it has no jurisdiction over the present
case. On appeal to the Court of Appeals, the appellate
court affirmed the ruling of the trial court. Hence, the

Quisumbing, Torres & Evangelista for private present petition. The Supreme Court ruled that the
contracts does not fall under the category of
respondent.

Page 110 of 229


international

transportation

as

provided

by

the the signatories thereto and those which subsequently

Warsaw Convention. The only way to bring the adhered to it.


contracts between petitioners Purita and Carmina
Mapa on the one hand, and TWA on the other, within
the category of international transportation is to link
them or to make them an integral part of the Manila
Los Angeles travel of Purita and Carmina through
Pal aircraft. However, the alleged international tickets
issued by TWA were not presented in evidence, clearly
then; there is at all no factual basis of the finding
that the TWA tickets were issued in conjunction with
the international tickets.

2.

ID.;

ID.;

ID.;

ADHERED

TO

BY

THE

REPUBLIC OF THE PHILIPPINES. In the case of


the Philippines, the Convention was concurred in by
the Senate, through Resolution No. 19, on 16 May
1950. The Philippines instrument of accession was
signed by President Elpidio Quirino on 13 October
1950 and was deposited with the Polish Government
on

November

1950.

The

Convention

became

applicable to the Philippines on 9 February 1951.


Then, on 23 September 1955, President Ramon

Petition granted and the challenged decision of the Magsaysay issued Proclamation No. 201, declaring
Court of Appeals is reversed and set aside.

the Philippines' formal adherence thereto, "to the end


that the same and every article and clause thereof

SYLLABUS
1.

may be observed and fulfilled in good faith by the

CIVIL

LAW;

TRANSPORTATION;

CONTRACT

WARSAW

OF Republic of the Philippines and the citizens thereof.

CONVENTION;

"INTERNATIONAL TRANSPORTATION," DEFINED.


As provided in Article I(2) of the Warsaw Convention,
a contract is one of international transportation only
if according to the contract made by the parties, the
place of departure and the place of destination,
whether or not there be a break in the transportation
or a transshipment, are situated either within the
territories of two High Contracting Parties, or within
the territory of a single High Contracting Party, if
there is an agreed stopping place within a territory
subject to the sovereignty, mandate or authority of
another power, even though that power is not a party
to this convention. There are then two categories of
international transportation, viz., (1) that where the
place of departure and the place of destination are
situated within the territories of two High Contracting
Parties regardless of whether or not there be a break
in the transportation or a transshipment; and (2) that
where the place of departure and the place of
destination are within the territory of a single High
Contracting Party if there is an agreed stopping place
within a territory subject to the sovereignty, mandate,
or authority of another power, even though the power
is

not

party

to

the

Convention.

The

High

Contracting Parties referred to in the Convention are

3.

ID.; ID.; ID.; WHEN CONTRACT IS NOT OF

INTERNATIONAL TRANSPORTATION; CASE AT BAR.


The contracts of transportation in this case are
evidence

by

the

two

TWA

tickets,

No.

015:9475:153:304 and No. 015:9475:153:305, both


purchased and issued in Bangkok, Thailand. On the
basis alone of the provisions therein, it is obvious
that the place of departure and the place of
destination are all in the territory of the United
States, or of a single High Contracting Party. The
contracts, therefore, cannot come within the purview
of the first category of international transportation.
Neither can it be under the second category since
there was NO agreed stopping place within a territory
subject to the sovereignty, mandate, or authority of
another power. It must be underscored that the first
category of international transportation under the
Warsaw Convention is based on "the contract made by
the parties." TWA does not claim that the Manila-Los
Angeles contracts of transportation which brought
Purita and Carmina to Los Angeles were also its
contracts. It does not deny the assertion of the
petitioners that those contracts were independent of
the TWA tickets issued in Bangkok, Thailand. No
evidence was offered that TWA and PAL had an
agreement concerning transportation of passengers

Page 111 of 229


from points of departures not served with aircrafts of principal place of business, or where he has a place of
one or the other. There could have been no difficulty business through which the contract has been made,
for such agreement, since TWA admitted without or before the court at the place of destination.
qualification in paragraph 1 of its Answer to the
second

Amended

Complaint

the

allegation

in

paragraph 1.1 of the latter that TWA "is a foreign


corporation licensed to do business in the Philippines
with office address at Ground Floor, Saville Building,
Sen. Gil J. Puyat Avenue, corner Paseo de Roxas,
Makati, Metro Manila."
4.

REMEDIAL

DISMISS;

LAW;

EVIDENCE

We are urged by the petitioners to reverse the 31 May


1995 Decision of the Court of Appeals in CA-G.R. CV
No. 39896 2 affirming the 24 July 1992 Order of the
Regional Trial Court of Quezon City Branch 102,
which dismissed Civil Case No. Q-91-9620 3 on the
ground

of

lack

aforementioned
ACTIONS;
SHOULD

MOTION
HAVE

of

jurisdiction

Article

28(1)

in
of

view

of

the

the

Warsaw

TO Convention.

BEEN

OFFERED AT THE PRELIMINARY HEARING. TWA


should have offered evidence for its affirmative

The antecedent facts, as summarized by the Court of


Appeals, are as follows:

defenses at the preliminary hearing therefor. Section Plaintiffs Cornelio P. Mapa and Purita S. Mapa are
5 of Rule 16 of the Rules of Court expressly provides: respectable members of the society. Mr. Mapa is an
SEC. 5. Pleading grounds as affirmative defenses. established businessman and currently the Regional

Any of the grounds for dismissal provided for in this General Manager of Akerlund and Rausing, a
rule, except improper venue, may be pleaded as an multinational packaging material manufacturer based
affirmative defense, and a preliminary hearing may be in Manila. He was previously the Senior Vice
had thereon as if a motion to dismiss had been filed. President of Phimco Industries, an affiliate company
Without any further evidence as earlier discussed, the of Swedish Match Company. Mrs. Mapa is a

trial court should have denied the affirmative defense successful


businesswoman
engaged
in
the
of lack of jurisdiction because it did not appear to be commercial transactions of high value antique and
indubitable. Section 3 of Rule 16 of the Rules of oriental arts decor items originating from Asian

Court provides: SEC. 3. Hearing and order. After countries. Carmina S. Mapa is the daughter of
hearing the court may deny or grant the motion or plaintiffs Purita and Cornelio and is a graduate of the
allow amendment of pleading, or may defer the International School in Bangkok, Thailand, now
hearing and determination of the motion until the presently enrolled at the Boston University where she
trial if the ground alleged therein does not appear to is majoring in communication. cdasia
be indubitable.
Plaintiffs Mapa entered into contract of air
DECISION
transportation with defendant TWA as evidenced by
TWA

DAVIDE, JR., J p:

ticket

Nos.

015:9475:153:304

and

015:9475:153:305, purchased in Bangkok, Thailand.

The main issue in this petition for review under Rule Said TWA tickets are for Los Angeles-New York45 of the Rules of Court is the applicability of Article Boston-St. Louis-Chicago. . .
28(1) of the Warsaw Convention; 1 which provides as
follows:
ARTICLE 28.(1)

Domicile of carrier TWA is Kansas City, Missouri,


USA. Its principal place of business is Kansas City,

An action for damages must be Missouri, USA. TWA's place of business through

brought, at the option of the plaintiff, in the territory which the contracts were made is Bangkok, Thailand.
of one of the High Contracting Parties, either before The place of destination is Chicago, USA.
the court of the domicile of the carrier or of his

Page 112 of 229


On August 10, 1990, plaintiffs Carmina and Purita From the entrance gate of the terminal building,
left Manila on board PAL flight NO. 104 for Los plaintiffs Purita and Carmina proceeded to TWA's
Angeles. Carmina was to commence schooling and ticket counter and presented their confirmed TWA
thus was accompanied by Purita to assist her in tickets
settling down at the University.
They arrived in Los Angeles on the same date and
stayed there until August 14, 1990 when they left for
New York City.

numbered

015:9475:153:304

and

015:9475:153:305 with a 3:00 p.m. departure time.


They were issued their boarding passes and were
instructed to proceed to gate 35 for boarding. At
about 2:40 p.m., plaintiffs noticed that there was still
no instruction to board the aircraft so they made

On August 14, 1990, plaintiffs Purita and Carmina S. inquiries. The TWA ground stewardess informed
Mapa arrived at the John F. Kennedy (JFK) Airport, plaintiffs that they were at the wrong gate because
New York, on TWA Flight No. 904.

their flight was boarding at gate 1. Upon hearing this,

plaintiffs rushed to gate 1 which was in another

On August 27, 1990, plaintiffs Purita and Carmina S. building terminal. At gate 1, they were told by a TWA
Mapa departed for Boston, taking a connecting flight ground stewardess that flight 901 had just departed.
on TWA's carrier, TW 0901, from JFK Airport, New However, they were consoled that another TWA flight
York, to Boston's Logan Airport, checking in seven (7) was leaving for Boston after 30 minutes and plaintiffs
pieces of luggage at the TWA counter in the JFK could use the same boarding pass for the next flight.
Airport. The seven baggages were received by a porter At around 3:15 p.m., plaintiffs Purita and Carmina
who issued seven TWA baggage receipts numbered were able to board the next flight. However, the plane
17-8270, 71, 72, 73, 74, 75, and 76 therefor.
was not immediately cleared for take off on account of
a thunderstorm. The passengers were instructed to
stay inside the aircraft until 6:00 p.m. when the plane
finally left for Boston.
Upon

arriving

in

Boston,

plaintiffs

Purita

and

Carmina proceeded to the carousel to claim their


baggages and found only three out of the seven they
checked in, to wit: one Samsonite on the carousel,
another Samsonite lying on the floor near the
carousel and a third baggage, an American Tourister,
inside

the

unclaimed

baggage

office.

Plaintiffs

immediately reported the loss of their four baggages


to the TWA Baggage Office at Logan Airport. TWA's
representative confidently assured them that their
baggages would be located within 24 hours and not
more than 48 hours.
On September 2, 1990, plaintiffs received a letter
from TWA, signed by Mr. J.A. Butler, Customer
Relations-Baggage

Service,

apologizing

for

TWA's

failure to locate the missing luggage and requesting


plaintiffs

to

accomplish

passenger

property

questionnaire to facilitate a further intensive and


computerized search for the lost luggage. Plaintiffs

Page 113 of 229


duly

accomplished

the

passenger

property amounts: (1) US$8,723.79, or its equivalent in

questionnaire, taking pains to write down in detail the Philippine currency, representing the cost of the lost
contents of each missing baggage. The total value of luggage and its contents; (2) US$2,949.50, or its
the lost items amounted to $11,283.79
On September 20, 1990, plaintiffs' counsel wrote TWA
thru its General Sales Manager in the Philippines,
Daniel Tuason, with office address at Ground Floor,
Saville Building, Sen. Gil J. Puyat Avenue corner
Paseo de Roxas, Makati, Metro Manila demanding
indemnification for the grave damage and injury
suffered by the plaintiffs.
TWA again assured plaintiffs that intensive search
was being conducted.

equivalent in Philippine currency, representing the


cost of hotel, board and lodging, and communication
expenses; (3) P1 million, by way of moral damages; (4)
P1 million, by way of exemplary damages, with legal
interest

on

said

amounts

from

the

date

of

extrajudicial demand thereof; and (5) P500,000.00 as


attorney's fees, cost of the suit, and other expenses of
litigation. 8
On 26 February 1992, TWA filed its Answer to the
Amended

Complaint

raising,

as

special

and

affirmative defense, lack of jurisdiction of Philippine

On October 8, 1990, TWA offered to amicably settle courts over the action for damages in that pursuant
the case by giving plaintiffs-appellants two options: to Article 28(1) of the Warsaw Convention, the action
(a) transportation credit for future TWA travel or (b) could only be brought either in Bangkok where the
cash settlement. Five months lapsed without any contract was entered into, or in Boston which was the
result on TWA's intensive search.
On January 3, 1991, plaintiffs-appellants opted for
transportation credit for future TWA travel

place of destination, or in Kansas City which is the


carrier's domicile and principal place of business.

TWA further alleged that pursuant to the Warsaw

Convention and the Notice of Baggage Limitations at


On January 11, 1991, TWA disregarded plaintiffs' the back of the tickets, its liability to the petitioners is
option and unilaterally declared the payment of limited to US$9.07 per pound, or US$20.00 per kilo,
$2,560.00 as constituting full satisfaction of the which is in lieu of actual and compensatory damages.
plaintiffs' claim.
Even assuming that petitioners' bag weighed the
On July 19, 1991, plaintiffs accepted the check for
$2,560.00 as partial payment for the actual cost of
their lost baggages and their contents.

maximum acceptable weight of 70 pounds, TWA's


maximum liability is $640.00 per bag or $2,560.00
for the four pieces of baggage, which the petitioners
have been offered and have accepted. TWA also

Despite demands by plaintiffs, TWA failed and refused submitted that it could not be liable for moral and
without just cause to indemnify and redress plaintiffs exemplary damages and attorney's fees because it did

for the grave injury and damages they have suffered. not act in a wanton, fraudulent, reckless, oppressive,
or malevolent manner. 9
4
Purita S. Mapa, Carmina S. Mapa, and Cornelio P. On 7 February 1992, the petitioners filed their second
Mapa (herein petitioners) then filed with the trial Amended Complaint 10 to include a claim of
court on 1 August 1991 a complaint 5 for damages, 6 US$2,500, or its equivalent in Philippine Currency,
which was docketed as Civil Case No. Q-91-9620. representing the additional replacement cost of the

Before a responsive pleading was filed, the petitioners items and personal effects contained in their lost
filed an Amended Complaint. 7 They prayed that after luggage; and US$4,500 representing the travel
due trial private respondent Trans-World Airlines, Inc. expenses, hotel, lodging, food and other expenses of
(hereafter, TWA), be ordered to pay them the following petitioner Cornelio Mapa, who was constrained to join

Page 114 of 229


his

family

in

Boston

to

extend

the

necessary The next question to be resolved is whether or not the

assistance in connection with the lost luggage.

Court has jurisdiction to try the present case in the

After the filing of TWA's Answer to the second


Amended

Complaint,

11

and

petitioners'

light of the provision Art. 28(1) above-quoted.

Reply Under Art. 28(1) supra, a complaint for damages

thereto, the trial court gave TWA ten days within against an air carrier can be instituted only in any of
which to submit a memorandum in support of its the following places/courts:
affirmative defenses; after which the incident would
be deemed submitted for resolution. 12 However, after

(1)

TWA filed its Memorandum, 13 the trial court gave (2)


the petitioners five days within which to file a reply
memorandum; and TWA, two days from receipt of the (3)

The court of the domicile of the carrier;


The court of its principal place of business;
The court where it has a place of business

latter to file its comment thereon. 14 The petitioners through which the contract had been made;
then

filed

their

Opposition

(by

way

of

Reply

Memorandum) 15 to which TWA filed a Reply. 16

(4)

The court of the place of destination.

Thereafter, the petitioners submitted a Rejoinder 17 ; In interpreting the provision of Art. 28(1) of the
TWA, a Surrejoinder. 18
Warsaw Convention, the Supreme Court in the same
On 24 July 1992, the trial court issued an Order 19
dismissing the case for lack of jurisdiction in light of
Article 28(1) of the Warsaw Convention. Thus:
It is plaintiffs' theory that the Warsaw Convention
does not apply to the instant case because plaintiffs'
contract

of

transportation

does

not

constitute

"international transportation" as defined in said


convention. This however is belied by the Passenger
Property Questionnaire which is Annex C of plaintiffs'

case of Augusto Benedicto Santos vs. Northwest


Airlines held:
Whether Article 28(1) refers to jurisdiction or only to
venue is a question over which authorities are sharply
divided. While the petitioner cites several cases
holding that Article 28(1) refers to venue rather that
jurisdiction, there are later cases cited by the private
respondent

supporting

the

conclusion

that

the

provision is jurisdictional.

amended complaint. Page two of said questionnaire Venue and jurisdiction are entirely distinct matters.
accomplished by plaintiffs under the heading "Your Jurisdiction may not be conferred by consent or
Complete Itinerary" shows that the TWA tickets waiver upon a court which otherwise would have no
issued to the plaintiffs form part of the contract of jurisdiction over the subject-matter of an action; but

transportation to be performed from Manila to the the venue of an action is fixed by statute may be
United States. Since the Philippines and the United changed by the consent of the parties and an
States are parties to the convention, plaintiffs' objection that the plaintiff brought his suit in the
contracts of transportation come within the meaning wrong country may be waived by the failure of the
of International Transportation.
xxx

xxx

defendant to make a timely objection. In either case,


xxx

the court may render a valid judgment. Rules as to


jurisdiction can never be left to the consent or

On the basis of the foregoing, the Court holds that agreement of the parties, whether or not a prohibition
the Warsaw Convention is applicable to the case at exists against their alteration.
bar, even if the basis of plaintiffs' present action is
breach of contract of carriage under the New Civil
Code.

number

of

reasons

tends

to

support

the

characterization of Article 28(1) as jurisdiction and


not a venue provision. First, the wording of Article 32,
which indicates the places where the action for

Page 115 of 229


damages

"must"

be

brought,

underscores

the what is involved in international transportation

mandatory nature of Article 28(1). Second, this defined by said Convention in Article I(2). This holding
characterization

is

consistent

with

one

of

the is founded on its determination that the two TWA

objectives of the Convention, which is to "regulate in a tickets for Los Angeles-New York-Boston-St. Louisuniform manner the conditions of international Chicago

purchased

in

Bangkok,

Thailand,

were

transportation by air." Third, the Convention does not issued in conjunction with, and therefore formed part
contain any provision prescribing rules of jurisdiction of, the contract of transportation performed from
other than Article 28(1), which means that the phrase Manila, Philippines, to the United States.
"rules as to jurisdiction" used in Article 32 must refer
only to Article 28(1). In fact, the last sentence of
Article

32

specifically

deals

with

the

exclusive

enumeration in Article 28(1) as "jurisdiction," which,


as such, cannot be left to the will of the parties
regardless of the time when the damage occurred."

The respondent court further held that the cause of


action of the petitioners arose from the loss of the
four checked pieces of baggage, which then falls
under Article 18(1), Chapter III (Liability of the
Carrier) of the Warsaw Convention. 21 Pursuant to
Article 24(1) of the Convention, all actions for

It has been shown by the defendant that the domicile damages, whether based on tort, code law of common
of the defendant Trans World Airlines, Inc. is Kansas law, arising from loss of baggage under Article 18 of
City, Missouri, its principal place of business is also the Warsaw Convention, can only be brought subject
in Kansas City, Missouri, the carrier's place of to the conditions and limits set forth in the Warsaw
business through which the contracts were made is Convention. Article 28(1) thereof sets forth conditions
Bangkok (Annexes A and A-1, Amended Complaint), and limits in that the action for damages may be
and the place of destination was Boston.

instituted only in the territory of one of the High

The Philippines not being one of the places specified


in Art. 28(1) abovequoted where the complaint may be
instituted,

this

Court

therefore,

does

not

have

jurisdiction over the present case.

Contracting Parties, before the court of (1) the


domicile of the carrier, (2) the carrier's principal place
of business, (3) the place of business through which
the contract has been made, or (4) the place of
destination. Since the Philippines is not one of these

Evidently discontented with the trial court's order, the places, a Philippine Court, like the RTC, has no
petitioners appealed to the Court of Appeals, jurisdiction over the complaint for damages.
contending that the lower court erred in not holding
that (1) it has jurisdiction over the instant case and
(2) the Warsaw Convention is inapplicable in the
instant case because the subject matter of the case is
not

included

within

the

coverage

of

the

said

convention. 20 They claimed that their cause of


action could be based on breach of contract of air
carriage founded on Articles 1733, 1734, 1735, 1755,
and 1756 of the New Civil Code governing common
carriers or Article 2176 of the same Code governing
tort or quasi-delict.

Respondent Court of Appeals likewise held that the


petitioners could not claim application of Articles
1733, 1734, 1735, 1755, and 1756 of the New Civil
code

on

common

carriers

without

taking

into

consideration Article 1753 of the same Code, which


provides that the law of the country to which the
goods are to be transported shall govern the liability
of the common carrier for their loss, destruction, or
deterioration.

Since

the

country

of

ultimate

destination is Chicago, the law of Chicago shall


govern the liability of TWA for the loss of the four

The appellate court disagreed with the petitioners and pieces of baggage. Neither is Article 2176 of the New
affirmed the order of the trial court. It held that the Civil code on torts or quasi-delicts applicable in view
Warsaw Convention is the law which governs the of the private international law principle of lex loci
dispute between the petitioners and TWA because delicti commissi. 22 In addition, comformably with

Page 116 of 229


Santos III v. Northwest Orient Airlines, 23 mere virtue of PAL tickets issued independently of the TWA
allegation of willful misconduct resulting in a tort is tickets.
insufficient

to

exclude

the

case

from

the

comprehension of the Warsaw Convention.

The pith issue to be resolved under the petitioners'


first assigned error is whether the contracts of

Failing in their bid to reconsider the decision, the transportation between Purita and Carmina Mapa, on
petitioners

filed

this

petition.

They

aver

that the one hand, and TWA, on the other, were contracts

respondent Court of Appeals gravely erred (1) in of "international transportation" under the Warsaw
holding that the Warsaw Convention is applicable to Convention. If they were, then we should sustain the
this case and (2) in applying Article 1753 of the Civil trial court and the Court of Appeals in light of our
Code and the principle of lex loci delicti commissi. 24
We resolved to give due course to the petition after the
filing by TWA of its Comment on the petition and
noted without action for the reasons stated in the
resolution of 25 September 1996 petitioners' Reply
and Rejoinder. We then required the parties to submit
their respective memoranda. They did in due time.

ruling in Santos v. Northwest Orient Airlines. 25 It


appears clear to us that TWA itself, the trial court,
and the Court of Appeals, impliedly admit that if the
sole basis were the two TWA tickets for Los AngelesNew-York-Boston-St.

Louis-Chicago,

the

contracts

cannot be brought within the term "international


transportation," as defined in Article I(2) of the
Warsaw Convention. As provided therein, a contract is

The petitioners insist that the Warsaw Convention is one of international transportation only if
not applicable to their case because the contracts
they had with TWA did not involve an international
transportation.

Whether

the

contracts

were

of

international transportation is to be solely determined


from the TWA tickets issued to them in Bangkok,
Thailand, which showed that their itinerary was Los
Angeles-New-York-Boston-St.

Louis-Chicago.

Accordingly, since the place of departure (Los Angeles)


and the place of destination (Chicago) are both within
the territory of one High Contracting Party, with no
agreed stopping place in a territory subject to the

according to the contract made by the parties, the


place of departure and the place of destination,
whether or not there be a break in the transportation
or a transshipment, are situated either within the
territories of two High Contracting Parties, or within
the territory of a single High Contracting Party, if
there is an agreed stopping place within a territory
subject to the sovereignty, mandate or authority of
another power, even though that power is not a party
to this convention.

sovereignty, mandate, suzerainty or authority of There

are

then

two

categories

of

international

another Power, the contracts did not constitute transportation, viz., (1) that where the place of
'international

transportation'

as

defined

by

the departure and the place of destination are situated

convention. They also claim to be without legal basis within the territories of two High Contracting Parties
the contention of TWA that their transportation regardless of whether or not there be a break in the
contracts were of international character because of transportation or a transshipment; and (2) that where
the handwritten notations in the tickets re "INT'L TKT the place of departure and the place of destination
#079-4402956821-2"

and

INT'L

TKT

#079- are within the territory of a single High Contracting

4402956819." Notwithstanding such notations, the Party if there is an agreed stopping place within a
TWA tickets, viz., (a) No. 015:9475:153:304 and (b) territory subject to the sovereignty, mandate, or
No. 015:9475:153:305 did not cease to be for the authority of another power, even though the power is
itinerary therein designated. Besides, it is a fact that not a party to the Convention.
petitioners Purita and Carmina Mapa traveled from
Manila to Los Angeles via Philippine Airlines (PAL) by

The High Contracting Parties referred to in the


Convention are the signatories thereto and those

Page 117 of 229


which subsequently adhered to it. In the case of the The alleged "international tickets" mentioned in the
Philippines, the Convention was concurred in by the notations in conjunction with which the two TWA
Senate, through Resolution No. 19, on 16 May 1950. tickets were issued were not presented.. Clearly then,
The Philippine instrument of accession was signed by there is at all no factual basis of the finding that the
President Elpidio Quirino on 13 October 1950 and TWA tickets were issued in conjunction with the
was deposited with the Polish Government on 9 international tickets, which are even, at least as of
November 1950. The Convention became applicable to now, non-existent.
the Philippines on 9 February 1951. Then, on 23
September 1955, President Ramon Magsaysay issued
Proclamation No. 201, declaring the Philippines'
formal adherence thereto, "to the end that the same
and every article and clause thereof may be observed
and fulfilled in good faith by the Republic of the
Philippines and the citizens thereof. 26

As regards the petitioner's entry in YOUR COMPLETE


ITINERARY

column

of

the

Passenger

Property

Questionnaire wherein they included the Manila-Los


Angeles travel, it must be pointed out that this was
made on 4 September 1990 27 by petitioners Purita
and Carmina Mapa, and only in connection with their
claim for their lost pieces of baggage. The loss

The contracts of transportation in this case are occurred much earlier, or on 27 August 1990. The
evidenced

by

the

two

TWA

tickets,

No. entry can by no means be considered as a part of, or

015:9475:153:304 and No. 015:9475:153:305, both supplement to, their contracts of transportation
purchased and issued in Bangkok, Thailand. On the evidenced

by

the

TWA

tickets

which

covered

basis alone of the provisions therein, it is obvious transportation within the United States only.
that the place of departure and the place of
destination are all in the territory of the United
States, or of a single High Contracting Party. The
contracts, therefore, cannot come within the purview
of the first category of international transportation.
Neither can it be under the second category since
there was NO agreed stopping place within a territory
subject to the sovereignty, mandate, or authority of
another power.

It must be underscored that the first category of


international

transportation

under

the

Warsaw

Convention is based on "the contract made by the


parties." TWA does not claim that the Manila-Los
Angeles contracts of transportation which brought
Purita and Carmina to Los Angeles were also its
contracts. It does not deny the assertion of the
petitioners that those contracts were independent of
the TWA tickets issued in Bangkok, Thailand. No

The only way to bring the contracts between Purita evidence was offered that TWA and PAL had an
and Carmina Mapa, on the one hand, and TWA, on agreement concerning transportation of passengers
the other, within the first category of "international from points of departures not served with aircrafts of
transportation" is to link them with, or to make them one or the other. There could have been no difficulty
an integral part of, the Manila-Los Angeles travel of for such agreement, since TWA admitted without
Purita and Carmina through PAL aircraft. The qualification in paragraph 1 of its Answer 28 to the
"linkages" which have been pointed out by the TWA, second

Amended

Complaint

the

allegation

in

the trial court, and the Court of Appeals are (1) the paragraph 1.1 of the latter 29 that TWA "is a foreign
handwritten

notations,

viz.,

INT'L

TKT

#079- corporation licensed to do business in the Philippines

4402956821-2 and INT'L TKT #079-4402956819, on with office address at Ground Floor, Saville Building,
the two TWA tickets; and (2) the entries made by Sen. Gil. J. Puyat Avenue, corner Paseo de Roxas,
petitioners Purita and Carmina Mapa in column Makati, Metro Manila."
YOUR COMPLETE ITINERARY in TWA's Passenger
Property Questionnaire, wherein they mentioned their
travel from Manila to Los Angeles in flight PR 102.

TWA relies on Article I(3) of the Convention, which


provides as follows:

Page 118 of 229


3.

carriage

to

be

performed

by

several SEC. 3.

Hearing and order. After hearing the

successive air carriers is deemed, for the purposes of court may deny or grant the motion or allow
this Convention, to be one undivided carriage, if it amendment of pleading, or may defer the hearing and
has been regarded by the parties as a single determination of the motion until the trial if the
operation, whether it had been agreed upon under ground alleged therein does not appear to be
the form of a single contract or a series of contracts, indubitable. cda
and it shall not lose its international character merely
because one contract or a series of contracts is to be
performed entirely within a territory subject to the WHEREFORE, the instant petition is GRANTED and
sovereignty, suzerainty, mandate, or authority of the the challenged decision of 31 May 1995 of respondent
same High Contracting Party.
Court of Appeals in CA-G.R. CV No. 39896, as well as
It also points to Article 15 of the IATA Recommend
Practice

1724,

which

provides:

Carriage

to

be

performed by several successive carriers under one

the Order of 24 July 1992 of the Regional Trial Court


of Quezon City, Branch 102, in Civil Case No. Q-919620, is REVERSED and SET ASIDE.

ticket, or under a ticket and any conjunction ticket The Regional Trial Court of Quezon City, Branch 102,
issued in connection therewith, is regarded as a is hereby DIRECTED to proceed with the pre-trial, if it
single operation." 30

has not been terminated, and with the trial on the

The flaw of respondents' position is the presumption


that the parties have "regarded" as an "undivided
carriage" or as a "single operation" the carriage from

merits of the case and then to render judgment


thereon,

taking

into

account

the

foregoing

observations on the issue of jurisdiction.

Manila to Los Angeles through PAL then to New York- SO ORDERED.


Boston-St.
Louis-Chicago
through
TWA.
The
dismissal then of the second Amended Complaint by Narvasa, C .J ., Melo, Francisco and Panganiban, JJ.,
the trial court and the Court of Appeals' affirmance of concur.
the dismissal were not based on indubitable facts or
grounds,

but

on

inferences

without

established

factual basis.

21.
EN BANC

TWA should have offered evidence for its affirmative


defenses at the preliminary hearing therefor. Section

[G.R. No. 101538. June 23, 1992.]

5 of Rule 16 of the Rules of Court expressly provides:

AUGUSTO BENEDICTO SANTOS III, represented by

SEC. 5.

his father and legal guardian, Augusto Benedicto

Pleading

grounds

as

affirmative

defenses. Any of the grounds for dismissal provided Santos, petitioner, vs. NORTHWEST ORIENT
for in this rule, except improper venue, may be AIRLINES and COURT OF APPEALS, respondents.
pleaded as an affirmative defense, and a preliminary
hearing may be had thereon as if a motion to dismiss
had been filed.

DECISION
CRUZ, J p:

Without any further evidence as earlier discussed, the This case involves the proper interpretation of Article
trial court should have denied the affirmative defense 28(1) of the Warsaw Convention, reading as follows:
of lack of jurisdiction because it did not appear to be

indubitable. Section 3 of Rule 16 of the Rules of Art. 28. (1) An action for damage must be brought at
the option of the plaintiff, in the territory of one of the
Court provides:
High Contracting Parties, either before the court of

Page 119 of 229


the domicile of the carrier or of his principal place of destination Manila but San Francisco in the United
business, or where he has a place of business States.
through which the contract has been made, or before
the court at the place of destination.

On February 1, 1988, the lower court granted the


motion and dismissed the case.

2 The petitioner

The petitioner is a minor and a resident of the appealed to the Court of Appeals, which affirmed the
Philippines. Private respondent Northwest Orient decision of the lower court.

3 On June 26, 1991, the

Airlines (NOA) is a foreign corporation with principal petitioner filed a motion for reconsideration, but the
office in Minnesota, U.S.A., and licensed to do same was denied.

4 The petitioner then came to this

business and maintain a branch office in the Court, raising substantially the same issues it
Philippines.

submitted in the Court of Appeals.

On October 21, 1986, the petitioner purchased from The assignment of errors may be grouped into two
NOA a round-trip ticket in San Francisco, U.S.A., for major issues, viz:
his flight from San Francisco to Manila via Tokyo and
back. The scheduled departure date from Tokyo was
December 20, 1986. No date was specified for his
return to San Francisco. 1

(1)

(2)

On December 19, 1986, the petitioner checked in at

the constitutionality of Article 28(1) of the

Warsaw Convention; and


the jurisdiction of Philippine courts over the

case.

the NOA counter in the San Francisco airport for his The petitioner also invokes Article 24 of the Civil Code
scheduled departure to Manila. Despite a previous on the protection of minors.
confirmation and re-confirmation, he was informed

that he had no reservation for his flight from Tokyo to I.


Manila. He therefore had to be wait-listed.

THE ISSUE OF CONSTITUTIONALITY

On March 12, 1987, the petitioner sued NOA for


damages in the Regional Trial Court of Makati. On
April 13, 1987, NOA moved to dismiss the complaint
on the ground of lack of jurisdiction. Citing the abovequoted article, it contended that the complaint could

A.

The petitioner claims that the lower court

erred in not ruling that Article 28(1) of the Warsaw


Convention violates the constitutional guarantees of
due process and equal protection.

be instituted only in the territory of one of the High The Republic of the Philippines is a party to the
Contracting Parties, before:
Convention for the Unification of Certain Rules
1.

the court of the domicile of the carrier;

2.

the court of its principal place of business;

Relating

to

International

Transportation

by

Air,

otherwise known as the Warsaw Convention. It took


effect on February 13, 1933. The Convention was

concurred in by the Senate, through its Resolution


the court where it has a place of business No. 19, on May 16, 1950. The Philippine instrument
through which the contract had been made;
of accession was signed by President Elpidio Quirino
3.

4.
The

on October 13, 1950, and was deposited with the

the court of the place of destination.


private

respondent

contended

Polish
that

government

on

November

9,

1950.

The

the Convention became applicable to the Philippines on

Philippines was not its domicile nor was this its February 9, 1951. On September 23, 1955, President
principal

place

of

business.

Neither

was

the Ramon Magsaysay issued Proclamation No. 201,

petitioner's ticket issued in this country nor was his declaring our formal adherence thereto, "to the end
that the same and every article and clause thereof

Page 120 of 229


may be observed and fulfilled in good faith by the litigation of any claim that may arise between the
Republic of the Philippines and the citizens thereof." airline and its passenger, as distinguished from all
5
The

other places. At any rate, we agree with the


Convention

is

thus

treaty

commitment

voluntarily assumed by the Philippine government


and, as such, has the force and effect of law in this
country.

other grounds without the necessity of resolving the


constitutional issue.
B.

The petitioner contends that Article 28(1) cannot be


applied

respondent court that this case can be decided on

in

the

present

unconstitutional.
substantial

He

case

argues

distinction

because

that

between

there

it

is

is

no

person

The petitioner claims that the lower court

erred in not ruling that Art. 28(1) of the Warsaw


Convention is inapplicable because of a fundamental
change in the circumstances that served as its basis.

who The petitioner goes at great lengths to show that the

purchases a ticket in Manila and a person who provisions in the Convention were intended to protect
purchases

his

ticket

in

San

Francisco.

The airline companies under "the conditions prevailing

classification of the places in which actions for then and which have long ceased to exist." He argues
damages may be brought is arbitrary and irrational that in view of the significant developments in the
and

thus

violates

the

due

process

and

equal airline industry through the years, the treaty has

protection clauses.

become irrelevant. Hence, to the extent that it has

It is well-settled that courts will assume jurisdiction


over a constitutional question only if it is shown that

lost

its

basis

for

approval,

it

has

become

unconstitutional.

the essential requisites of a judicial inquiry into such The petitioner is invoking the doctrine of rebus sic
a question are first satisfied. Thus, there must be an stantibus.

According

to

Jessup,

"this

doctrine

actual case or controversy involving a conflict of legal constitutes an attempt to formulate a legal principle
rights susceptible of judicial determination; the which would justify non-performance of a treaty
constitutional question must have been opportunely obligation if the conditions with relation to which the
raised by the proper party and the resolution of the parties contracted have changed so materially and so
question is unavoidably necessary to the decision of unexpectedly as to create a situation in which the
the case itself. 6

exaction of performance would be unreasonable."

Courts generally avoid having to decide constitutional


question. This attitude is based on the doctrine of
separation

of

powers,

which

enjoins

upon

the

departments of the government a becoming respect


for each other's acts.

The key element of this doctrine is the vital change in


the condition of the contracting parties that they
could not have foreseen at the time the treaty was
concluded.
The Court notes in this connection the following

The treaty which is the subject matter of this petition


was a joint legislative-executive act. The presumption

observation made in Day v. Trans World Airlines, Inc.:


8

is that it was first carefully studied and determined to The Warsaw drafters wished to create a system of
be constitutional before it was adopted and given the liability rules that would cover all the hazards of air
force of law in this country.

travel . . . The Warsaw delegates knew that, in the

The petitioner's allegations are not convincing enough


to

overcome

this

presumption.

Apparently,

the

Convention considered the four places designated in


Article 28 the most convenient forums for the

years to come, civil aviation would change in ways


that they could not foresee. They wished to design a
system of air law that would be both durable and
flexible enough to keep pace with these changes . . .

Page 121 of 229


The ever-changing needs of the system of civil aviation Obviously, rejection of the treaty, whether on the
can be served within the framework they created.

ground of rebus sic stantibus or pursuant to Article

It is true that at the time the Warsaw Convention was


drafted, the airline industry was still in its infancy.
However, that circumstance alone is not sufficient
justification for the rejection of the treaty at this time.
The

changes

recited

by

the

petitioner

were,

realistically, not entirely unforeseen although they


were expected in a general sense only. In fact, the
Convention itself, anticipating such developments,
contains the following significant provision:
Article 41.

39, is not a function of the courts but of the other


branches of government. This is a political act. The
conclusion

entitled not earlier than two years after the coming


into force of this convention to call for the assembling

renunciation

of

treaties

is

the

prerogative of the political departments and may not


be

usurped

concerned

by
only

the

judiciary.

with

the

The

courts

interpretation

are
and

application of laws and treaties in force and not with


their wisdom or efficacy.
C.

Any High Contracting Party shall be

and

The petitioner claims that the lower court

erred in ruling that the plaintiff must sue in the


United States, because this would deny him the right
to access to our courts.

of a new international conference in order to consider The

petitioner

alleges

that

the

expenses

and

any improvements which may be made in this difficulties he will incur in filing a suit in the United
convention. To this end, it will communicate with the States would constitute a constructive denial of his
Government of the French Republic which will take right to access to our courts for the protection of his
the necessary measures to make preparations for rights. He would consequently be deprived of this
such conference.

vital guaranty as embodied in the Bill of Rights.

But the more important consideration is that the Obviously, the constitutional guaranty of access to
treaty has not been rejected by the Philippine courts

refers

only

to

courts

with

appropriate

government. The doctrine of rebus sic stantibus does jurisdiction as defined by law. It does not mean that a
not

operate

automatically

to

render

the

treaty person can go to any court for redress of his

inoperative. here is a necessity for a formal act of grievances regardless of the nature or value of his
rejection, usually made by the head of State, with a claim. If the petitioner is barred from filing his
statement of the reasons why compliance with the complaint before our courts, it is because they are not
treaty is no longer required.

vested with the appropriate jurisdiction under the

In lieu thereof, the treaty may be denounced even


without an expressed justification for this action.

Warsaw Convention, which is part of the law of our


land.

Such denunciation is authorized under its Article 39, II.


viz: cdrep

THE ISSUE OF JURISDICTION

Article 39. (1) Any


Parties

may

one

of

denounce

the
this

High

Contracting

convention

by

notification addressed to the Government of the


Republic of Poland, which shall at once inform the
Government of each of the High Contracting Parties.
(2)

Denunciation shall take effect six months

after the notification of denunciation, and shall


operate only as regards the party which shall have
proceeded to denunciation.

A.

The petitioner claims that the lower court

erred in not ruling that Article 28(1) of the Warsaw


Convention is a rule merely of venue and was waived
by defendant when it did not move to dismiss on the
ground of improper venue.
By its own terms. the Convention applies to all
international transportation of persons performed by
aircraft for hire.

Page 122 of 229


International transportation is defined in paragraph the court may render a valid judgment. Rules as to
(2) of Article 1 as follows:
(2)

jurisdiction can never be left to the consent or

For the purposes of this convention, the

expression "international transportation" shall mean


any

transportation

in

which,

according

to

agreement of the parties, whether or not a prohibition


exists against their alteration. 11

the A

number

of

reasons

tends

to

support

the

contract made by the parties, the place of departure characterization of Article 28(1) as a jurisdiction and
and the place of destination, whether or not there be not a venue provision. First, the wording of Article 32,
a break in the transportation or a transshipment, are which indicates the places where the action for
situated [either] within the territories of two High damage
Contracting Parties . . .

determined by the contract of the parties, which in


the case of passengers is the ticket. When the
contract of carriage provides for the transportation of
the passenger between certain designated terminals
"within the territories of two High Contracting
the

provisions

be

brought,

underscores

the

mandatory nature of Article 28(1). Second, this

Whether the transportation is "international" is

Parties,"

"must"

of

the

Convention

automatically apply and exclusively govern the rights


and liabilities of the airline and its passenger.

characterization

is

consistent

with

one

of

the

objectives of the Convention, which is to "regulate in a


uniform manner the conditions of international
transportation by air." Third, the Convention does not
contain any provision prescribing rules of jurisdiction
other than Article 28(1), which means that the phrase
"rules as to jurisdiction" used in Article 32 must refer
only to Article 28(1). In fact, the last sentence of
Article

32

specifically

deals

with

the

exclusive

enumeration in Article 28(1) as "jurisdictions," which,

Since the flight involved in the case at bar is as such, cannot be left to the will of the parties
international, the same being from the United States regardless of the time when the damage occurred.
to the Philippines and back to the United States, it is
subject to the provisions of the Warsaw Convention,
including Article 28(1), which enumerates the four
places where an action for damages may be brought.
Whether Article 28(1) refers to jurisdiction or only to
venue is a question over which authorities are sharply
divided. While the petitioner cites several cases
holding that Article 28(1) refers to venue rather than
jurisdiction,

9 there are later cases cited by the

private respondent supporting the conclusion that


the provision is jurisdictional. 10

This issue was analyzed in the leading case of Smith


v. Canadian Pacific Airways, Ltd.,

12 where it was

held:
. . . Of more, but still incomplete, assistance is the
wording of Article 28(2), especially when considered in
the light of Article 32. Article 28(2) provides that
"questions of procedure shall be governed by the law
of the court to which the case is submitted"
(Emphasis supplied). Section (2) thus may be read to
leave for domestic decision questions regarding the
suitability and location of a particular Warsaw

Venue and jurisdiction are entirely distinct matters. Convention case."


Jurisdiction may not be conferred by consent or
waiver upon a court which otherwise would have no
jurisdiction over the subject-matter of an action; but
the venue of an action as fixed by statute may be
changed by the consent of the parties and an
objection that the plaintiff brought his suit in the
wrong county may be waived by the failure of the
defendant to make a timely objection. In either case,

In other words, where the matter is governed by the


Warsaw Convention, jurisdiction takes on a dual
concept. Jurisdiction in the international sense must
be established in accordance with Article 28(1) of the
Warsaw Convention, following which the jurisdiction
of a particular court must be established pursuant to
the applicable domestic law. Only after the question of
which court has jurisdiction is determined will the

Page 123 of 229


issue of venue be taken up. This second question jurisdiction
shall be governed by the law of the court to which the SANTOS
case is submitted.

to

entertain

considers

as

the

Complaint"

equivalent

to

which

"lack

of

jurisdiction over the subject matter . . ." However, the

The petitioner submits that since Article 32 state that


the parties are

precluded "before the damages

occurred" from amending the rules of Article 28(1) as


to the place where the action may be brought, it
would follow that the Warsaw Convention was not
intended to preclude them from doing so "after the
damages occurred."

gist of NOA's argument in its motion is that the


Philippines is not the proper place where SANTOS
could file the action meaning that the venue of the
action is improperly laid. Even assuming then that
the specified ground of the motion is erroneous, the
fact is the proper ground of the motion improper
venue has been discussed therein.
Waiver cannot be lightly inferred. In case of doubt, it

Article 32 provides:

must be resolved in favor of non-waiver if there are

Any clause contained in the contract special circumstances justifying this conclusion, as in
and all special agreements entered into before the the petition at bar. As we observed in Javier vs.
damage occurred by which the parties purport to Intermediate Court of Appeals: 13
Article 32.

infringe the rules laid down by this convention,


whether by deciding the law to be applied, or by
altering the rules as to jurisdiction, shall be null and
void. Nevertheless for the transportation of goods,
arbitration clauses shall be allowed, subject to this
convention, if the arbitration is to take place within
one of the jurisdictions referred to in the first
paragraph of Article 28.

28(1) can be waived "after the damages (shall have)


the

article

deemed waived by the petitioners when they failed to


invoke it in their original motion to dismiss. Even so,
the motivation of the private respondent should have
been taken into account by both the trial judge and
the respondent court in arriving at their decisions.
The petitioner also invokes KLM Royal Dutch Airlines

His point is that since the requirements of Article


occurred,"

Legally, of course, the lack of proper venue was

should

be

regarded

as

possessing the character of a "venue" and not of a


"jurisdiction" provision. Hence, in moving to dismiss
on the ground of lack of jurisdiction, the private
respondent has waived improper venue as a ground to
dismiss.

v. RTC,

14 a decision of our Court of Appeals, where

it was held that Article 28(1) is a venue provision.


However, the private respondent avers that this was
in effect reversed by the case of Aranas v. United
Airlines,

15 where the same court held that Article

28(1) is a jurisdictional provision. Neither of these


cases is finding on this Court, of course, nor was
either of them appealed to us. Nevertheless, we here
express our own preference for the later case of

The foregoing examination of Article 28(1) in relation Aranas insofar as its pronouncements on jurisdiction
to Article 32 does not support this conclusion. In any conform to the judgment we now make in this
event, we agree that even granting arguendo that petition.
Article 28(1) is a venue and not a jurisdictional
provision, dismissal of the case was still in order. The
respondent court was correct in affirming the ruling
of the trial court on this matter, thus:

B.

The petitioner claims that the lower court

erred in not ruling that under Article 28(1) of the


Warsaw Convention, this case was properly filed in
the Philippines, because Manila was the destination

Santos' claim that NOA waived venue as a ground of of the plaintiff.


its motion to dismiss is not correct. True it is that
NOA averred in its MOTION TO DISMISS that the
ground thereof is "the Court has no subject matter

The petitioner contends that the facts of this case are


analogous to those in Aanestad v. Air Canada.

16 In

Page 124 of 229


that case, Mrs. Silverberg purchased a round-trip States

District

Court

(Eastern

District

of

ticket from Montreal to Los Angeles and back to Pennsylvania) said:


Montreal. The date and time of departure were
specified but not of the return flight. The plane
crashed while en route from Montreal to Los Angeles,
killing Mrs. Silverberg. Her administratrix filed an
action for damages against Air Canada in the U.S.
District Court of California. The defendant moved to
dismiss for lack of jurisdiction but the motion was
denied thus:
. . . It is evident that the contract entered into
between Air Canada and Mrs. Silverberg as evidenced
by the ticket booklets and the Flight Coupon No. 1,
was a contract for Air Canada to carry Mrs. Silverberg
to Log Angeles on a certain flight, a certain time and a
certain class, but that the time for her to return
remained completely in her power. Coupon No. 2 was
only a continuing offer by Air Canada to give her a
ticket to return to Montreal between certain dates . . .

. . . Although the authorities which addressed this


precise issue are not extensive, both the cases and
the

commentators

are

almost

unanimous

in

concluding that the "place of destination" referred to


in the Warsaw Convention "in a trip consisting of
several parts . . . is the ultimate destination that is
accorded treaty jurisdiction." . . .
But apart from that distinguishing feature, I cannot
agree with the Court's analysis in Aanestad; whether
the return portion of the ticket is characterized as an
option or a contract, the carrier was legally bound to
transport the passenger back to the place of origin
within the prescribed time and the passenger for her
part agreed to pay the fare and, in fact, did pay the
fare. Thus there was mutuality of obligation and a
binding contract of carriage. The fact that the
passenger could forego her rights under the contract

The only conclusion that. can be reached then, is that does not make it any less a binding contract.
"the place of destination" as used in the Warsaw Certainly, if the parties did not contemplate the
Convention is considered by both the Canadian C.T.C. return leg of the journey, the passenger would not
and the United States C.A.B. to describe at least two have paid for it and the carrier would not have issued
"places of destination," viz., the "place of destination" a round trip ticket.
of a particular flight either an "outward destination"
from the "point of origin" or from the "outward point
of destination" to any place in Canada.

We

agree

with

the

latter

case.

The

place

of

destination, within the meaning of the Warsaw


Convention, is determined by the terms of the

Thus the place of destination under Art. 28 and Art. 1 contract of carriage or, specifically in this case, the
of the Warsaw Convention of the flight on which Mrs. ticket

between

the

passenger

and

the

carrier.

Silverberg was killed, was Los Angeles according to Examination of the petitioner's ticket shows that his
the ticket, which was the contract between the parties ultimate destination is San Francisco. Although the
and the suit is properly filed in this Court which has date of the return flight was left open, the contract of
jurisdiction.

carriage between the parties indicates that NOA was

The petitioner avers that the present case falls


squarely under the above ruling because the date and
time of his return flight to San Francisco were, as in
the Aanestad case, also left open: Consequently,

bound to transport the petitioner to San Francisco


from Manila. Manila should therefore be considered
merely

an

agreed

stopping

place

and

not

the

destination.

Manila and not San Francisco should be considered The petitioner submits that the Butz case could not
the petitioner's destination.

have overruled the Aanestad case because these

The private respondent for its part invokes the ruling


in Butz v. British Airways,

17 where the United

decisions are from different jurisdictions. But that is


neither here nor there. In fact, neither of these cases
is controlling on this Court. If we have preferred the

Page 125 of 229


Butz case, it is because, exercising our own freedom have given the meaning to the term as it is used in
of choice, we have decided that it represents the article 28(1) of the Convention.
better, and correct, interpretation of Article 28(1).

(See Smith

v.

Canadian Pacific Airways, Ltd. (2d Cir. 1971), 452

Article 1(2) also draws a distinction between a


"destination" and an "agreed stopping place." It is the
"destination" and not an "agreed stopping place" that
controls for purposes of ascertaining jurisdiction
under the Convention.

F2d 798, 802; Nudo v. Societe Anonyme Belge d'


Exploitation de la Navigation Aerienne Sabena Belgian
World Airlines (E.D. pa. 1962), 207 F. Supp. 191;
Karfunkel

v.

Compagnie

Nationale

Air

France

(S.D.N.Y. 1977), 427 F. Suppl. 971, 974). Moreover,


the structure of article 28(1), viewed as a whole, is

operation, also incompatible with the plaintiffs' claim. The


beginning with the place of departure and ending article, in stating that places of business are among
with the ultimate destination. The use of the singular the bases of the jurisdiction, sets out two places
in this expression indicates the understanding of the where an action for damages may be brought: the
The

contract

is

single

undivided

parties to the Convention that every contract of country where the carrier's principal place of
carriage has one place of departure and one place of business is located, and the country in which it has a
destination. An intermediate place where the carriage place of business through which the particular
may be broken is not regarded he a "place of contract in question was made, that is, where the
ticket was bought. Adopting the plaintiffs' theory

destination."

would at a minimum blur these carefully drawn

C.

The petitioner claims that the lower court distinctions by creating a third intermediate category.
erred in not ruling that under Art. 28 (1) of the It would obviously introduce uncertainty into
Warsaw Convention, this case was properly filed in litigation under the article because of the necessity of
the

Philippines

because

the

defendant

has

its having to determine, and without standards or

domicile in the Philippines.

criteria, whether the amount of business done by a

The petitioner argues that the Warsaw Convention


was

originally

written

in

French

and

that

in

interpreting its provisions, American courts have


taken the broad view that the French legal meaning

carrier in a particular country was "regular" and


"substantial." The plaintiff's request to adopt this
basis of jurisdiction is in effect a request to create a
new jurisdictional standard for the Convention.

must govern. 18 In French, he says, the "domicile" of Furthermore, it was argued in another case 20 that:
the carrier means every place where it has a branch
. . . In arriving at an interpretation of a treaty whose
office.

sole official language is French, are we bound to

The private respondent notes, however, that in apply French law? . . . We think this question and the
Compagnie Nationale Air France vs. Giliberto, 19 it underlying choice of law issue warrant some
was held:
discussion . . . We do not think this statement can be
The plaintiffs' first contention is that Air France is
domiciled in the United States. They say that the
domicile of a corporation includes any country where
the airline carries on its business on "a regular and
substantial

basis,"

and

that

the

United

States

qualifies under such definition. The meaning of


domicile cannot, however, be so extended. The
domicile of a corporation is customarily regarded as
the place where it is incorporated, and the courts

regarded as a conclusion that internal French law is


to be "applied" in the choice of law sense, to
determine the meaning and scope of the Conventio's
terms. Of course, French legal usage must be
considered

in

arriving

at

an

accurate

English

translation of the French. But when an accurate


English translation is made and agreed upon, as
here, the inquiry not meaning does not then revert to
a quest for a past or present French law to be

Page 126 of 229


"applied" for revelation of the proper scope of the This position is negated by Husserl v. Swiss Air
terms. It does not follow from the fact that the treaty Transport Company, 22 where the article in question
is written in French that in interpreting it, we are was interpreted thus:
forever chained to French law, either as it existed
when the treaty was written or in its present state of
development. There is no suggestion in the treaty that
French law was intended to govern the meaning of
Warsaw's terms, nor have we found any indication to
this effect in its legislative history or from our study
of its application and interpretation by other courts.
Indeed, analysis of the cases indicates that the
courts, in interpreting and applying the Warsaw
Convention, have not considered themselves bound to
apply French law simply because the Convention is
written in French.
We agree with these rulings.
Notably, the domicile of the carrier is only one of the
places where the complaint is allowed to be filed
under Article 28(1). By specifying the three other
places, to wit, the principal place of business of the
carrier, its place of business where the contract was
made, and the place of destination, the article clearly
meant that these three other places were not
comprehended in the term "domicile."
D.

. . . Assuming for the present that plaintiff's claim is


"covered" by Article 17, Article 24 clearly excludes any
relief not provided for in the Convention as modified
by the Montreal Agreement. It does not, however, limit
the kind of cause of action on which the relief may be
founded; rather it provides that any action based on
the injuries specified in Article 17 "however founded,"
i.e., regardless of the type of action on which relief is
founded,

can

only

be

brought

subject

to

the

conditions and limitations established by the Warsaw


System. Presumably, the reason for the use of the
phrase

"however

founded,"

is

two-fold:

to

accommodate all of the multifarious bases on which a


claim might be founded in different countries,
whether under code law or common law, whether
under contract or tort, etc.; and to include all bases
on which a claim seeking relief for an injury might be
founded in any one country. In other words, if the
injury occurs as described in Article 17, any relief
available is subject to the conditions and limitations
established by the Warsaw System, regardless of the
particular cause of action which forms the basis on

The petitioner claims that the lower court which a plaintiff could seek relief . . .

erred in not ruling that Art. 28(1) of the Warsaw


Convention does not apply to actions based on tort.
The petitioner alleges that the gravamen of the
complaint is that private respondent acted arbitrarily
and in bad faith, discriminated against the petitioner,
and committed a willful misconduct because it
canceled his confirmed reservation and gave his
reserved seat to someone who had no better right to
it. In short, the private respondent committed a tort.
Such allegation, he submits, removes the present
case from the coverage of the Warsaw Convention. He
argues that in at least two American cases, 21 it was
held that Article 28(1) of the Warsaw Convention does
not apply if the action is based on tort.

xxx

xxx

xxx

The private respondent correctly contends that the


allegation of willful misconduct resulting in a tort is
insufficient

to

comprehension

exclude
of

the

the

Warsaw

case

from

the

Convention.

The

petitioner has apparently misconstrued the import of


Article 25(1) of the Convention, which reads as
follows:
Article 25 (1). The carrier shall not be entitled to avail
himself of the provisions of this Convention which
exclude or limit his liability, if the damage is caused
by his willful misconduct or by such default on his
part as, in accordance which the law of the court to
which the case is submitted, is considered to be
equivalent to willful misconduct.

Page 127 of 229


It is understood under this article that the court foreign air carrier which is generally subject to the
called upon to determine the applicability of the jurisdiction of the US, Article 28 would prevent that
limitation provision must first be vested with the person from suing the carrier in the US in a "Warsaw
appropriate jurisdiction. Article 28(1) is the provision Case" even though such a suit could be brought in
in the Convention which defines that jurisdiction. the absence of the Convention.
Article 22

23 merely fixes the monetary ceiling for

the liability of the carrier in cases covered by the


Convention. If the carrier is indeed guilty of willful
misconduct, it can avail itself of the limitations set
forth in this article. But this can be done only if the
action has first been commenced properly under the
rules on jurisdiction set forth in Article 28 (1).
III.
THE ISSUE OF PROTECTION TO MINORS
The petitioner calls our attention to Article 24 of the
Civil Code, which states:

The proposal was incorporated in the Guatemala


Protocol amending the Warsaw Convention, which
was adopted at Guatemala City on March 8, 1971.
24 But it is still ineffective because it has not yet been
ratified

by

the

required

minimum

number

of

contracting parties. Pending such ratification, the


petitioner will still have to file his complaint only in
any of the four places designated by Article 28(1) of
the Warsaw Convention.
The proposed amendment bolsters the ruling of this
Court that a citizen does not necessarily have the
right to sue in his own courts simply because the

In all contractual property or other defendant airline has a place of business in his
relations, when one of the parties is at a disadvantage country. LibLex
Art. 24.

on account of his moral dependence, ignorance,


indigence, mental weakness, tender age or other
handicap, the courts must be vigilant for his
protection.

The Court can only sympathize with the petitioner,


who must prosecute his claims in the United States
rather than in his own country at less inconvenience.
But we are unable to grant him the relief he seeks

Application of this article to the present case is because we are limited by the provisions of the
misplaced. The above provision assumes that the Warsaw Convention which continues to bind us. It
court is vested with jurisdiction to rule in favor of the may not be amiss to observe at this point that the
disadvantaged minor. As already explained, such mere fact that he will have to litigate in the American
jurisdiction is absent in the case at bar.

courts does not necessarily mean he will litigate in

CONCLUSION

its

A number of countries have signified their concern

vain. The judicial system of that country is known for


sense

of

fairness

and,

generally,

its

strict

adherence to the rule of law.

over the problem of citizens being denied access to WHEREFORE, the petition is DENIED, with costs
their own courts because of the restrictive provision against the petitioner. It is so ordered.
of Article 28(1) of the Warsaw Convention. Among
these is the United States, which has proposed an Narvasa, C .J ., Gutierrez, Jr., Paras, Feliciano,

amendment that would enable the passenger to sue Padilla, Bidin, Grio-Aquino, Medialdea, Regalado,
in his own domicile if the carrier does business in Davide, Jr., Romero, Nocon and Bellosillo, JJ .,
that jurisdiction. The reason for this proposal is concur.
explained thus:
In the event a US citizen temporarily residing abroad
purchases a Rome to New York to Rome ticket on a

22.
SECOND DIVISION

Page 128 of 229


apology. However, the latter declared that the flight

[G.R. No. 171092. March 15, 2010.]


EDNA DIAGO LHUILLIER, petitioner, vs. BRITISH

stewards were "only doing their job."

AIRWAYS, respondent.

Thus, petitioner filed the complaint for damages,

DECISION

as moral damages, P2 million as nominal damages,

praying that respondent be ordered to pay P5 million


P1 million as exemplary damages, P300,000.00 as

DEL CASTILLO, J p:

attorney's fees, P200,000.00 as litigation expenses,

Jurisdictio est potestas de publico introducta cum and cost of the suit.
necessitate juris dicendi. Jurisdiction is a power
introduced for the public good, on account of the
necessity of dispensing justice. 1

On May 16, 2005, summons, together with a copy of


the complaint, was served on the respondent through
Violeta

Echevarria,

General

Manager

of

Euro-

Philippine Airline Services, Inc. 3

Factual Antecedents

On April 28, 2005, petitioner Edna Diago Lhuillier On May 30, 2005, respondent, by way of special
filed a Complaint 2 for damages against respondent appearance through counsel, filed a Motion to
British Airways before the Regional Trial Court (RTC) Dismiss 4 on grounds of lack of jurisdiction over the
of Makati City. She alleged that on February 28, case and over the person of the respondent.
2005, she took respondent's flight 548 from London, Respondent alleged that only the courts of London,
United Kingdom to Rome, Italy. Once on board, she United Kingdom or Rome, Italy, have jurisdiction over

allegedly requested Julian Halliday (Halliday), one of the complaint for damages pursuant to the Warsaw
the respondent's flight attendants, to assist her in Convention, 5 Article 28 (1) of which provides:
placing her hand-carried luggage in the overhead bin. CETDHA
However, Halliday allegedly refused to help and assist
her, and even sarcastically remarked that "If I were to
help all 300 passengers in this flight, I would have a
broken back!"

acEHCD

An action for damages must be brought at the option


of the plaintiff, either before the court of domicile of
the carrier or his principal place of business, or
where he has a place of business through which the

Petitioner further alleged that when the plane was contract has been made, or before the court of the
about to land in Rome, Italy, another flight attendant, place of destination.
Nickolas Kerrigan (Kerrigan), singled her out from
among all the passengers in the business class
section to lecture on plane safety. Allegedly, Kerrigan
made her appear to the other passengers to be
ignorant,

uneducated,

stupid,

and

in

need

of

lecturing on the safety rules and regulations of the


plane. Affronted, petitioner assured Kerrigan that she
knew the plane's safety regulations being a frequent

Thus, since a) respondent is domiciled in London; b)


respondent's principal place of business is in London;
c) petitioner bought her ticket in Italy (through
Jeepney Travel S.A.S. in Rome); 6 and d) Rome, Italy
is petitioner's place of destination, then it follows that
the complaint should only be filed in the proper
courts of London, United Kingdom or Rome, Italy.

traveler. Thereupon, Kerrigan allegedly thrust his face Likewise, it was alleged that the case must be
a mere few centimeters away from that of the dismissed for lack of jurisdiction over the person of
petitioner and menacingly told her that "We don't like the respondent because the summons was
your attitude."
erroneously served on Euro-Philippine Airline
Upon arrival in Rome, petitioner complained to
respondent's ground manager and demanded an

Services, Inc. which is not its resident agent in the


Philippines.

Page 129 of 229


On June 3, 2005, the trial court issued an Order denial of plaintiff's right to have access to our courts
requiring

herein

petitioner

to

file

her since the Warsaw Convention itself provided for

Comment/Opposition on the Motion to Dismiss jurisdiction over cases arising from international
within

10

days

from

notice

thereof,

and

for transportation. Said treaty stipulations must be

respondent to file a Reply thereon. 7 Instead of filing a complied with in good faith following the time honored
Comment/Opposition, petitioner filed on June 27, principle of pacta sunt servanda.
2005, an Urgent Ex-Parte Motion to Admit Formal
Amendment to the Complaint and Issuance of Alias
Summons. 8 Petitioner alleged that upon verification
with the Securities and Exchange Commission, she

DHcSIT

The resolution of the propriety of service of summons


is rendered moot by the Court's want of jurisdiction
over the instant case.

found out that the resident agent of respondent in the WHEREFORE, premises considered, the present
Philippines is Alonzo Q. Ancheta. Subsequently, on Motion to Dismiss is hereby GRANTED and this case
September 9, 2005, petitioner filed a Motion to is hereby ordered DISMISSED.
Resolve Pending Incident and Opposition to Motion to

Petitioner filed a Motion for Reconsideration but the

Dismiss. 9 DAEcIS

motion was denied in an Order 11 dated January 4,

Ruling of the Regional Trial Court

2006.

On October 14, 2005, the RTC of Makati City, Branch Petitioner now comes directly before us on a Petition
132, issued an Order 10 granting respondent's for Review on Certiorari on pure questions of law,
Motion to Dismiss. It ruled that:
raising the following issues:
The Court sympathizes with the alleged ill-treatment Issues
suffered by the plaintiff. However, our Courts have to
WHETHER . . . PHILIPPINE COURTS HAVE
apply the principles of international law, and are I.
bound by treaty stipulations entered into by the JURISDICTION OVER A TORTIOUS CONDUCT
Philippines which form part of the law of the land. COMMITTED AGAINST A FILIPINO CITIZEN AND
One of this is the Warsaw Convention. Being a RESIDENT BY AIRLINE PERSONNEL OF A FOREIGN
signatory thereto, the Philippines adheres to its CARRIER TRAVELLING BEYOND THE TERRITORIAL
stipulations and is bound by its provisions including LIMIT OF ANY FOREIGN COUNTRY; AND THUS IS
THE
AMBIT
OF
THE
WARSAW
the place where actions involving damages to plaintiff OUTSIDE
is to be instituted, as provided for under Article 28(1) CONVENTION.
thereof. The Court finds no justifiable reason to
deviate from the indicated limitations as it will only
run

counter

to

the

provisions

of

the

Warsaw

Convention. Said adherence is in consonance with the


comity of nations and deviation from it can only be
effected through proper denunciation as enunciated
in the Santos case (ibid.). Since the Philippines is not
the place of domicile of the defendant nor is it the
principal place of business, our courts are thus
divested of jurisdiction over cases for damages.
Neither was plaintiff's ticket issued in this country

II.

HTASIa

WHETHER . . . RESPONDENT AIR CARRIER

OF PASSENGERS, IN FILING ITS MOTION TO


DISMISS BASED ON LACK OF JURISDICTION OVER
THE SUBJECT MATTER OF THE CASE AND OVER
ITS PERSON MAY BE DEEMED AS HAVING IN FACT
AND

IN

LAW

JURISDICTION
ESPECIALLY

SO,

SUBMITTED

ITSELF

OF

LOWER

WHEN

THE

VERY

TO

THE

COURT,
LAWYER

ARGUING FOR IT IS HIMSELF THE RESIDENT


AGENT OF THE CARRIER.

nor was her destination Manila but Rome in Italy. It Petitioner's Arguments
bears stressing however, that referral to the court of
proper jurisdiction does not constitute constructive

THE

Page 130 of 229


Petitioner argues that her cause of action arose not The

Convention

is

thus

treaty

commitment

from the contract of carriage, but from the tortious voluntarily assumed by the Philippine government
conduct committed by airline personnel of respondent and, as such, has the force and effect of law in this
in violation of the provisions of the Civil Code on country. 13 IcHEaA
Human Relations. Since her cause of action was not
predicated on the contract of carriage, petitioner

The Warsaw Convention applies

asserts that she has the option to pursue this case in because the air travel, where the alleged
this jurisdiction pursuant to Philippine laws.
tortious conduct occurred, was between
Respondent's Arguments
the United Kingdom and Italy, which
In contrast, respondent maintains that petitioner's
claim for damages fell within the ambit of Article 28 are both signatories to the Warsaw
(1) of the Warsaw Convention. As such, the same can
only be filed before the courts of London, United
Kingdom or Rome, Italy.

HIESTA

Convention.
Article 1 of the Warsaw Convention provides:

Our Ruling

1.

This Convention applies to all international

carriage of persons, luggage or goods performed by

The petition is without merit.

aircraft for reward. It applies equally to gratuitous


carriage by aircraft performed by an air transport

The Warsaw Convention has the force

undertaking.

and effect of law in this country.

2.
For the purposes of this Convention the
It is settled that the Warsaw Convention has the force expression "international carriage" means any
and effect of law in this country. In Santos III v. carriage in which, according to the contract made by
Northwest Orient Airlines, 12 we held that:
the parties, the place of departure and the place of
The Republic of the Philippines is a party to the
Convention for the Unification of Certain Rules
Relating

to

International

Transportation

by

Air,

otherwise known as the Warsaw Convention. It took


effect on February 13, 1933. The Convention was
concurred in by the Senate, through its Resolution
No. 19, on May 16, 1950. The Philippine instrument
of accession was signed by President Elpidio Quirino
on October 13, 1950, and was deposited with the
Polish

government

on

November

9,

1950.

The

Convention became applicable to the Philippines on


February 9, 1951. On September 23, 1955, President
Ramon Magsaysay issued Proclamation No. 201,

destination, whether or not there be a break in the


carriage or a transhipment, are situated either within
the territories of two High Contracting Parties, or
within the territory of a single High Contracting Party,
if there is an agreed stopping place within a territory
subject to the sovereignty, suzerainty, mandate or
authority of another Power, even though that Power is
not a party to this Convention. A carriage without
such an agreed stopping place between territories
subject to the sovereignty, suzerainty, mandate or
authority of the same High Contracting Party is not
deemed to be international for the purposes of this
Convention. (Emphasis supplied)

TacSAE

declaring our formal adherence thereto, "to the end Thus, when the place of departure and the place of
that the same and every article and clause thereof destination in a contract of carriage are situated
may be observed and fulfilled in good faith by the within the territories of two High Contracting Parties,
Republic of the Philippines and the citizens thereof."

said carriage is deemed an "international carriage".


The High Contracting Parties referred to herein were

Page 131 of 229


the signatories to the Warsaw Convention and those the
which subsequently adhered to it. 14

said

passenger

ticket

and

baggage

check.

Accordingly, petitioner may bring her action before

In the case at bench, petitioner's place of departure


was London, United Kingdom while her place of
destination was Rome, Italy. 15 Both the United

the courts of Rome, Italy. We thus find that the RTC


of Makati correctly ruled that it does not have
jurisdiction over the case filed by the petitioner.

Kingdom 16 and Italy 17 signed and ratified the Santos III v. Northwest Orient
Warsaw Convention. As such, the transport of the
petitioner is deemed to be an "international carriage"
within the contemplation of the Warsaw Convention.

Airlines 18 applies in this case.


Petitioner contends that Santos III v. Northwest
Orient Airlines, 19 cited by the trial court is

Since the Warsaw Convention applies

inapplicable to the present controversy since the facts

in the instant case, then the jurisdiction

thereof are not similar with the instant case.


DCcHIS

over the subject matter of the action is

We are not persuaded.

governed by the provisions of the

In Santos III v. Northwest Orient Airlines, 20 Augusto

Warsaw Convention.

Santos III, a resident of the Philippines, purchased a

Under Article 28 (1) of the Warsaw Convention, the ticket from Northwest Orient Airlines in San
Francisco, for transport between San Francisco and
plaintiff may bring the action for damages before
Manila via Tokyo and back to San Francisco. He was

1.

the court where the carrier is domiciled;

2.

the court where the carrier has its principal

place of business;

SECcIH

wait-listed in the Tokyo to Manila segment of his


ticket, despite his prior reservation. Contending that
Northwest Orient Airlines acted in bad faith and
discriminated against him when it canceled his

an confirmed reservation and gave his seat to someone


establishment by which the contract has been made; who had no better right to it, Augusto Santos III sued
the carrier for damages before the RTC. Northwest
or
Orient Airlines moved to dismiss the complaint on
4.
the court of the place of destination.
ground of lack of jurisdiction citing Article 28 (1) of
3.

the

court

where

the

carrier

has

In this case, it is not disputed that respondent is a


British corporation domiciled in London, United
Kingdom with London as its principal place of
business.

Hence,

under

the

first

and

second

jurisdictional rules, the petitioner may bring her case


before the courts of London in the United Kingdom. In
the passenger ticket and baggage check presented by
both the petitioner and respondent, it appears that
the ticket was issued in Rome, Italy. Consequently,
under the third jurisdictional rule, the petitioner has

the Warsaw Convention. The trial court granted the


motion which ruling was affirmed by the Court of
Appeals. When the case was brought before us, we
denied the petition holding that under Article 28 (1) of
the Warsaw Convention, Augusto Santos III must
prosecute his claim in the United States, that place
being the (1) domicile of the Northwest Orient
Airlines; (2) principal office of the carrier; (3) place
where contract had been made (San Francisco); and
(4) place of destination (San Francisco). 21

the option to bring her case before the courts of Rome We further held that Article 28 (1) of the Warsaw
in Italy. Finally, both the petitioner and respondent Convention is jurisdictional in character. Thus:
aver that the place of destination is Rome, Italy, which IaEScC
is properly designated given the routing presented in

Page 132 of 229


A

number

of

reasons

tends

to

support

the if the action is based on tort. Hence, contrary to the

characterization of Article 28(1) as a jurisdiction and contention of the petitioner, the factual setting of
not a venue provision. First, the wording of Article 32, Santos III v. Northwest Orient Airlines 32 and the
which indicates the places where the action for instant case are parallel on the material points.
damages

"must"

be

brought,

underscores

the

mandatory nature of Article 28(1). Second, this


characterization

is

consistent

with

one

Tortious conduct as ground for the

of

the petitioner's complaint is within the


objectives of the Convention, which is to "regulate in a
uniform manner the conditions of international purview of the Warsaw Convention.
transportation by air." Third, the Convention does not
contain any provision prescribing rules of jurisdiction
other than Article 28(1), which means that the phrase
"rules as to jurisdiction" used in Article 32 must refer
only to Article 28(1). In fact, the last sentence of
Article

32

specifically

deals

with

the

exclusive

enumeration in Article 28(1) as "jurisdictions," which,


as such, cannot be left to the will of the parties
regardless of the time when the damage occurred.
xxx

xxx

xxx

Petitioner contends that in Santos III v. Northwest


Orient Airlines, 33 the cause of action was based on a
breach of contract while her cause of action arose
from the tortious conduct of the airline personnel and
violation of the Civil Code provisions on Human
Relations. 34 In addition, she claims that our
pronouncement in Santos III v. Northwest Orient
Airlines 35 that "the allegation of willful misconduct
resulting in a tort is insufficient to exclude the case
from the comprehension of the Warsaw Convention,"

is more of an obiter dictum rather than the ratio


In other words, where the matter is governed by the decidendi. 36 She maintains that the fact that said
Warsaw Convention, jurisdiction takes on a dual acts occurred aboard a plane is merely incidental, if
concept. Jurisdiction in the international sense must not irrelevant. 37 cADEIa
be established in accordance with Article 28(1) of the
Warsaw Convention, following which the jurisdiction We disagree with the position taken by the petitioner.

of a particular court must be established pursuant to Black defines obiter dictum as "an opinion entirely
the applicable domestic law. Only after the question of unnecessary for the decision of the case" and thus
which court has jurisdiction is determined will the "are not binding as precedent." 38 In Santos III v.
issue of venue be taken up. This second question Northwest Orient Airlines, 39 Augusto Santos III
shall be governed by the law of the court to which the categorically put in issue the applicability of Article
28 (1) of the Warsaw Convention if the action is based
case is submitted. 22 ISDHcT
Contrary to the contention of petitioner, Santos III v.

on tort.

Northwest Orient Airlines 23 is analogous to the In the said case, we held that the allegation of willful
instant case because (1) the domicile of respondent is misconduct resulting in a tort is insufficient to
London, United Kingdom; 24 (2) the principal office of exclude the case from the realm of the Warsaw
respondent airline is likewise in London, United Convention. In fact, our ruling that a cause of action
Kingdom; 25 (3) the ticket was purchased in Rome, based on tort did not bring the case outside the
Italy; 26 and (4) the place of destination is Rome, sphere of the Warsaw Convention was our ratio
Italy. 27 In addition, petitioner based her complaint decidendi in disposing of the specific issue presented
on Article 2176 28 of the Civil Code on quasi-delict by Augusto Santos III. Clearly, the contention of the
and Articles 19 29 and 21 30 of the Civil Code on herein petitioner that the said ruling is an obiter
Human Relations. In Santos III v. Northwest Orient dictum is without basis.
Airlines, 31 Augusto Santos III similarly posited that
Article 28 (1) of the Warsaw Convention did not apply

Page 133 of 229


Relevant to this particular issue is the case of Carey the Motion for Reconsideration that "Defendant [is at
v. United Airlines, 40 where the passenger filed an a loss] . . . how the plaintiff arrived at her erroneous
action against the airline arising from an incident impression that it is/was Euro-Philippines Airlines
involving the former and the airline's flight attendant Services, Inc. that has been making a special
during an international flight resulting to a heated appearance since . . . British Airways . . . has been
exchange which included insults and profanity. The clearly specifying in all the pleadings that it has filed
United States Court of Appeals (9th Circuit) held that with this Honorable Court that it is the one making a
the "passenger's action against the airline carrier special appearance." 44 cHaICD
arising from alleged confrontational incident between
passenger and flight attendant on international flight
was governed exclusively by the Warsaw Convention,
even

though

the

incident

allegedly

involved

intentional misconduct by the flight attendant." 41


caIETS

In refuting the contention of petitioner, respondent


cited La Naval Drug Corporation v. Court of Appeals
45 where we held that even if a party "challenges the
jurisdiction of the court over his person, as by reason
of absence or defective service of summons, and he
also invokes other grounds for the dismissal of the

In Bloom v. Alaska Airlines, 42 the passenger brought action under Rude 16, he is not deemed to be in
nine causes of action against the airline in the state estoppel or to have waived his objection to the
court, arising from a confrontation with the flight jurisdiction over his person." 46
attendant during an international flight to Mexico.
The United States Court of Appeals (9th Circuit) held
that the "Warsaw Convention governs actions arising
from

international

air

travel

and

provides

the

exclusive remedy for conduct which falls within its

This issue has been squarely passed upon in the


recent case of Garcia v. Sandiganbayan, 47 where we
reiterated our ruling in La Naval Drug Corporation v.
Court of Appeals 48 and elucidated thus:

provisions." It further held that the said Convention Special


Appearance
"created no exception for an injury suffered as a Jurisdiction is Not

to

Question

Court's

result of intentional conduct" 43 which in that case

involved a claim for intentional infliction of emotional Voluntary Appearance


distress.

The second sentence of Sec. 20, Rule 14 of the

It is thus settled that allegations of tortious conduct Revised Rules of Civil Procedure clearly provides:
committed against an airline passenger during the
course of the international carriage do not bring the
case outside the ambit of the Warsaw Convention.
Respondent, in seeking remedies from
the trial court through special
appearance of counsel, is not deemed to
have voluntarily submitted itself to the
jurisdiction of the trial court.
Petitioner argues that respondent has effectively
submitted itself to the jurisdiction of the trial court
when the latter stated in its Comment/Opposition to

Sec. 20.

Voluntary

appearance.

The

defendant's voluntary appearance in the action shall


be equivalent to service of summons. The inclusion in
a motion to dismiss of other grounds aside from lack
of jurisdiction over the person of the defendant shall
not be deemed a voluntary appearance.

ECDHIc

Thus, a defendant who files a motion to dismiss,


assailing the jurisdiction of the court over his person,
together with other grounds raised therein, is not
deemed to have appeared voluntarily before the court.
What the rule on voluntary appearance the first
sentence of the above-quoted rule means is that
the voluntary appearance of the defendant in court is
without qualification, in which case he is deemed to

Page 134 of 229


have waived his defense of lack of jurisdiction over his person; and such is not constitutive of a voluntary
person due to improper service of summons.

submission to the jurisdiction of the court.

The pleadings filed by petitioner in the subject Thus, it cannot be said that petitioner and her three
forfeiture cases, however, do not show that she children voluntarily appeared before the SB to cure
voluntarily appeared without qualification. Petitioner the defective substituted services of summons. They
filed the following pleadings in Forfeiture I: (a) motion are, therefore, not estopped from questioning the
to dismiss; (b) motion for reconsideration and/or to jurisdiction of the SB over their persons nor are they
admit answer; (c) second motion for reconsideration; deemed to have waived such defense of lack of
(d) motion to consolidate forfeiture case with plunder jurisdiction.

Consequently,

there

being no

valid

case; and (e) motion to dismiss and/or to quash substituted services of summons made, the SB did
Forfeiture I. And in Forfeiture II: (a) motion to dismiss not acquire jurisdiction over the persons of petitioner
and/or to quash Forfeiture II; and (b) motion for and her children. And perforce, the proceedings in the
partial reconsideration.
The foregoing pleadings, particularly the motions to
dismiss, were filed by petitioner solely for special

subject forfeiture cases, insofar as petitioner and her


three children are concerned, are null and void for
lack of jurisdiction. (Emphasis supplied)

appearance with the purpose of challenging the In this case, the special appearance of the counsel of
jurisdiction of the SB over her person and that of her respondent in filing the Motion to Dismiss and other
three children. Petitioner asserts therein that SB did pleadings before the trial court cannot be deemed to
not acquire jurisdiction over her person and of her be voluntary submission to the jurisdiction of the
three children for lack of valid service of summons said

trial

court.

We

hence

disagree

with

the

through improvident substituted service of summons contention of the petitioner and rule that there was
in both Forfeiture I and Forfeiture II. This stance the no voluntary appearance before the trial court that
petitioner never abandoned when she filed her could constitute estoppel or a waiver of respondent's
motions for reconsideration, even with a prayer to objection to jurisdiction over its person.
admit their attached Answer Ex Abundante Ad
Cautelam dated January 22, 2005 setting forth
affirmative defenses with a claim for damages. And
the other subsequent pleadings, likewise, did not
abandon her stance and defense of lack of jurisdiction

cSEaDA

WHEREFORE, the petition is DENIED. The October


14, 2005 Order of the Regional Trial Court of Makati
City, Branch 132, dismissing the complaint for lack of
jurisdiction, is AFFIRMED.

due to improper substituted services of summons in SO ORDERED. DAEICc


the forfeiture cases. Evidently, from the foregoing Sec.
20, Rule 14 of the 1997 Revised Rules on Civil Carpio, Brion, Abad and Perez, JJ., concur.
Procedure, petitioner and her sons did not voluntarily
appear before the SB constitutive of or equivalent to
service of summons.

CADSHI

Moreover, the leading La Naval Drug Corp. v. Court of


Appeals applies to the instant case. Said case

23.
FIRST DIVISION
[G.R. No. 100374-75. November 27, 1992.]

elucidates the current view in our jurisdiction that a RUFINO Y. LUNA, RODOLFO J. ALONSO and
special appearance before the court challenging its PORFIRIO RODRIGUEZ, petitioners, vs. HON.
jurisdiction over the person through a motion to
COURT OF APPEALS, HON. CRISTINA M.
dismiss even if the movant invokes other grounds
ESTRADA in her capacity as Presiding Judge, RTCis not tantamount to estoppel or a waiver by the
Pasig, Br. 69, Metro Manila, HON. TERESITA D.
movant of his objection to jurisdiction over his

Page 135 of 229


CAPULONG in her capacity as Presiding Judge, OPERATE AS AN EXCLUSIVE ENUMERATION OF
RTC-Valenzuela, Br. 172, Metro Manila, and GROUNDS NOR LIMITATION OF LIABILITY FOR
NORTHWEST AIRLINES, INC., respondents.

BREACH OF CONTRACT OF CARRIAGE. The

Virgilio R. Garcia for petitioners.

voluntarily assumed by the Philippine government;

Warsaw

Convention

was

treaty

commitment

consequently, it has the force and effect of law in this


Quisumbing, Torres & Evangelista for Northwest country. But, in the same token, We are also aware of
Airlines, Inc.
jurisprudence that the Warsaw Convention does not
operate as an exclusive enumeration of the instances

SYLLABUS

for declaring an airline liable for breach of contract of

REMEDIAL LAW; ACTIONS; TECHNICALITIES carriage or as an absolute limit of the extent of that
SHOULD BE DISREGARDED TO RENDER PARTIES liability. The Convention merely declares the carrier
1.

WHAT IS DUE THEM. From the facts, it appears liable for damages in the enumerated cases, if the
that private respondent Northwest Airlines indeed conditions therein specified are present. For sure, it
failed to deliver petitioners' baggage at the designated does not regulate the liability, much less exempt, the
time and place. For this, all that respondent carrier carrier for violating the rights of others which must
could say was that "[W]e exerted all efforts to comply simply be respected in accordance with their
with this condition of the contract." Hence, it is contracts of carriage. The application of the
evident that petitioners suffered some special specie Convention must not therefore be construed to
of injury for which they should rightly be preclude the operation of the Civil Code and other
compensated. Private respondent cannot be allowed to pertinent laws.
escape liability be seeking refuge in the argument
that the trial courts' orders have attained finality due
to petitioners' failure to move for reconsideration or to
file a timely appeal therefrom. Technicalities should
be disregarded if only to render to the respective
parties that which is their due.

4.

ID.; ID.; ID.; ID.; CASE AT BAR. Hence,

petitioners' alleged failure to file a claim with the


common carrier as mandated by the provisions of the
Warsaw Convention should not be a ground for the
summary dismissal of their complaints since private
respondent may still be held liable for breach of other

ID.; SPECIAL CIVIL ACTION; CERTIORARI; relevant laws which may provide a different period or
GENERALLY, NOT A SUBSTITUTE FOR APPEAL; procedure for filing a claim. Considering that
2.

that petitioners indeed filed a claim which private


certiorari cannot be a substitute for a lapsed appeal, respondent admitted having received on 21 June
We have, time and again, likewise held that where a 1989, their demand may have very well filed within
rigid application of that rule will result in a manifest the period prescribed by those applicable laws.
EXCEPTIONS.

Although

We

have

said

failure or miscarriage of justice, the rule may be Consequently, respondent trial courts, as well as
relaxed. Hence, considering the broader and respondent appellate court, were in error when they
primordial interests of justice, particularly when there limited themselves to the provisions of the Warsaw
and
disregarding
completely
the
is grave abuse of discretion, thus impelling occasional Convention
departure

from

the

general

rule

that

the provisions of the Civil Code.

extraordinary writ of certiorari cannot substitute for a


lost appeal, respondent appellate court may legally
entertain the special civil action for certiorari.

5.

CIVIL LAW; OBLIGATIONS AND CONTRACTS;

CONTRACT OF CARRIAGE; BREACH OF CONTRACT


FOR FAILURE TO DELIVER CARGO; MUST BE

ID.; ACTIONS; WARSAW CONVENTION; A INTENTIONAL TO RECOVER DAMAGES; FAILURE IN


TREATY
COMMITMENT
WHICH
DOES
NOT CASE AT BAR, NOT INTENTIONAL. We are not
3.

Page 136 of 229


prepared to subscribe to petitioners' argument that Petitioners Rufino Y. Luna and Rodolfo J. Alonso
the failure of private respondent to deliver their assert that on 6 June 1989, or thirteen (13) days after
luggage at the designated time and place amounted they recovered their luggage, they sent a written claim
ipso facto to willful misconduct. for willful misconduct to private respondent's office along Roxas Blvd.,
to exist, there must be a showing that the acts Ermita, Manila. Petitioner Porfirio Rodriguez, on his
complained of were impelled by an intention to violate part, asseverates that he filed his claim on 13 June
the law, or were in persistent disregard of one's rights. 1989. However, private respondent, in a letter of 21
It must be evidenced by a flagrantly or shamefully June 1989, disowned any liability for the delay and
wrong or improper conduct.

averred that it exerted "its best efforts to carry the


passenger and baggage with reasonable dispatch." 1

DECISION

Thus, on 14 July 1989, petitioners Luna and Alonso

BELLOSILLO, J p:

jointly filed a complaint for breach of contract with

This joint petition for review on certiorari originated damages before the Regional Trial Court of Pasig,
from two (2) separate complaints arising from an Metro Manila, docketed as Civil Case No. 58390,
airline's delay in the delivery of the luggage of its subsequently raffled to Br. 69, 2 while petitioner
passengers at their destination which respondent Rodriguez filed his own complaint with the Regional
courts dismissed for lack of cause of action. The Trial Court of Valenzuela, Metro Manila, docketed as
resulting issue is whether the application of the Civil Case No. 3194-V-89, assigned to Br. 172. 3

the However, upon motion of private respondent, both


application of the provisions of the New Civil Code complaints were dismissed 4 for lack of cause of
action due to petitioner's failure to state in their
and other pertinent statutes.
respective complaints that they filed a prior claim
Briefly, the facts: On 19 May 1989, at around 8:00 in with private respondent within the prescribed period.
Warsaw

Convention

operates

to

exclude

the morning, petitioners Rufino Luna, Rodolfo Alonso

and Porfirio Rodriguez boarded Flight 020 of private Petitioners Luna and Alonso then filed a petition for
respondent Northwest Airlines bound for Seoul, South certiorari before the Court of Appeals to set aside the

Korea, to attend the four-day Rotary International order of respondent Judge Cristina M. Estrada
Convention from the 21st to the 24th of May 1992. granting private respondent's motion to dismiss, while
They checked in one (1) piece of luggage each. After petitioner Rodriguez proceeded directly to this Court
boarding, however, due to engine trouble, they were on Certiorari for the same purpose. However, in Our
asked to disembark and transfer to a Korean Airlines resolution of 26 February 1990, We referred his
plane scheduled to depart four (4) hours later. They petition to the Court of Appeals.
were assured that their baggage would be with them
in the same flight.

On 26 March 1991, the Third Division of respondent


Court of Appeals, applying the provisions of the

When petitioners arrived in Seoul, they discovered Warsaw Convention and ruling that certiorari was not
that their personal belongings were nowhere to be a substitute for a lost appeal, dismissed the petition

found; instead, they were allegedly flown to Seattle, of Luna and Alonso, 5 and on 7 June 1991 denied
U.S.A. It was not until four (4) days later, and only their motion for reconsideration. 6 Meanwhile, on 28
after repeated representations with Northwest Airlines February 1991 the Seventh Division of respondent
personnel at the airport in Korea were petitioners able Court of Appeals, ruling that the questioned order of
to retrieve their luggage. By then the Convention, the trial court had already become final, similarly
which they were hardly able to attend, was almost rejected the petition of Rodriguez, and on 6 June
over. LLjur

1991 denied his motion for reconsideration. 7 Hence,

Page 137 of 229


this present recourse by petitioners Luna, Alonso and We find the appeal impressed with merit.
Rodriguez.

From the facts, it appears that private respondent

Four (4) grounds are relied upon by petitioners which, Northwest Airlines indeed failed to deliver petitioners'
nevertheless, may be reduced to three, namely: (a) baggage at the designated time and place. For this, all
that respondent appellate court disregarded Our that respondent carrier could say was that "[w]e
ruling in Alitalia v. CA 8 where We said that "[t]he exerted all efforts to comply with this condition of the
Convention does not thus operate as an exclusive contract." 12 Hence, it is evident that petitioners
enumeration of the instances of an airline's liability, suffered some special specie of injury for which they
or as an absolute limit of the extent of that liability;" 9 should rightly be compensated. Private respondent
(b) that "petitions to revoke orders and decisions may cannot be allowed to escape liability by seeking refuge
be entertained even after the time to appeal had in the argument that the trial courts' orders have
elapsed, in cases wherein the jurisdiction of the court attained finality due to petitioners' failure to move for
had been exceeded;" 10 and, (c) that Art. 26 of the reconsideration or to file a timely appeal therefrom.
Warsaw

Convention

which

prescribes

the Technicalities should be disregarded if only to render

reglementary period within which to file a claim to the respective parties that which is their due.
cannot be invoked if damage is caused by the carrier's Thus, although We have said that certiorari cannot be
willful misconduct, as provided by Art. 25 of the same a substitute for a lapsed appeal, We have, time and
Warsaw Convention.
Private respondent, on the other hand, argues that
the dismissal orders of respondent courts had already
become final after petitioners failed to either move for
reconsideration or appeal from the orders within the
reglementary period, hence, certiorari is no substitute
for a lost appeal. LLpr

again, likewise held that where a rigid application of


that

rule

will

result

in

manifest

failure

or

miscarriage of justice, the rule may be relaxed. 13


Hence,

considering

the

broader

and

primordial

interests of justice, particularly when there is grave


abuse

of

departure

discretion,
from

the

thus

impelling

general

rule

occasional
that

the

extraordinary writ of certiorari cannot substitute for a

Private respondent also maintains that it did not lost appeal, respondent appellate court may legally
receive any demand letter from petitioners within the entertain the special civil action for certiorari. 14
21-day reglementary period, as provided in par. 7 of
the Conditions of Contract appearing in the plane
ticket. Since Art. 26, par. (4), of the Warsaw
Convention provides that "[f]ailing complaint within
the times aforesaid, no action shall lie against the
carrier, save in the case of fraud on him part," the
carrier consequently cannot be held liable for the
delay in the delivery of the baggage. In other words,
non-observance of the prescribed period to file a
claim bars claimant's action in court for recovery.

Previously, We ruled that the Warsaw Convention was


a treaty commitment voluntarily assumed by the
Philippine government; consequently, it has the force
and effect of law in this country. 15 But, in the same
token, We are also aware of jurisprudence that the
Warsaw Convention does not operate as an exclusive
enumeration of the instances for declaring an airline
liable for breach of contract of carriage or as an
absolute limit of the extent of that liability. 16 The
Convention merely declares the carrier liable for

Private respondent, citing foreign jurisprudence, 11 damages in the enumerated cases, if the conditions
likewise submits that Art. 25, par. (1), of the Warsaw therein specified are present. 17 For sure, it does not
Convention which excludes or limits liability of regulate the liability, much less exempt, the carrier for
common carriers if the damage is caused by its willful violating the rights of others which must simply be

misconduct, refers only to the monetary ceiling on respected in accordance with their contracts of
carriage. The application of the Convention must not
damages found in Art. 22.

Page 138 of 229


therefore be construed to preclude the operation of rights. It must be evidenced by a flagrantly or
the Civil Code and other pertinent laws. In fact, in shamefully wrong or improper conduct.
Alitalia v. IAC, 18 We awarded Dr. Felipa Pablo
nominal damages, the provisions of the Convention
notwithstanding.

WHEREFORE, the assailed decisions and resolutions


of respondent Court of Appeals are REVERSED and
SET ASIDE. The complaints for breach of contract of

Hence, petitioners' alleged failure to file a claim with carriage with damages in Civil Case No. 3194-V-89
the common carrier as mandated by the provisions of and Civil Case No. 58390 dismissed by respondent
the Warsaw Convention should not be a ground for Judges Teresita D. Capulong and Cristina M. Estrada,
the summary dismissal of their complaints since respectively, are ordered REINSTATED and given due
private respondent may still be held liable for breach course until terminated. No costs.
of other relevant laws which may provide a different
period or procedure for filing a claim. Considering

SO ORDERED.

that petitioners indeed filed a claim which private Cruz, Padilla and Grio-Aquino, JJ ., concur.
respondent admitted having received on 21 June
1989, their demand may have very well been filed 24.
within the period prescribed by those applicable laws.

Consequently, respondent trial courts, as well as FIRST DIVISION


respondent appellate court, were in error when they
limited themselves to the provisions of the Warsaw
Convention

and

disregarding

completely

provisions of the Civil Code. cdphil

[G.R. No. 104685. March 14, 1996.]

the SABENA BELGIAN WORLD AIRLINES, petitioner,


vs. HON. COURT OF APPEALS and MA. PAULA SAN

We are unable to agree however with petitioners that AGUSTIN, respondents.


Art. 25 of the Convention operates to exclude the
other provisions of the Convention operates to exclude

Saturnino M . Basconcillo for petitioner.

the other provisions of the Convention if damage is F.S. De Guzman


caused by the common carrier's willful misconduct. respondent.

and

Associates

for

private

As correctly pointed out by private respondent, Art.

25 refers only to the monetary ceiling on damages SYLLABUS


found in Art. 22 should damage be caused by
carrier's

willful

misconduct.

Hence,

only

the

provisions of Art. 22 limiting the carrier's liability and


imposing a monetary ceiling in case of willful
misconduct on its part that the carrier cannot invoke.
19 This issue however has become academic in the
light of our ruling that the trial courts erred in
dismissing petitioners' respective complaints.
We are not prepared to subscribe to petitioners'
argument that the failure of private respondent to
deliver their luggage at the designated time and place
amounted ipso facto to willful misconduct. For willful
misconduct to exist, there must be a showing that the
acts complained of were impelled by an intention to
violate the law, or were in persistent disregard of one's

1.
FAULT

CIVIL LAW, OBLIGATIONS AND CONTRACTS;


OR

NEGLIGENCE

CONSISTS

IN

THE

OMISSION OF DILIGENCE DEMANDED BY THE


NATURE OF AN OBLIGATION. Fault or negligence
consists in the omission of that diligence which is
demanded by the nature of an obligation and
corresponds with the circumstances of the person, of
the time, and of the place.
2.

ID.;

ID.;

ID.;

PRESUMPTION

OF

FAULT

ARISES UPON BREACH OR NON-FULFILLMENT OF


THE PRESTATION. When the source of an
obligation is derived from a contract, the mere breach
or non-fulfillment of the prestation gives rise to the
presumption of fault on the part of the obligor.

Page 139 of 229


3.

ID.; ID.; COMMON CARRIERS; BOUND TO expect it to arrive on 27 October 1987. She then

OBSERVE

EXTRAORDINARY

CARE

IN

THE waited anxiously only to be told later that her luggage

VIGILANCE OVER THE GOODS. This rule is no had been lost for the second time. Thus, the appellate
different in the case of common carriers in the court, given all the facts before it, sustained the trial
carriage of goods which, indeed are bound to observe court in finding petitioner ultimately guilty of "gross
not just the due diligence of a good father of a family negligence" in the handling of private respondent's
but that of "extraordinary" care in the vigilance over luggage. The "loss of said baggage not only once but
the goods.
4.

twice," said the appellate court, "underscores the

ID.;

ID.;

TORT;

PROXIMATE

CAUSE,

CONSTRUED. Proximate cause is that which, in


natural and continuous sequence, unbroken by any
efficient intervening cause, produces injury and
without which the result would not have occurred.
The exemplification by the Court in one case is simple
and explicit; viz: "(T)he proximate legal cause is that
acting

first

and

producing

the

injury,

either

immediately or by setting other events in motion, all


constituting a natural and continuous chain of
events, each having a close causal connection with its
immediate predecessor, the final event in the chain
immediately affecting the injury as a natural and
probable result of the cause which first acted under
such circumstances that the person responsible for
the first event should, as an ordinarily prudent and
intelligent person, have reasonable ground to expect
at the moment of his act or default that an injury to
some person might probably result therefrom."

wanton negligence and lack of care" on the part of the


carrier. The above findings, which certainly cannot be
said to be without basis, foreclose whatever rights
petitioner might have had to the possible limitation of
liabilities enjoyed by international air carriers under
the

Warsaw

Convention

(Convention

for

the

Unification of Certain Rules Relating to International


Carriage by Air, as amended by the Hague Protocol of
1955,

the

Guatemala

Montreal
Protocol

Agreement
of

1971

and

of

1966,

the

the

Montreal

Protocols of 1975). The Court thus sees no error in


the preponderant application to the instant case by
the appellate court, as well as by the trial court, of
the usual rules on the extent of recoverable damages
beyond the Warsaw limitations. Under domestic law
and jurisprudence (the Philippines being the country
of destination), the attendance of gross negligence
(given the equivalent of fraud or bad faith) holds the
common carrier liable for all damages which can be
reasonably attributed, although unforeseen, to the

ID.; ID.; COMMON CARRIERS; LOSS OF non-performance of the obligation, including moral
PASSENGER'S BAGGAGE NOT ONLY ONCE BUT and exemplary damages.
5.

TWICE CONSTITUTES GROSS NEGLIGENCE; CASE


AT BAR. It remained undisputed that private

DECISION

respondent's luggage was lost while it was in the VITUG, J p:


custody of petitioner. It was supposed to arrive on the
same flight that private respondent took in returning
to

Manila

discovered
promptly

on
that

02

September

the

luggage

accomplished

and

1987.
was
filed

When

she

missing,

she

Property

Irregularity Report. She followed up her claim on 14


September 1987, and filed, on the following day, a
formal

letter-complaint

with

petitioner.

She

The appeal before the Court involves the issue of an


airline's liability for lost luggage. The petition for
review assails the decision of the Court of Appeals, 1
dated 27 February 1992, affirming an award of
damages made by the trial court in a complaint filed
by private respondent against petitioner.

felt The factual background of the case, narrated by the


relieved when, on 23 October 1987, she was advised trial court and reproduced at length by the appellate
that her luggage had finally been found, with its court, is hereunder quoted:
contents intact when examined, and that she could

Page 140 of 229


"On August 21, 1987, plaintiff was a passenger on was a passenger on board Flight No. SN 284 with a
board flight SN 284 of defendant airline originating piece of checked in luggage bearing Tag No. 71423,
from Casablanca to Brussels, Belgium on her way the loss of the luggage was due to plaintiff's sole if not
back to Manila. Plaintiff checked in her luggage which contributory negligence; that she did not declare the
contained her valuables, namely: jewelries valued at valuable items in her checked-in luggage at the flight
$2,350.00;

clothes

$1,500.00;

shoes/bag

$150; counter when she checked in for her flight from

accessories $75; luggage itself $10.00; or a total of Casablanca

to

Brussels

so

that

either

the

$4,265.00, for which she was issued Tag No. 71423. representative of the defendant at the counter would
She stayed overnight in Brussels and her luggage was have advised her to secure an insurance on the
left on board Flight SN 284.
"Plaintiff arrived at Manila International Airport on
September 2, 1987 and immediately submitted her
Tag No. 71423 to facilitate the release of her luggage
but the luggage was missing. She was advised to
accomplish and submit a property Irregularity Report
which she submitted and filed on the same day.

alleged valuable items and required her to pay


additional charges, or would have refused acceptance
of her baggage as required by the generally accepted
practices of international carriers; that Section 9(a),
Article IX of General Conditions of carriage requiring
passengers to collect their checked baggage at the
place of stopover, plaintiff neglected to claim her
baggage at the Brussels Airport; that plaintiff should

"She followed up her claim on September 14, 1987 have retrieved her undeclared valuables from her
baggage at the Brussels Airport since her flight from
but the luggage remained to be missing.
Brussels

to

Manila

will

still

have

to

visit

for

"On September 15, 1987, she filed her formal confirmation inasmuch as only her flight from
complaint with the office of Ferge Massed, defendant's Casablaca to Brussels was confirmed; that defendant
Local Manager, demanding immediate attention (Exh. incorporated in all Sabena Plane Tickets, including
'A').
"On September 30, 1987, on the occasion of plaintiff's
following up of her luggage claim, she was furnished
copies of defendant's telexes with an information that
the Brussel's Office of defendant found the luggage
and that they have broken the locks for identification
(Exhibit 'B'). Plaintiff was assured by the defendant
that it has notified its Manila Office that the luggage
will be shipped to Manila on October 27, 1987. But
unfortunately plaintiff was informed that the luggage
was lost for the second time (Exhibits 'C' and 'C-1').
"At the time of the filing of the complaint, the luggage
with its content has not been found.
"Plaintiff demanded from the defendant the money
value of the luggage and its contents amounting to
$4,265.00 or its exchange value, but defendant
refused to settle the claim.

Sabena

Ticket

No.

082422-72502241

issued

to

plaintiff in Manila on August 21, 1987, a warning


that 'Items of value should be carried on your person'
and that some carriers assume no liability for fragile,
valuable or perishable articles and that further
information may be obtained from the carrier for
guidance'; that granting without conceding that
defendant is liable, its liability is limited only to US
$20.00 per kilo due to plaintiff's failure to declare a
higher value on the contents of her checked in
luggage and pay additional charges thereon." 2
The trial court rendered judgment ordering petitioner
Sabena

Belgian

World

Airlines

to

pay

private

respondent Ma. Paula San Agustin


"(a)

. . . US$4,265.00 or its legal exchange in

Philippine pesos;
"(b)

"Defendant asserts in its Answer and its evidence "(c)


tend to show that while it admits that the plaintiff

. . . P30,000.00 as moral damages;


. . . P10,000.00 as exemplary damages;

Page 141 of 229


"(d)

. . . P10,000.00 attorney's fees; and

"(e)

(t)he costs of the suit." 3

mere breach or non-fulfillment of the prestation gives


rise to the presumption of fault on the part of the
obligor. This rule is not different in the case of

Sabena appealed the decision of the Regional Trial common carriers in the carriage of goods which,
Court to the Court of Appeals. The appellate court, in indeed, are bound to observe not just the due
its decision of 27 February 1992, affirmed in toto the diligence of a good father of a family but that of
"extraordinary" care in the vigilance over the goods.
trial court's judgment.
The appellate court has aptly observe:

Petitioner airline company, in contending that the

alleged negligence of private respondent should be ". . . Art. 1733 of the [Civil] Code provides that from
considered the primary cause for the loss of her the very nature of their business and by reason of

luggage, avers that, despite her awareness that the public policy, common carriers are bound to observe
flight ticket had been confirmed only for Casablanca extraordinary diligence in the vigilance over the goods

by
them.
This
extraordinary
and Brussels, and that her flight from Brussels to transported
responsibility,
according
to
Art.
1736,
lasts
from the
Manila had yet to be confirmed, she did not retrieve
the luggage upon arrival in Brussels. Petitioner time the goods are unconditionally placed in the
insists that private respondent, being a seasoned possession of and received by the carrier until they
been are delivered actually or constructively to the
familiar with the standard provisions contained in her consignee or person who has the right to receive
flight ticket that items of value are required to be them. Art. 1737 states that the common carrier's
international

traveler,

must

have

likewise

hand-carried by the passenger and that the liability of duty to observe extraordinary diligence in the
the airlines for loss, delay or damage to baggage vigilance over the goods transported by them 'remains
would be limited, in any event, to only US$20.00 per in full force and effect even when they are temporarily
kilo unless a higher value is declared in advance and unloaded or stored in transit.' And Art. 1735

corresponding additional charge are paid thereon. At establishes the presumption that if the goods are lost,
the Casablanca International Airport, private destroyed or deteriorated, common carriers are

respondent, in checking in her luggage, evidently did presumed to have been at fault or to have acted
not declare its contents or value. Petitioner cites negligently, unless they prove that they had observed
Section 5(c), Article IX, of the General Conditions of extraordinary diligence as required in Article 1733.
Carriage, signed at Warsaw, Poland, on 02 October
1929, as amended by the Hague Protocol of 1955,
generally observed by International carriers, stating
among other things, that:
"Passengers shall not include in his checked baggage,
and the carrier may refuse to carry as checked
baggage, fragile or perishable articles, money, jewelry,

"The only exceptions to the foregoing extraordinary


responsibility of the common carrier is when the loss,
destruction, or deterioration of the goods is due to
any of the following causes:
"(1)

precious metals, negotiable papers, securities or other "(2)


valuables." 4

Flood, storm, earthquake, lightning, or other

natural disaster or calamity;


Act of the public enemy in war, whether

international or civil;

Fault or negligence consists in the omission of that "(3)

Act or omission of the shipper or owner of the

diligence which is demanded by the nature of an goods;


obligation and corresponds with the circumstances of
the person, of the time, and of the place. When the
source of an obligation is derived from a contract, the

"(4)

The character of the goods or defects in the

packing or in the containers;

Page 142 of 229


"(5)

Order or act of competent public authority.'

"Not one of the above excepted causes obtains in this


case." 5

and that she could expect it to arrive on 27 October


1987. She then waited anxiously only to be told later
that her luggage had been lost for the second time.
Thus, the appellate court, given all the facts before it,

The above rules remain basically unchanged even sustained the trial court in finding petitioner
when the contract is breached by tort 6 although ultimately guilty of "gross negligence" in the handling

noncontradictory principles on quasi-delict may then of private respondent's luggage. The "loss of said
be assimilated as also forming part of the governing baggage not only once but twice," said the appellate
law. Petitioner is not thus entirely off track when it court, "underscores the wanton negligence and lack of
has likewise raised in its defense the tort doctrine of care" on the part of the carrier.
proximate

cause.

Unfortunately

for

petitioner,

however, the doctrine cannot, in this particular


instance, support its case. Proximate cause is that
which,

in

unbroken

natural
by

any

and

continuous

efficient

sequence,

intervening

cause,

produces injury and without which the result would


not have occurred. The exemplification by the Court
in one case 7 is simple and explicit; viz:

The above findings, which certainly cannot be said to


be without basis, foreclose whatever rights petitioner
might have had to the possible limitation of liabilities
enjoyed by international air carriers under the
Warsaw Convention (Convention for the Unification of
Certain Rules Relating to International Carriage by
Air, as amended by the Hague Protocol of 1955, the
Montreal Agreement of 1966, the Guatemala Protocol

"(T)he proximate legal cause is that acting first and of 1971 and the Montreal Protocols of 1975). In
producing the injury, either immediately or by setting Alitalia vs. Intermediate Appellate Court, 8 now Chief

other events in motion, all constituting a natural and Justice Andres R. Narvasa, speaking for the Court,
continuous chain of events, each having a close has explained it well; he said:
causal connection with its immediate predecessor, the
final event in the chain immediately affecting the
injury as a natural and probable result of the cause
which first acted, under such circumstances that the
person responsible for the first event should, as an
ordinarily

prudent

and

intelligent

person,

have

reasonable ground to expect at the moment of his act


or default that an injury to some person might
probably result therefrom."

"The Warsaw Convention however denies to the


carrier availment 'of the provisions which exclude or
limit his liability, if the damage is caused by his wilful
misconduct or by such default on his part as, in
accordance with the law of the court seized of the
case,

is

considered

misconduct,'

or

'if

to
the

be

equivalent

damage

is

to

wilful

(similarly)

caused . . . by any agent of the carrier acting within


the scope of his employment.' The Hague Protocol

It remained undisputed that private respondent's amended the Warsaw Convention by removing the
luggage was lost while it was in the custody of provision that if the airline took all necessary steps to

petitioner. It was supposed to arrive on the same avoid the damage, it could exculpate itself completely,
flight that private respondent took in returning to and declaring the stated limits of liability not
Manila on 02 September 1987. When she discovered applicable 'if it is proved that the damage resulted
that the luggage was missing, she promptly from an act or omission of the carrier, its servants or

accomplished and filed a Property Irregularity Report. agents, done with intent to cause damage or
She followed up her claim on 14 September 1987, and recklessly and with knowledge that damage would
filed, on the following day, a formal letter-complaint probably result.' The same deletion was effected by
with petitioner. She felt relieved when, on 23 October the Montreal Agreement of 1966, with the result that
1987, she was advised that her luggage had finally a passenger could recover unlimited damages upon
been found, with its contents intact when examined, proof of wilful misconduct.

Page 143 of 229


"The Convention does not thus operate as an all damages which can be reasonably attributed,
exclusive enumeration of the instances of an airline's although unforeseen, to the non-performance of the
liability, or as an absolute limit of the extent of that obligation, 9 including moral and exemplary damages.
liability. Such a proposition is not borne out by the 10
language of the Convention, as this Court has now,
and at an earlier time, pointed out. Moreover, slight
reflection readily leads to the conclusion that it

WHEREFORE,

the

decision

appealed

from

is

AFFIRMED. Costs against petitioner.

should be deemed a limit of liability only in those SO ORDERED.


cases where the cause of the death or injury to
person, or destruction, loss or damage to property or Padilla, Bellosillo, Kapunan and Hermosisima, Jr.,
delay in its transport is not attributable to or JJ., concur.
attended

by

any

wilful

misconduct,

bad

faith,

recklessness, or otherwise improper conduct on the


part of any official or employee for which the carrier is
responsible, and there is otherwise no special or
extraordinary

form

of

resulting

injury.

25.
SECOND DIVISION

The [G.R. No. 127768. November 19, 1999.]

Convention's provisions, in short, do not 'regulate or

exclude liability for other breaches of contract by the UNITED AIRLINES, petitioner, vs. WILLIE J. UY,
carrier' or misconduct of its officers and employees, respondent.
or for some particular or exceptional type of damage.

Otherwise, 'an air carrier would be exempt from any Quisumbing Torres & Evangelista for petitioner.
liability for damages in the event of its absolute
refusal, in bad faith, to comply with a contract of

Ramon U. Ampil for private respondent.

carriage, which is absurd.' Nor may it for a moment SYNOPSIS


be supposed that if a member of the aircraft
complement should inflict some physical injury on a Respondent herein was a passenger of petitioner

passenger, or maliciously destroy or damage the United Airlines' Flight No. 819 for the San Franciscolatter's property, the Convention might successfully Manila route. Before embarking for his trip to Manila,
be pleaded as the sole gauge to determine the he suffered insult, embarrassment and humiliating
carrier's liability to the passenger. Neither may the treatment in the hands of petitioner's employees.

Convention be invoke to justify the disregard of some Upon arrival in Manila, he discovered that one of his
extraordinary sort of damage resulting to a passenger bags had been slashed and its contents stolen.
and preclude recovery therefor beyond the limits set Respondent notified petitioner of his loss and
by said Convention. It is in this sense that the requested reimbursement thereof. Respondent instead

Convention has been applied, or ignored, depending mailed a check representing payment of his loss
based on the maximum liability of US$9.70 per
on the peculiar facts presented by each case."
pound. Thinking that the amount was grossly
The Court thus sees no error in the preponderant inadequate respondent through his lawyer demanded
application to the instant case by the appellate court, an out-of-court settlement of P1,000,000.00.
as well as by the trial court, of the usual rules on the Petitioner did not accede to his demand. Respondent
extent of recoverable damages beyond the Warsaw filed a complaint for damages against petitioner
limitations. Under domestic law and jurisprudence United Airlines. Petitioner filed a complaint on the
(the Philippines being the country of destination), the ground that respondent's cause of action had
attendance of gross negligence (given the equivalent of prescribed, invoking Art. 29 of the Warsaw
fraud or bad faith) holds the common carrier liable for Convention. The trial court ordered the dismissal of

Page 144 of 229


the action. Despite the late filing of his notice of in the administration of justice. Thus, the Court has
appeal, the Court of Appeals entertained the appeal ruled that delay in the filing of a notice of appeal does
based on equity and justice, and reversed the decision not justify the dismissal of the appeal where the
of the trial court. The issues to be resolved in this circumstances of the case show that there is no
petition for review on certiorari are whether the notice intent to delay the administration of justice on the
of appeal to the appellate court was timely filed, and part of appellant's counsel, or when there are no
whether Art. 29 of the Warsaw Convention should substantial
apply herein.

HCETDS

rights

affected,

or

when

appellant's

counsel committed a mistake in the computation of

The Supreme Court ruled that although the notice of


appeal was filed two days late, the case should be

the period of appeal, an error not attributable to


negligence or bad faith.

given due course because of the unique and peculiar 2.

DcIHSa

ID.; ID.; ID.; ID.; WHEN NOT APPLICABLE.

facts of the case and the serious question of law ot In the instant case, respondent filed his notice of
poses. Respondent filed his complaint beyond the appeal two (2) days later than the prescribed period.
period prescribed by the Warsaw Convention for filing Although his counsel failed to give the reason for the
a claim for damages. However, it is obvious that delay, the Court is inclined to give due course to his
respondent was forestalled from immediately filing an appeal due to the unique and peculiar facts of the
action

because

petitioner

airline

gave

him

the case and the serious question of law it poses. In the

runaround, answering his letters but not giving in to now almost trite but still good principle, technicality,
his demands. Hence, despite the express mandate of when it deserts its proper office as an aid to justice
Art. 29 of the Warsaw Convention that an action for and becomes its great hindrance and chief enemy,
damages should be filed within two years from arrival deserves scant consideration.
to the place of destination, such rule shall not be
applied in the instant case because of the delaying
tactics employed by petitioner airline itself. The
assailed decision of the Court of Appeals was affirmed
and the case was remanded to the court of origin for
further proceedings.

CONVENTION;

LAW;

TRANSPORTATION;

DOES

NOT

WARSAW

PRECLUDE

THE

OPERATION OF THE CIVIL CODE AND OTHER


PERTINENT LAWS. American jurisprudence has
declared that "Art. 29 (2) of the Warsaw Convention
limitation tolling provisions but only to let local law

REMEDIAL

LAW;

CIVIL

PROCEDURE;

APPEAL; LIMITATION OF THE PERIOD; PURPOSE


THEREOF. Section 1 of Rule 45 of the 1997 Rules
of Civil Procedure provides that "a party may appeal
by certiorari, from a judgment of the Court of
Appeals, by filing with the Supreme Court a petition
for certiorari, within fifteen (15) days from notice of
judgment

CIVIL

was not intended to permit forums to consider local

SYLLABUS
1.

3.

or

of

the

denial

of

his

motion

for

reconsideration filed in due time . . ." This Rule


however should not be interpreted as "to sacrifice the
substantial right of the appellant in the sophisticated
altar of technicalities with impairment of the sacred
principles of justice." It should be borne in mind that
the real purpose behind the limitation of the period of
appeal is to forestall or avoid an unreasonable delay

determine whether an action had been commenced


within the two-year period, since the method of
commencing a suit varies from country to country."
Within our jurisdiction the Court has held that the
Warsaw Convention can be applied, or ignored,
depending on the peculiar facts presented by each
case.

Thus,

this

Court

has

ruled

that

the

Convention's provisions do not regulate or exclude


liability for other breaches of contract by the carrier
or misconduct of its officers and employees, or for
some particular or exceptional type of damage.
Neither may the Convention be invoked to justify the
disregard of some extraordinary sort of damage
resulting to a passenger and preclude recovery
therefor beyond the limits set by said Convention.

Page 145 of 229


Likewise, this Court has held that the Convention respondent was forestalled from immediately filing an
does not preclude the operation of the Civil Code and action

because

petitioner

airline

gave

him

the

other pertinent laws. It does not regulate, much less runaround, answering his letters but not giving in to
exempt, the carrier from liability for damages for his demands. True, respondent should have already
violating the rights of its passengers under the filed an action at the first instance when his claims
contract of carriage, especially if willful misconduct were denied by petitioner but the same could only be
on the part of the carrier's employees is found or due to his desire to make an out-of-court settlement
established.

for which he cannot be faulted. Hence, despite the

4.

ID.; ID.; ID.; TWO-YEAR LIMITATION; WHEN

MAY

NOT

BAR

ACTION;

CASE

AT

BAR.

Respondent's failure to file his complaint within the


two (2)-year limitation of the Warsaw Convention does
not bar his action since petitioner airline may still be
held liable for breach of other provisions of the Civil
Code which prescribe a different period or procedure
for instituting the action, specifically, Art. 1146

express mandate of Art. 29 of the Warsaw Convention


that an action for damages should be filed within two
(2) years from the arrival at the place of destination,
such rule shall not be applied in the instant case
because of the delaying tactics employed by petitioner
airline itself. Thus, private respondent's second cause
of action cannot be considered as time-barred under
Art. 29 of the Warsaw Convention.

IDSaTE

thereof which prescribes four (4) years for filing an D E C I S I O N


action based on torts.
5.

ID.; ID.; ID.; ID.; APPLICATION THEREOF

CONSTRUED; NOT PRESENT IN CASE AT BAR.


The travaux preparatories of the Warsaw Convention
reveal that the delegates thereto intended the two (2)year limitation incorporated in Art. 29 as an absolute
bar to suit and not to be made subject to the various
tolling provisions of the laws of the forum. This
therefore forecloses the application of our own rules
on interruption of prescriptive periods. Article 29, par.
(2), was intended only to let local laws determine
whether an action had been commenced within the
two (2)-year period, and within our jurisdiction an

BELLOSILLO, J p:
UNITED AIRLINES assails in this petition for review
on certiorari under Rule 45 the 29 August 1995
Decision of the Court of Appeals in CA-G.R. CV No.
39761 which reversed the 7 August 1992 order issued
by the trial court in Civil Case No. Q-92-12410 1
granting petitioner's motion to dismiss based on
prescription of cause of action. The issues sought to
be resolved are whether the notice of appeal to the
appellate court was timely filed, and whether Art. 29
of the Warsaw Convention 2 should apply to the case
at bar. prcd

action shall be deemed commenced upon the filing of On 13 October 1989 respondent Willie J. Uy, a
a complaint. Since it is indisputable that respondent revenue passenger on United Airlines Flight No. 819
filed the present action beyond the two (2)-year time for the San Francisco Manila route, checked in

frame his second cause of action must be barred. together with his luggage one piece of which was as
Nonetheless, it cannot be doubted that respondent found to be overweight at the airline counter. To his
exerted efforts to immediately convey his loss to utter humiliation, an employee of petitioner rebuked

petitioner, even employed the services of two (2) him saying that he should have known the maximum
lawyers to follow up his claims, and that the filing of weight allowance to be 70 kgs. per bag and that he
the action itself was delayed because of petitioner's should have packed his things accordingly. Then, in a
evasion. Respondent filed his complaint more than loud voice in front of the milling crowd, she told
two (2) years later, beyond the period of limitation respondent to repack his things and transfer some of
prescribed by the Warsaw Convention for filing a them from the overweight luggage to the lighter ones.

claim for damages. However, it is obvious that Not wishing to create further scene, respondent

Page 146 of 229


acceded only to find his luggage still overweight. The damages

of

at

least

P1,000,000.00,

exemplary

airline then billed him overweight charges which he damages of at least P500,000.00, plus attorney's fees
offered to pay with a miscellaneous charge order of at least P50,000.00. Similarly, he alleged that the
(MCO) or an airline pre-paid credit. However, the damage to his luggage and its stolen contents
airline's employee, and later its airport supervisor, amounted

to

around

$5,310.00,

and

requested

adamantly refused to honor the MCO pointing out reimbursement therefor.


that there were conflicting figures listed on it. Despite
the explanation from respondent that the last figure
written

on

the

MCO

represented

his

balance,

petitioner's employees did not accommodate him.


Faced with the prospect of leaving without his

United Airlines moved to dismiss the complaint on the


ground

that

prescribed,

respondent's
invoking

Art.

cause
29

of
of

action
the

had

Warsaw

Convention which provides

luggage, respondent paid the overweight charges with Art. 29 (1) The right to damages shall be extinguished
his American Express credit card.
if an action is not brought within two (2) years,
Respondent's troubles did not end there. Upon arrival
in Manila, he discovered that one of his bags had
been

slashed

and

its

contents

stolen.

He

particularized his losses to be around US $5,310.00.

reckoned from the date of arrival at the destination,


or from the date on which the aircraft ought to have
arrived, or from the date on which the transportation
stopped.

In a letter dated 16 October 1989 respondent (2)


The method of calculating the period of
bewailed the insult, embarrassment and humiliating limitation shall be determined by the law of the court
treatment he suffered in the hands of United Airlines to which the case is submitted.
employees,

notified

petitioner

of

his

loss

and

requested reimbursement thereof. Petitioner United Respondent countered that par. (1) of Art. 29 of the
Airlines, through Central Baggage Specialist Joan Warsaw Convention must be reconciled with par. (2)
Kroll, did not refute any of respondent's allegations thereof which states that "the method of calculating
and mailed a check representing the payment of his the period of limitation shall be determined by the law
loss based on the maximum liability of US $9.70 per of the court to which the case is submitted."
pound. Respondent, thinking the amount to be Interpreting thus, respondent noted that according to
grossly inadequate to compensate him for his losses, Philippine laws the prescription of actions is
as well as for the indignities he was subjected to, sent interrupted "when they are filed before the court,
two (2) more letters to petitioner airline, one dated 4 when there is a written extrajudicial demand by the
January 1990 through a certain Atty. Pesigan, and creditors, and when there is any written
another dated 28 October 1991 through Atty. Ramon acknowledgment of the debt by the debtor." 4 Since
U. Ampil demanding an out-of-court settlement of he made several demands upon United Airlines: first,
P1,000,000.00. Petitioner United Airlines did not through his personal letter dated 16 October 1989;
second, through a letter dated 4 January 1990 from
accede to his demands.
Atty. Pesigan; and, finally, through a letter dated 28
Consequently, on 9 June 1992 respondent filed a October 1991 written for him by Atty. Ampil, the two
complaint for damages against United Airlines alleging (2)-year period of limitation had not yet been

that he was a person of good station, sitting in the exhausted. prLL


board of directors of several top 500 corporations and
holding senior executive positions for such similar On 2 August 1992 the trial court ordered the
firms; 3 that petitioner airline accorded him ill and dismissal of the action holding that the language of
shabby treatment to his extreme embarrassment and Art. 29 is clear that the action must be brought
humiliation; and, as such he should be paid moral within two (2) years from the date of arrival at the

Page 147 of 229


destination.

It

held

that

although

the

second different period or procedure for instituting an action.

paragraph of Art. 29 speaks of deference to the law of Further,


the

local

court

in

"calculating

the

period

under

Philippine

laws,

prescription

of

of actions is interrupted where, among others, there is a

limitation," the same does not refer to the local written extrajudicial demand by the creditors, and
forum's rules in interrupting the prescriptive period since respondent Uy sent several demand letters to
but only to the rules of determining the time in which petitioner United Airlines, the running of the two (2)the action may be deemed commenced, and within year prescriptive period was in effect suspended.
our jurisdiction the action shall be deemed "brought" Hence, the appellate court ruled that respondent's
or commenced by the filing of a complaint. Hence, the cause of action had not yet prescribed and ordered
trial court concluded that Art. 29 excludes the the records remanded to the Quezon City trial court
application of our interruption rules.

for further proceedings.

Respondent received a copy of the dismissal order on Petitioner now contends that the appellate court erred
17 August 1992. On 31 August 1992, or fourteen (14) in assuming jurisdiction over respondent's appeal
days later, he moved for the reconsideration of the since it is clear that the notice of appeal was filed out
trial court's order. The trial court denied the motion of time. It argues that the courts relax the stringent
and respondent received copy of the denial order on rule on perfection of appeals only when there are
28 September 1992. Two (2) days later, on 1 October extraordinary circumstances, e.g., when the Republic
1992 respondent filed his notice of appeal.

stands to lose hundreds of hectares of land already

United Airlines once again moved for the dismissal of


the case this time pointing out that respondent's
fifteen (15)-day period to appeal had already elapsed.
Petitioner argued that having used fourteen (14) days
of the reglementary period for appeal, respondent Uy
had only one (1) day remaining to perfect his appeal,

titled and used for educational purposes; when the


counsel of record was already dead; and wherein
appellant was the owner of the trademark for more
than thirty (30) years, and the circumstances of the
present case do not compare to the above exceptional
cases. 6

and since he filed his notice of appeal two (2) days Section 1 of Rule 45 of the 1997 Rules of Civil
later, he failed to meet the deadline.

Procedure provides that "a party may appeal by

In its questioned Decision dated 29 August 1995 5


the appellate court gave due course to the appeal
holding that respondent's delay of two (2) days in
filing his notice of appeal did not hinder it from
reviewing the appealed order of dismissal since
jurisprudence

dictates

that

an

appeal

may

be

entertained despite procedural lapses anchored on


equity and justice.

certiorari, from a judgment of the Court of Appeals,


by filing with the Supreme Court a petition for
certiorari, within fifteen (15) days from notice of
judgment

or

of

the

denial

of

his

motion

for

reconsideration filed in due time . . ." This Rule


however should not be interpreted as "to sacrifice the
substantial right of the appellant in the sophisticated
altar of technicalities with impairment of the sacred
principles of justice." 7 It should be borne in mind

On the applicability of the Warsaw Convention, the that the real purpose behind the limitation of the
appellate court ruled that the Warsaw Convention did period of appeal is to forestall or avoid an
not preclude the operation of the Civil Code and other unreasonable delay in the administration of justice.
pertinent laws. Respondent's failure to file his Thus, we have ruled that delay in the filing of a notice
complaint within the two (2)-year limitation provided of appeal does not justify the dismissal of the appeal
in the Warsaw Convention did not bar his action since where the circumstances of the case show that there

he could still hold petitioner liable for breach of other is no intent to delay the administration of justice on
provisions of the Civil Code which prescribe a the part of appellant's counsel, 8 or when there are

Page 148 of 229


no substantial rights affected, 9 or when appellant's Convention. 16 Likewise, we have held that the
counsel committed a mistake in the computation of Convention does not preclude the operation of the
the period of appeal, an error not attributable to Civil Code and other pertinent laws. 17 It does not
negligence or bad faith. 10

regulate, much less exempt, the carrier from liability

In the instant case, respondent filed his notice of


appeal two (2) days later than the prescribed period.
Although his counsel failed to give the reason for the
delay, we are inclined to give due course to his appeal

for damages for violating the rights of its passengers


under the contract of carriage, especially if willful
misconduct on the part of the carrier's employees is
found or established. 18

due to the unique and peculiar facts of the case and Respondent's complaint reveals that he is suing on
the serious question of law it poses. In the now two (2) causes of action: (a) the shabby and
almost trite but still good principle, technicality, when humiliating treatment he received from petitioner's
it deserts its proper office as an aid to justice and employees at the San Francisco Airport which caused
becomes

its

great

hindrance

and

chief

enemy, him extreme embarrassment and social humiliation;

deserves scant consideration. 11

and, (b) the slashing of his luggage and the loss of his

Petitioner likewise contends that the appellate court

personal effects amounting to US $5,310.00.

erred in ruling that respondent's cause of action has While his second cause of action an action for
not

prescribed

Convention

since

clearly

delegates

intended

to

the

the

Warsaw damages arising from theft or damage to property or

two

(2)-year goods is well within the bounds of the Warsaw

limitation incorporated in Art. 29 as an absolute bar Convention, his first cause of action an action for
to suit and not to be made subject to the various damages arising from the misconduct of the airline
tolling provisions of the laws of the forum. Petitioner employees and the violation of respondent's rights as
argues that in construing the second paragraph of passenger clearly is not.
Art. 29 private respondent cannot read into it
Philippine

rules

on

interruption

of

prescriptive

periods and state that his extrajudicial demand has


interrupted the period of prescription. 12 American
jurisprudence has declared that "Art. 29 (2) was not
intended to permit forums to consider local limitation
tolling provisions but only to let local law determine
whether an action had been commenced within the
two-year period, since the method of commencing a
suit varies from country to country." 13
Within our jurisdiction we have held that the Warsaw
Convention can be applied, or ignored, depending on
the peculiar facts presented by each case. 14 Thus,
we have ruled that the Convention's provisions do not
regulate or exclude liability for other breaches of
contract by the carrier or misconduct of its officers
and employees, or for some particular or exceptional
type of damage. 15 Neither may the Convention be
invoked to justify the disregard of some extraordinary
sort of damage resulting to a passenger and preclude
recovery therefor beyond the limits set by said

Consequently, insofar as the first cause of action is


concerned, respondent's failure to file his complaint
within the two (2)-year limitation of the Warsaw
Convention does not bar his action since petitioner
airline may still be held liable for breach of other
provisions of the Civil Code which prescribe a
different period or procedure for instituting the
action, specifically, Art. 1146 thereof which prescribes
four (4) years for filing an action based on torts.
cdrep
As for respondent's second cause of action, indeed the
travaux preparatories of the Warsaw Convention
reveal that the delegates thereto intended the two (2)year limitation incorporated in Art. 29 as an absolute
bar to suit and not to be made subject to the various
tolling provisions of the laws of the forum. This
therefore forecloses the application of our own rules
on interruption of prescriptive periods. Article 29, par.
(2), was intended only to let local laws determine
whether an action had been commenced within the

Page 149 of 229


two (2)-year period, and within our jurisdiction an filed his complaint more than two (2) years later,
action shall be deemed commenced upon the filing of beyond the period of limitation prescribed by the
a complaint. Since it is indisputable that respondent Warsaw Convention for filing a claim for damages.
filed the present action beyond the two (2)-year time However, it is obvious that respondent was forestalled
frame, his second cause of action must be barred. from immediately filing an action because petitioner
Nonetheless, it cannot be doubted that respondent airline gave him the runaround, answering his letters
exerted efforts to immediately convey his loss to but not giving in to his demands. True, respondent
petitioner, even employed the services of two (2) should have already filed an action at the first
lawyers to follow up his claims, and that the filing of instance when his claims were denied by petitioner
the action itself was delayed because of petitioner's but the same could only be due to his desire to make
evasion.

an out-of-court settlement for which he cannot be

In this regard, Philippine Airlines, Inc. v. Court of


Appeals 19 is instructive. In this case of PAL, private
respondent filed an action for damages against
petitioner airline for the breakage of the front glass of
the microwave oven which she shipped under PAL Air
Waybill No. 0-79-1013008-3. Petitioner averred that,
the action having been filed seven (7) months after
her arrival at her port of destination, she failed to
comply with par. 12, subpar. (a) (1), of the Air Waybill

faulted. Hence, despite the express mandate of Art.


29 of the Warsaw Convention that an action for
damages should be filed within two (2) years from the
arrival at the place of destination, such rule shall not
be applied in the instant case because of the delaying
tactics employed by petitioner airline itself. Thus,
private respondent's second cause of action cannot be
considered as time-barred under Art. 29 of the
Warsaw Convention.

which expressly provided that the person entitled to WHEREFORE, the assailed Decision of the Court of
delivery must make a complaint to the carrier in Appeals reversing and setting aside the appealed
writing in case of visible damage to the goods, order of the trial court granting the motion to dismiss
immediately after discovery of the damage and at the the complaint, as well as its Resolution denying
latest within 14 days from receipt of the goods. reconsideration, is AFFIRMED. Let the records of the
Despite non-compliance therewith the Court held that case be remanded to the court of origin for further
by private respondent's immediate submission of a proceedings taking its bearings from this disquisition.
formal claim to petitioner, which however was not
immediately entertained as it was referred from one

SO ORDERED. cdtai

employee to another, she was deemed to have Mendoza, Quisumbing, Buena and De Leon, Jr., JJ.,
substantially complied with the requirement. The concur.
Court noted that with private respondent's own

zealous efforts in pursuing her claim it was clearly 26.


not her fault that the letter of demand for damages

could only be filed, after months of exasperating THIRD DIVISION


follow-up of the claim, on 13 August 1990, and that if
there was any failure at all to file the formal claim

[G.R. No. 121824. January 29, 1998.]

within the prescriptive period contemplated in the Air BRITISH AIRWAYS, petitioner, vs. COURT OF
Waybill, this was largely because of the carrier's own APPEALS, GOP MAHTANI, and PHILIPPINE
doing, the consequences of which could not in all
AIRLINES, respondents.
fairness be attributed to private respondent.
In

the

same

vein

must

we

rule

upon

the

circumstances brought before us. Verily, respondent

Quasha Ancheta Pea & Nolasco for petitioner.

Page 150 of 229


Siguion

Reyna

Montecillo

&

Ongsiako

Philippine Airlines.

for alone, and not respondent PAL, since the latter was
not a party to the contract. However, respondent PAL
is not relieved from any liability due to any of its

SYNOPSIS

negligent acts. It is but logical, fair and equitable to

Private respondent decided to visit his relative in


Bombay, India. Since petitioner had no direct flights
from Manila to Bombay, private respondent had to
take a flight to Hongkong via PAL, and upon arrival in
Hongkong he had to take a connecting flight to
Bombay

on

board

the

petitioner.

Prior

allow

petitioner

to

sue

respondent

PAL

for

indemnification, if it is proven that the latter's


negligence

was

respondent's

the

proximate

unfortunate

cause

experience,

of

private

instead

of

totally absolving respondent PAL from any liability.

to

his SYLLABUS
departure, private respondent checked in at
CIVIL LAW; COMMON CARRIERS; AIRLINE'S
respondent PAL's counter in Manila his two pieces of 1.
luggage confident that upon reaching Hongkong, the CONTRACT OF CARRIAGE; TYPES. The nature of
same would be transferred to the petitioner's flight an airline's contract of carriage partakes of two types,
bound for Bombay. When private respondent arrived namely: a contract to deliver a cargo or merchandise
in Bombay he discovered that his luggage was to its destination and a contract to transport
missing and that upon inquiry from the petitioner's passengers to their destination. A business intended
representative, he was told that the same might have to serve the travelling public primarily, it is imbued
been diverted to London. After waiting for his luggage with public interest, hence, the law governing

for one week, petitioner finally advised him to file a common carriers imposes an exacting standard.
claim. Back in the Philippines, private respondent Neglect or malfeasance by the carrier's employees
filed with the trial court his complaint for damages could predictably furnish bases for an action for
and attorney's fees against petitioner. Petitioner damages. cDTCIA
contends that that private respondent did not have a
cause of action against it. Petitioner likewise filed a
third-party complaint against respondent PAL as the
non-transfer of his luggage was due to the latter's late
arrival in Hongkong. Respondent PAL disclaimed any
liability. The trial court rendered its decision in favor
of the private respondent. The third-party complaint
against third-party defendant PAL was dismissed for
lack of cause of action. Petitioner appealed to the
Court of Appeals which, however, affirmed the trial
court's findings in toto. TDcAIH

value of the luggage is a question of fact, a finding not


reviewable by the Supreme Court. The Court cannot
agree with the dismissal of the third-complaint. The
relationship

between

petitioner

and

respondent PAL is one of agency, the former being the

ID.;

ID.;

ID.;

DAMAGES,

LIABILITY

OF

AIRLINE FOR MISPLACED LUGGAGE. In the


instant case, it is apparent that the contract of
carriage was between Mahtani and BA. Moreover, it is
indubitable that his luggage never arrived in Bombay
on time. Therefore, as in a number of cases we have
assessed the airlines' culpability in the form of
damages for breach of contract involving misplaced
luggage.
3.

The Court of Appeals' ruling regarding the actual

contractual

2.

ID.; ID.; ID.; ID.; ID.; CLAIMANT MUST

SATISFACTORILY PROVE EXISTENCE OF FACTUAL


BASIS.

In

determining

the

amount

of

compensatory damages in this kind of cases, it is vital


that the claimant satisfactorily prove during the trial
the existence of the factual basis of the damages and
its causal connection to defendant's acts.

principal, since it was the one which issued the 4.


ID.; ID.; ID.; LIABILITY NOT LIMITED BY
confirmed ticket, and the latter the agent. Since the ARTICLE 22(1) OF THE WARSAW CONVENTION.
instant petition was based on breach of contract of Admittedly, in a contract of air carriage a declaration
carriage, private respondent can only sue petitioner

Page 151 of 229


by the passenger of a higher value is needed to within the competence of the Court of Appeals, its
recover a greater amount. (Article 22[1] of the Warsaw ruling regarding the amount is assuredly a question
Convention). American jurisprudence provides that of fact, thus, a finding not reviewable by this Court.
an air carrier is not liable for the loss of baggage in an ScTIAH
amount in excess of the limits specified in the tariff
which was filed with the proper authorities, such
tariff being binding on the passenger regardless of the
passenger's lack of knowledge thereof or assent
thereto.

This

doctrine

is

recognized

in

this

jurisdiction. Notwithstanding the foregoing, we have,


nevertheless, ruled against blind reliance on adhesion
contracts where the facts and circumstances justify
that they should be disregarded.
5.

ID.;

ID.;

ID.;

BENEFITS

7.

ID.; ACTIONS; THIRD-PARTY COMPLAINT,

NATURE. In Firestone Tire and Rubber Company of


the Philippines v. Tempengko, we expounded on the
nature of a third-party complaint thus: "The thirdparty complaint is, therefore, a procedural device
whereby a 'third party' who is neither a party nor
privy to the act or deed complained of by the plaintiff
may be brought into the case with leave of court, by
the defendant who acts as third-party plaintiff to

OF

LIMITED enforce against such third-party defendant a right for

LIABILITY, SUBJECT TO WAIVER; CASE AT BAR. contribution, indemnity, subrogation or any other
Benefits of limited liability are subject to waiver such relief, in respect of the plaintiff's claim. The thirdas when the air carrier failed to raise timely party complaint is actually independent of and
objections during the trial when questions and separate and distinct from the plaintiff's complaint.
answers regarding the actual claims and damages Were it not for this provision of the Rules of Court, it
sustained by the passenger were asked. Given the would have to be filed independently and separately
foregoing postulates, the inescapable conclusion is from the original complaint by the defendant against
that BA had waived the defense of limited liability the third-party. But the Rules permit defendant to
when it allowed Mahtani to testify as to the actual bring in a third-party defendant or so to speak, to
damages he incurred due to the misplacement of his litigate his separate cause of action in respect of
luggage, without any objection. It is a well-settled plaintiff's claim against a third party in the original
doctrine that where the proponent offers evidence and principal case with the object of avoiding
deemed by counsel of the adverse party to be circuitry of action and unnecessary proliferation of
inadmissible for any reason, the latter has the right to law suits and of disposing expeditiously in one
object. However, such right is a mere privilege which litigation the entire subject matter arising from one
can be waived. Necessarily, the objection must be particular set of facts.
made at the earliest opportunity, lest silence when
there is opportunity to speak may operate as a waiver
of objections. BA has precisely failed in this regard. To
compound matters for BA, its counsel failed, not only
to interpose a timely objection, but even conducted
his own cross-examination as well.
6.

REMEDIAL

LAW;

EVIDENCE;

8.

CIVIL LAW; COMMON CARRIERS; AIRLINE'S

CONTRACT OF CARRIAGE; CARRIAGE PERFORMED


BY SUCCESSIVE CARRIER, REGARDED AS SINGLE
OPERATION;

CARRIER

ISSUING

TICKET

CONSIDERED THE PRINCIPAL WHILE THE OTHERS


ARE

SUB-CONTRACTORS

OR

AGENTS.

The

FACTUAL contract of air transportation was exclusively between

FINDINGS OF THE TRIAL COURT, AFFIRMED BY Mahtani and BA, the latter merely endorsing the
THE COURT OF APPEALS, ENTITLED TO GREAT Manila to Hongkong leg of the former's journey to
RESPECT. Needless to say, factual findings of the PAL, as its subcontractor or agent. In fact, the fourth
trial court, as affirmed by the Court of Appeals, are paragraph of the "Conditions of Contracts" of the
entitled to great respect. Since the actual value of the ticket issued by BA to Mahtani confirms that the
luggage involved appreciation of evidence, a task contract was one of continuous air transportation

Page 152 of 229


from Manila to Bombay. "4. . . . carriage to be procedural remedy of filing a third-party complaint
performed hereunder by several successive carriers is against PAL for the purpose of ultimately determining
regarded as a single operation." Prescinding from the who was primarily at fault as between them, is
above discussion, it is undisputed that PAL, in without legal basis. After all, such proceeding is in
transporting Mahtani from Manila to Hongkong, acted accord with the doctrine against multiplicity of cases
as the agent of BA.
9.

which would entail receiving the same or similar

ID.; ID.; ID.; ID.; ID.; AGENT RESPONSIBLE

FOR ANY NEGLIGENCE AND LIABLE FOR DAMAGES


WHICH

THE

PRINCIPAL

MAY

SUFFER.

Parenthetically, the Court of Appeals should have


been cognizant of the well-settled rule that an agent
is

also

responsible

for

any

negligence

in

the

performance of its function and is liable for damages


which the principal may suffer by reason of its
negligent act. Hence, the Court of Appeals erred when
it opined that BA, being the principal, had no cause

evidence for both cases and enforcing separate


judgments therefor. It must be borne in mind that the
purpose of a third-party complaint is precisely to
avoid delay and circuity of action and to enable the
controversy to be disposed of in one suit. It is but
logical, fair and equitable to allow BA to sue PAL for
indemnification, if it is proven that the latter's
negligence was the proximate cause of Mahtani's
unfortunate experience, instead of totally absolving
PAL from any liability. IHaCDE

of action against PAL, its agent or sub-contractor. D E C I S I O N


Also, it is worth mentioning that both BA and PAL are
members

of

the

International

Air

Transport

ROMERO, J p:

Association (IATA), wherein member airlines are In this appeal by certiorari, petitioner British Airways
regarded as agents of each other in the issuance of (BA) seeks to set aside the decision of respondent

the tickets and other matters pertaining to their Court of Appeals 1 promulgated on September 7,
relationship. Therefore, in the instant case, the 1995, which affirmed the award of damages and
contractual relationship between BA and PAL is one of attorney's fees made by the Regional Trial Court of
agency, the former being the principal, since it was Cebu, 7th Judicial Region, Branch 7, in favor of
the one which issued the confirmed ticket, and the private respondent GOP Mahtani as well as the
latter the agent.
dismissal of its third-party complaint against
10.

REMEDIAL

LAW;

ACTIONS;

THIRD-PARTY

Philippine Airlines (PAL). 2

COMPLAINT; PROCEDURAL REMEDY AVAILABLE TO The material and relevant facts are as follows: prLL
PRINCIPAL CARRIER FOR CLAIMS FILED BY
PASSENGER FOR LOSS OF LUGGAGE IN AGENT On April 16, 1989, Mahtani decided to visit his
CARRIER. Since the instant petition was based on relatives in Bombay, India. In anticipation of his visit,
breach of contract of carriage, Mahtani can only sue he obtained the services of a certain Mr. Gumar to
BA alone, and not PAL, since the latter was not a prepare his travel plans. The latter, in turn,
party to the contract. However, this is not to say that purchased a ticket from BA where the following
PAL is relieved from any liability due to any of its itinerary was indicated: 3
negligent acts. In China Air Lines, Ltd. v. Court of
Appeals, while not exactly in point, the case, however,
illustrates the principle which governs this particular

CARRIER

performance of its duties. Accordingly, to deny BA the

DATE TIME

PR 310Y

16

STATUS

situation. In that case, we recognized that a carrier "MANILA


(PAL), acting as an agent of another carrier, is also
1730
liable for its own negligent acts or omission in the

FLIGHT

MNL
OK

APR.

Page 153 of 229


HONGKONG
2100
BOMBAY
0840

HKG

BA 20M

16

APR. to transfer the luggage to BA facilities in Hongkong.

OK

Furthermore, the transfer of the luggage to Hongkong

BOM

BA 19M

23

APR.

OK

authorities should be considered as transfer to BA. 8


After appropriate proceedings and trial, on March 4,

HONGKONG

HKG

MANILA

MNL"

1993, the trial court rendered its decision in favor of

PR 311Y

Mahtani, 9 the dispositive portion of which reads as


follows:

Since BA had no direct flights from Manila to Bombay, "WHEREFORE, premises considered, judgment is
Mahtani had to take a flight to Hongkong via PAL, and rendered for the plaintiff and against the defendant
upon arrival in Hongkong he had to take a connecting for which defendant is ordered to pay plaintiff the
sum of Seven Thousand (P7,000.00) Pesos for the
flight to Bombay on board BA.
value of the two (2) suit cases; Four Hundred U.S.

Prior to his departure, Mahtani checked in at the PAL ($400.00) Dollars representing the value of the
counter in Manila his two pieces of luggage containing contents of plaintiff's luggage; Fifty Thousand
his clothings and personal effects, confident that (P50,000.00) Pesos for moral and actual damages and
upon

reaching

Hongkong,

the

same

would

be twenty percent (20%) of the total amount imposed

transferred to the BA flight bound for Bombay.

against the defendant for attorney's fees and costs of

Unfortunately, when Mahtani arrived in Bombay he

this action.

discovered that his luggage was missing and that The Third-Party Complaint against third-party
upon inquiry from the BA representatives, he was told defendant Philippine Airlines is DISMISSED for lack
that the same might have been diverted to London. of cause of action.
After patiently waiting for his luggage for one week,
BA

finally

advised

him

to

file

claim

by SO ORDERED."

accomplishing the "Property Irregularity Report." 4

Dissatisfied, BA appealed to the Court of Appeals,

Back in the Philippines, specifically on June 11, which however, affirmed the trial court's findings.
1990, Mahtani filed his complaint for damages and Thus:
attorney's fees 5 against BA and Mr. Gumar before the
trial court, docketed as Civil Case No. CEB-9076.

"WHEREFORE,

in

view

of

all

the

foregoing

considerations, finding the Decision appealed from to

On September 4, 1990, BA filed its answer with be in accordance with law and evidence, the same is
counter claim 6 to the complaint raising, as special hereby AFFIRMED in toto, with costs against
and affirmative defenses, that Mahtani did not have a defendant-appellant.
cause of action against it. Likewise, on November 9,
1990, BA filed a third-party complaint 7 against PAL

SO ORDERED." 10

alleging that the reason for the non-transfer of the BA is now before us seeking the reversal of the Court
luggage was due to the latter's late arrival in of Appeals' decision.
Hongkong, thus leaving hardly any time for the proper
transfer of Mahtani's luggage to the BA aircraft bound
for Bombay.
On February 25, 1991, PAL filed its answer to the
third-party complaint, wherein it disclaimed any
liability, arguing that there was, in fact, adequate time

In essence, BA assails the award of compensatory


damages and attorney's fees, as well as the dismissal
of its third-party complaint against PAL. 11
Regarding the first assigned issue, BA asserts that
the award of compensatory damages in the separate

Page 154 of 229


sum of P7,000.00 for the loss of Mahtani's two pieces In determining the amount of compensatory damages
of luggage was without basis since Mahtani in his in this kind of cases, it is vital that the claimant
complaint 12 stated the following as the value of his satisfactorily prove during the trial the existence of
personal belongings:
"8.

the factual basis of the damages and its causal

On said travel, plaintiff took with him the

following items and its corresponding value, to wit:


1.

personal belonging

2.

gifts

for

his

In this regard, the trial court granted the following


award as compensatory damages:

P10,000.00
parents

and

connection to defendant's acts. 17

relatives

$5,000.00"

"Since plaintiff did not declare the value of the


contents in his luggage and even failed to show
receipts of the alleged gifts for the members of his

Moreover, he failed to declare a higher valuation with family in Bombay, the most that can be expected for
respect to his luggage, a condition provided for in the compensation of his lost luggage (2 suit cases) is
Twenty U.S. Dollars ($20.00) per kilo, or a combined

ticket, which reads: 13

value of Four Hundred ($400.00) U.S. Dollars for

"Liability for loss, delay, or damage to baggage is Twenty kilos representing the contents plus Seven
limited unless a higher value is declared in advance Thousand (P7,000.00) Pesos representing the
and additional charges are paid:

purchase price of the two (2) suit cases."

1.

For most international travel (including However, as earlier stated, it is the position of BA that
domestic corporations of international journeys) the there should have been no separate award for the
liability limit is approximately U.S. $9.07 per pound luggage and the contents thereof since Mahtani failed
(U.S. $20.00) per kilo for checked baggage and U.S. to declare a separate higher valuation for the luggage,
$400 per passenger for unchecked baggage."
18 and therefore, its liability is limited, at most, only
Before we resolve the issues raised by BA, it is needful

to the amount stated in the ticket.

to state that the nature of an airline's contract of Considering the facts of the case, we cannot assent to
carriage partakes of two types, namely: a contract to such specious argument.
deliver a cargo or merchandise to its destination and

their Admittedly, in a contract of air carriage a declaration


destination. A business intended to serve the by the passenger of a higher value is needed to
travelling public primarily, it is imbued with public recover a greater amount. Article 22(1) of the Warsaw
interest, hence, the law governing common carriers Convention, 19 provides as follows:
a

contract

imposes

an

malfeasance

to

transport

passengers

exacting

standard.

by

carrier's

the

14

to

Neglect

employees

or

could

"xxx

predictably furnish bases for an action for damages. (2)


15
In the instant case, it is apparent that the contract of
carriage was between Mahtani and BA. Moreover, it is
indubitable that his luggage never arrived in Bombay
on time. Therefore, as in a number of cases 16 we
have assessed the airlines' culpability in the form of
damages for breach of contract involving misplaced
luggage.

xxx

xxx

In the transportation of checked baggage and

goods, the liability of the carrier shall be limited to a


sum of 250 francs per kilogram, unless the consignor
has made, at the time the package was handed over
to the carrier, a special declaration of the value at
delivery and has paid a supplementary sum if the
case so requires. In that case the carrier will be liable
to pay a sum not exceeding the declared sum, unless
he proves that the sum is greater than the actual
value to the consignor at delivery."

Page 155 of 229


American jurisprudence provides that an air carrier A:

The court expenses and attorney's fees is

is not liable for the loss of baggage in an amount in 30%."


excess of the limits specified in the tariff which was
filed with the proper authorities, such tariff being
binding

on

the

passenger

regardless

of

the

passenger's lack of knowledge thereof or assent


thereto. 20 This doctrine is recognized in this
jurisdiction. 21

Indeed, it is a well-settled doctrine that where the


proponent offers evidence deemed by counsel of the
adverse party to be inadmissible for any reason, the
latter has the right to object. However, such right is a
mere privilege which can be waived. Necessarily, the
objection must be made at the earliest opportunity,

Notwithstanding the foregoing, we have, nevertheless, lest silence when there is opportunity to speak may
ruled against blind reliance on adhesion contracts operate as a waiver of objections. 25 BA has precisely
where the facts and circumstances justify that they failed in this regard.
should be disregarded. 22

To compound matters for BA, its counsel failed, not

In addition, we have held that benefits of limited only to interpose a timely objection, but even
liability are subject to waiver such as when the air conducted his own cross-examination as well. 26 In
carrier failed to raise timely objections during the the early case of Abrenica v. Gonda, 27 we ruled that:
trial when questions and answers regarding the
actual

claims

and

damages

sustained

by

the

passenger were asked. 23


Given

the

foregoing

postulates,

". . . (I)t has been repeatedly laid down as a rule of


evidence that a protest or objection against the
admission of any evidence must be made at the

the

inescapable proper time, and that if not so made it will be

conclusion is that BA had waived the defense of understood to have been waived. The proper time to
limited liability when it allowed Mahtani to testify as make a protest or objection is when, from the
to the actual damages he incurred due to the question addressed to the witness, or from the answer
misplacement of his luggage, without any objection. thereto, or from the presentation of proof, the
In this regard, we quote the pertinent transcript of inadmissibility of evidence is, or may be inferred."
stenographic notes of Mahtani's direct testimony: 24
Q:

How much are you going to ask from this affirmed by the Court of Appeals, are entitled to great

court?

respect. 28 Since the actual value of the luggage

A:

P100,000.00.

Q:

What else?

A:

Exemplary damages.

Q:

How much?

A:

P100,000.00.

Q:

What else?

A:

The things I lost, $5,000.00 for the gifts I lost

and my personal belongings, P10,000.00.


Q:

Needless to say, factual findings of the trial court, as

What about the filing of this case?

involved appreciation of evidence, a task within the


competence of the Court of Appeals, its ruling
regarding the amount is assuredly a question of fact,
thus, a finding not reviewable by this Court. 29
As to the issue of the dismissal of BA's third-party
complaint against PAL, the Court of Appeals justified
its ruling in this wise, and we quote: 30
"Lastly, we sustain the trial court's ruling dismissing
appellant's third-party complaint against PAL. prcd
The contract of air transportation in this case
pursuant to the ticket issued by appellant to plaintiffappellee was exclusively between the plaintiff Mahtani
and defendant-appellant BA. When plaintiff boarded

Page 156 of 229


the PAL plane from Manila to Hongkong, PAL was litigation the entire subject matter arising from one
merely acting as a subcontractor or agent of BA. This particular set of facts."
is shown by the fact that in the ticket issued by
appellant

to

plaintiff-appellee,

it

is

specifically

provided on the "Conditions of Contract," paragraph 4


thereof that:
4.

Undeniably, for the loss of his luggage; Mahtani is


entitled to damages from BA, in view of their contract
of carriage. Yet, BA adamantly disclaimed its liability
and instead imputed it to PAL which the latter

. . . carriage to be performed hereunder by naturally denies. In other words, BA and PAL are

several successive carriers is regarded as a single blaming each other for the incident.
operation.

In resolving this issue, it is worth observing that the

The rule that carriage by plane although performed contract of air transportation was exclusively between
by successive carriers is regarded as a single Mahtani and BA, the latter merely endorsing the
operation and that the carrier issuing the passenger's Manila to Hongkong leg of the former's journey to
ticket is considered the principal party and the other PAL, as its subcontractor or agent. In fact, the fourth
carrier merely subcontractors or agent, is a settled paragraph of the "Conditions of Contracts" of the
issue."
We cannot agree with the dismissal of the thirdcomplaint.
In Firestone Tire and Rubber Company of the
Philippines v. Tempengko, 31 we expounded on the
nature of a third-party complaint thus:
"The third-party complaint is, therefore, a procedural
device whereby a 'third party' who is neither a party
nor privy to the act or deed complained of by the

ticket 32 issued by BA to Mahtani confirms that the


contract was one of continuous air transportation
from Manila to Bombay.
"4.

. . . carriage to be performed hereunder by

several successive carriers is regarded as a single


operation."
Prescinding

from

the

above

discussion,

it

is

undisputed that PAL, in transporting Mahtani from


Manila to Hongkong acted as the agent of BA.

plaintiff, may be brought into the case with leave of Parenthetically, the Court of Appeals should have
court, by the defendant, who acts as third-party been cognizant of the well-settled rule that an agent
plaintiff to enforce against such third-party defendant is

also

responsible

for

any

negligence

in

the

a right for contribution, indemnity, subrogation or performance of its function 33 and is liable for
any other relief, in respect of the plaintiff's claim. The damages which the principal may suffer by reason of
third-party complaint is actually independent of and its negligent act. 34 Hence, the Court of Appeals
separate and distinct from the plaintiff's complaint. erred when it opined that BA, being the principal,
Were it not for this provision of the Rules of Court, it had no cause of action against PAL, its agent or subwould have to be filed independently and separately contractor.
from the original complaint by the defendant against
the third-party. But the Rules permit defendant to
bring in a third-party defendant or so to speak, to
litigate his separate cause of action in respect of
plaintiff's claim against a third-party in the original
and principal case with the object of avoiding
circuitry of action and unnecessary proliferation of
law suits and of disposing expeditiously in one

Also, it is worth mentioning that both BA and PAL are


members

of

the

International

Air

Transport

Association (IATA), wherein member airlines are


regarded as agents of each other in the issuance of
the tickets and other matters pertaining to their
relationship. 35 Therefore, in the instant case, the
contractual relationship between BA and PAL is one of
agency, the former being the principal, since it was

Page 157 of 229


the one which issued the confirmed ticket, and the purpose of ultimately determining who was primarily
latter the agent.

at fault as between them, is without legal basis. After

Our pronouncement that BA is the principal is


consistent with our ruling in Lufthansa German
Airlines v. Court of Appeals. 36 In that case,
Lufthansa

issued

confirmed

ticket

to

Tirso

Antiporda covering five-leg trip aboard different


airlines. Unfortunately, Air Kenya, one of the airlines
which was to carry Antiporda to a specific destination
"bumped" him off.

all, such proceeding is in accord with the doctrine


against multiplicity of cases which would entail
receiving the same or similar evidence for both cases
and enforcing separate judgments therefor. It must be
borne in mind that the purpose of a third-party
complaint is precisely to avoid delay and circuity of
action and to enable the controversy to be disposed of
in one suit. 38 It is but logical, fair and equitable to
allow BA to sue PAL for indemnification, if it is proven

An action for damages was filed against Lufthansa that the latter's negligence was the proximate cause
which, however, denied any liability, contending that of Mahtani's unfortunate experience, instead of totally
its responsibility towards its passenger is limited to absolving PAL from any liability.
the occurrence of a mishap on its own line.
Consequently, when Antiporda transferred to Air
Kenya, its obligation as a principal in the contract of
carriage ceased; from there on, it merely acted as a
ticketing agent for Air Kenya:

WHEREFORE, in view of the foregoing, the decision of


the Court of Appeals in CA-G.R. CV No. 43309 dated
September 7, 1995 is hereby MODIFIED, reinstating
the third-party complaint filed by British Airways
dated November 9, 1990 against Philippine Airlines.
No costs. LLpr

In rejecting Lufthansa's argument, we ruled:

"In the very nature of their contract, Lufthansa is SO ORDERED.


clearly the principal in the contract of carriage with
Antiporda and remains to be so, regardless of those

Narvasa, C .J ., Melo and Francisco, JJ ., concur.

instances when actual carriage was to be performed Panganiban, J ., concurs in the result.
by various carriers. The issuance of confirmed

Lufthansa ticket in favor of Antiporda covering his 27.


entire

five-leg

trip

aboard

successive

carriers

concretely attest to this."


Since the instant petition was based on breach of

THIRD DIVISION
[G.R. Nos. 116044-45. March 9, 2000.]

contract of carriage, Mahtani can only sue BA alone, AMERICAN AIRLINES, petitioner, vs. COURT OF
and not PAL, since the latter was not a party to the
APPEALS, HON. BERNARDO LL. SALAS and
contract. However, this is not to say that PAL is
DEMOCRITO MENDOZA, respondents.
relieved from any liability due to any of its negligent
acts. In China Air Lines, Ltd. v. Court of Appeals, 37 Quisumbing Torres & Evangelista for petitioner.
while not exactly in point, the case, however,
illustrates the principle which governs this particular Amadeo D. Seno for private respondent.
situation. In that case, we recognized that a carrier
(PAL), acting as an agent of another carrier, is also

SYNOPSIS

liable for its own negligent acts or omission in the Private respondent purchased from Singapore Airlines
performance of its duties.
in Manila conjunction tickets from Singapore Airlines
Accordingly, to deny BA the procedural remedy of
filing a third-party complaint against PAL for the

for nine cities in different countries with New York as


the final destination. In Geneva, private respondent

Page 158 of 229


bought from petitioner a ticket in exchange for the requisites of the right of private respondent to crossunused conjunction ticket for a one-way ticket from examine the petitioner's witnesses.
Geneva to New York. However, because of the
embarrassment and mental anguish he suffered in
Geneva

SYLLABUS

when he was prevented by

petitioner's 1.
CIVIL LAW; TRANSPORTATION; WARSAW
security officer from boarding the plane, detained for CONVENTION; HAS FORCE AND EFFECT OF LAW IN
about an hour and allowed to board the plane only COUNTRIES LIKE THE PHILIPPINES WHICH ARE
after all the other passengers have boarded, private PARTIES THERETO; CONVENTION APPLIES TO
respondent filed an action for damages against INTERNATIONAL TRANSPORTATION. The Warsaw
petitioner in Cebu. Petitioner moved to dismiss on the Convention to which the Republic of the Philippines is
ground of improper venue and that the ticket issued a party and which has the force and effect of law in

by petitioner in Geneva was a separate and distinct this


country
applies
to
all
international
contract of carriage from that entered into by the transportation of persons, baggage or goods
private respondent with Singapore Airlines in Manila. performed by an aircraft gratuitously or for hire. As
When its motion was denied, petitioner presented a enumerated in the Preamble of the Convention, one of
deposition of its security officer taken in Geneva. The the objectives is "to regulate in a uniform manner the
trial court ruled that under the pool partnership conditions of international transportation by air." The

agreement among the IATA members, including contract of carriage entered into by the private
Singapore Airlines and American Airlines, the respondent with Singapore Airlines, and subsequently
members act as agents of each other in the issuance with the petitioner, to transport him to nine cities in
of tickets. This decision was affirmed on appeal by the different countries with New York as the final
Court of Appeals. Hence, this petition. Meanwhile, the destination
is
a
contract
of
international
security officer of petitioner subsequently appeared transportation and the provisions of the Convention
before the Philippine consul and answered the cross- automatically apply and exclusively govern the rights
interrogatories of private respondent. cCEAHT
and liabilities of the airline and its passengers. This
A contract of carriage although performed by different
carriers under a series of airline tickets constitutes a

includes Section 28 (1) which enumerates the four


places where an action for damages may be brought.

single operation as members of the IATA act as agents 2.


ID.;
OBLIGATIONS
AND
CONTRACTS;
of each other in the issuance of tickets and that the CONTRACT OF CARRIAGE; MEMBERS OF IATA
number of tickets issued does not detract from the UNDER
GENERAL
POOL
PARTNERSHIP
oneness of the contract of carriage as long as the AGREEMENT; CONTRACT OF CARRIAGE IN CASE AT
parties regard the contract as a single operation. BAR, ALTHOUGH PERFORMED BY DIFFERENT

Thus, petitioner tacitly recognized its commitment CARRIERS UNDER A SERIES OF AIRLINE TICKETS,
when it accepted the unused portion of the CONSTITUTES A SINGLE OPERATION. The
conjunction tickets, entered it in the IATA clearing contract of carriage between the private respondent
house

and

undertook

to

transport

the

private and Singapore Airlines although performed by


respondent over the route covered by the unused different carriers under a series of airline tickets,
portion of the conjunction tickets.
including that issued by the petitioner, constitutes a
Venue is deemed waived when a party assailing the
same presented evidence before the trial court.

single operation. Members of the IATA are under a


general pool partnership agreement wherein they act
as agent of each other in the issuance of tickets to

The subsequent appearance of petitioner's security contracted passengers to boost ticket sales worldwide
officer to answer the cross-interrogatories of private and at the same time provide passengers easy access
respondent

constitute

full

compliance

with

the to airlines which are otherwise inaccessible in some

Page 159 of 229


parts of the world. Booking and reservation among CONTRACT OF CARRIAGE; PURPOSE. The quoted
airline members are allowed even by telephone and it provision of the Warsaw Convention Art. 1(3) clearly
has become an accepted practice among them. A states that a contract of air transportation is taken as
member airline which enters into a contract of a single operation whether it is founded on a single
carriage consisting of a series of trips to be performed contract or a series of contracts. The number of
by different carriers is authorized to receive the fare tickets issued does not detract from the oneness of
for the whole trip and through the required process of the contract of carriage as long as the parties regard
interline settlement of accounts by way of the IATA the contract as a single operation. The evident
clearing house an airline is duly compensated for the purpose
segment of the trip serviced.
3.

AIRLINE OF UNUSED PORTION OF CONJUNCTION


AND

UNDERTAKING

TO

TRANSPORT

PASSENGER OVER ROUTE COVERED BY UNUSED


TICKET, TACIT RECOGNITION OF COMMITMENT TO
ACT

AS

AGENT

OF

this

Article

is

to

promote

international air travel by facilitating the procurement

ID.; ID.; ID.; ID.; ACCEPTANCE BY ANOTHER

TICKET

underlying

PRINCIPAL

CONTRACTING

AIRLINE; CASE AT BAR. Thus, when the petitioner

of a series of contracts for air transportation through


a single principal and obligating different airlines to
be

bound

by

one

contract

of

transportation.

Petitioner's acquiescence to take the place of the


original designated carrier binds it under the contract
of carriage entered into by the private respondent and
Singapore Airlines in Manila.

accepted the unused portion of the conjunction 5.

REMEDIAL

tickets, entered it in the IATA clearing house and WRONG

VENUE;

LAW;

MOTION

WAIVED

TO

WHERE

DISMISS;
PARTY

undertook to transport the private respondent over PRESENTED EVIDENCE. The third option of the
the route covered by the unused portion of the plaintiff under Art. 28 (1) of the Warsaw Convention
conjunction tickets, i.e., Geneva to New York, the e.g., to sue in the place of business of the carrier
petitioner tacitly recognized its commitment under wherein the contract was made, is therefore, Manila,
the IATA pool arrangement to act as agent of the and Philippine courts are clothed with jurisdiction
principal contracting airline, Singapore Airlines, as to over this case. We note that while this case was filed
the segment of the trip the petitioner agreed to in Cebu and not in Manila the issue of venue is no
undertake. As such, the petitioner thereby assumed longer an issue as the petitioner is deemed to have
the obligation to take the place of the carrier waived it when it presented evidence before the trial
originally designated in the original conjunction court.
ticket. The petitioner's argument that it is not a
designated carrier in the original conjunction tickets
and that it issued its own ticket is not decisive of its
liability. The new ticket was simply a replacement for
the unused portion of the conjunction ticket, both
tickets being for the same amount of US$2,760 and
having the same points of departure and destination.
By constituting itself as an agent of the principal
carrier the petitioner's undertaking should be taken
as part of a single operation under the contract of
carriage executed by the private respondent and
Singapore Airlines in Manila.
4.

cIADTC

6.

CONSTITUTIONAL LAW; BILL OF RIGHTS;

RIGHT TO CROSS-EXAMINE WITNESS; COMPLIED


WITH BY SUBSEQUENT APPEARANCE OF WITNESS
BEFORE PHILIPPINE CONSUL AND ANSWER TO
CROSS-INTERROGATORIES

TRANSMITTED

TO

TRIAL COURT. The issue raised in SP No. 31452


which is whether or not the trial court committed
grave abuse of discretion in ordering the deposition of
the petitioner's security officer taken in Geneva to be
stricken off the record for failure of the said security
officer to appear before the Philippine consul in
Geneva to answer the cross-interrogatories filed by

ID.; ID.; ID.; ID.; ID.; NUMBER OF TICKETS the private respondent does not have to be resolved.

ISSUED DOES NOT DETRACT FROM ONENESS OF The subsequent appearance of the said security

Page 160 of 229


officer before the Philippine consul in Geneva on Geneva the petitioner decided to forego his trip to
September 19, 1994 and the answer to the cross- Copenhagen and to go straight to New York and in the
interrogatories propounded by the private respondent absence of a direct flight under his conjunction
was transmitted to the trial court by the Philippine tickets

from

Geneva

to

New

York,

the

private

consul in Geneva on September 23, 1994 should be respondent on June 7, 1989 exchanged the unused
deemed as full compliance with the requisites of the portion of the conjunction ticket for a one-way ticket
right of the private respondent to cross-examine the from Geneva to New York from the petitioner airline.
petitioner's witness. The deposition filed by the Petitioner

issued

its own

ticket

to

the

private

petitioner should be reinstated as part of the evidence respondent in Geneva and claimed the value of the
and considered together with the answer to the cross- unused portion of the conjunction ticket from the
interrogatories.

IATA 2 clearing house in Geneva.

DECISION

In September 1989, private respondent filed an action


for damages before the regional trial court of Cebu for

GONZAGA-REYES, J p:

the alleged embarrassment and mental anguish he

Before us is a petition for review of the decision dated suffered at the Geneva Airport when the petitioner's
December 24, 1993 rendered by the Court of Appeals security officers prevented him from boarding the

in the consolidated cases docketed as CA-G.R. SP plane, detained him for about an hour and allowed
nos. 30946 and 31452 entitled American Airlines vs. him to board the plane only after all the other

The Presiding Judge Branch 8 of the Regional Trial passengers have boarded. The petitioner filed a
Court of Cebu and Democrito Mendoza, petitions for motion to dismiss for lack of jurisdiction of Philippine
certiorari and prohibition. In SP no. 30946, the courts to entertain the said proceedings under Art. 28
petitioner assails the trial court's order denying the (1) of the Warsaw Convention. The trial court denied
petitioner's motion to dismiss the action for damages the motion. The order of denial was elevated to the
filed by the private respondent for lack of jurisdiction Court of Appeals which affirmed the ruling of the trial

under Section 28 (1) of the Warsaw Convention; and court. Both the trial and the appellate courts held
in SP No. 31452 the petitioner challenges the validity that the suit may be brought in the Philippines under

of the trial court's order striking off the record the the pool partnership agreement among the IATA
deposition of the petitioner's security officer taken in members, which include Singapore Airlines and
Geneva, Switzerland for failure of the said security American Airlines, wherein the members act as
officer
to
answer
the
cross
interrogatories agents of each other in the issuance of tickets to
propounded by the private respondent.

prLL

those who may need their services. The contract of

carriage perfected in Manila between the private


The sole issue raised in SP No. 30946 is the respondent and Singapore Airlines binds the
questioned jurisdiction of the Regional Trial Court of petitioner as an agent of Singapore Airlines and
Cebu to take cognizance of the action for damages considering that the petitioner has a place of
filed by the private respondent against herein business in Manila, the third option of the plaintiff
petitioner in view of Art 28 (1) of the Warsaw under the Warsaw Convention i.e. the action may be
Convention. 1 It is undisputed that the private brought in the place where the contract was perfected
respondent purchased from Singapore Airlines in and where the airline has a place of business, is
Manila conjunction tickets for Manila - Singapore - applicable. Hence this petition assailing the order
Athens - Larnaca - Rome- Turin - Zurich - Geneva - upholding the jurisdiction of Philippine courts over
Copenhagen - New York. The petitioner was not a the instant action.
participating airline in any of the segments in the
itinerary under the said conjunction tickets. In

Page 161 of 229


Both parties filed simultaneous memoranda pursuant not apply herein, as neither Singapore Airlines nor
to the resolution of this Court giving due course to the
the petition.

petitioner

issued

ticket

to

the

private

respondent covering the route of the other. Since the

The petitioner's theory is as follows: Under Art 28 (1)


of the Warsaw convention an action for damages must
be brought at the option of the plaintiff either before
the court of the 1) domicile of the carrier; 2) the

conjunction tickets issued by Singapore Airlines do


not include the route covered by the ticket issued by
the petitioner, the petitioner airline submits that it
did not act as an agent of Singapore Airlines.

carrier's principal place of business; 3) the place Private respondent controverts the applicability of the
where the carrier has a place of business through Warsaw Convention in this case. He posits that under
which the contract was made; 4) the place of Article 17 of the Warsaw Convention 3 a carrier may
destination.

The

petitioner

asserts

that

the be held liable for damages if the "accident" occurred

Philippines is neither the domicile nor the principal on board the airline or in the course of "embarking or
place of business of the defendant airline; nor is it the disembarking" from the carrier and that under Article
place of destination. As regards the third option of the 25 (1) 4 thereof the provisions of the convention will
plaintiff, the petitioner contends that since the not apply if the damage is caused by the "willful
Philippines is not the place where the contract of misconduct" of the carrier. He argues that his cause
carriage was made between the parties herein, of action is based on the incident at the pre-departure
Philippine courts do not have jurisdiction over this area of the Geneva airport and not during the process
action for damages. The issuance of petitioner's own of embarking nor disembarking from the carrier and
ticket in Geneva in exchange for the conjunction ticket that security officers of the petitioner airline acted in
issued by Singapore Airlines for the final leg of the bad faith. Accordingly, this case is released from the
private respondent's trip gave rise to a separate and terms of the Convention. Private respondent argues
distinct contract of carriage from that entered into by that assuming that the convention applies, his trip to
the private respondent with Singapore Airlines in nine cities in different

countries

performed

by

Manila. Petitioner lays stress on the fact that the different carriers under the conjunction tickets issued
plane ticket for a direct flight from Geneva to New in Manila by Singapore Airlines is regarded as a single
York was purchased by the private respondent from transaction; as such the final leg of his trip from
the petitioner by "exchange and cash" which signifies Geneva to New York with the petitioner airline is part
that the contract of carriage with Singapore Airlines and parcel of the original contract of carriage
was terminated and a second contract was perfected. perfected in Manila. Thus, the third option of the
Moreover, the second contract of carriage cannot be plaintiff under Art. 28 (1) e.g., where the carrier has a
deemed to have been an extension of the first as the place of business through which the contract of
petitioner airline is not a participating airline in any of carriage was made, applies herein and the case was
the

destinations

petitioner

claims

under
that

the
the

first
private

contract.

The properly

filed

in

the

Philippines.

The

private

respondent's respondent seeks affirmance of the ruling of the lower

argument that the petitioner is bound under the IATA courts that the petitioner acted as an agent of
Rules as agent of the principal airline is irrelevant Singapore Airlines under the IATA Rules and as an
and the alleged bad faith of the airline does not agent of the principal carrier the petitioner may be
remove the case from the applicability of the Warsaw held liable under the contract of carriage perfected in
Convention. Further, the IATA Rule cited by the Manila, citing the judicial admission made by the
private respondent which is admittedly printed on the petitioner that it claimed the value of the unused
ticket issued by the petitioner to him which states, portion of the private respondent's conjunction tickets
"An air carrier issuing a ticket for carriage over the from the IATA Clearing House in Geneva where the
lines of another carrier does so only as its agent" does accounts of both airlines are respectively credited and

Page 162 of 229


debited. Accordingly, the petitioner cannot now deny of one of the High Contracting Parties, either before
the contract of agency with Singapore Airlines after it the court of the domicile of the carrier or of his
honored the conjunction tickets issued by the latter. principal place of business or where he has a place of
cdrep

business through which the contract has been made,


or before the court at the place of destination.

The petition is without merit.


The Warsaw Convention to which the Republic of the
Philippines is a party and which has the force and
effect

of

law

in

this

country

applies

to

all

international transportation of persons, baggage or

There is no dispute that petitioner issued the ticket in


Geneva which was neither the domicile nor the
principal place of business of petitioner nor the
respondent's place of destination.

goods performed by an aircraft gratuitously or for The

question

is

whether

the

contract

of

hire. 5 As enumerated in the Preamble of the transportation between the petitioner and the private
Convention, one of the objectives is "to regulate in a respondent would be considered as a single operation
uniform manner the conditions of international and part of the contract of transportation entered into
transportation by air". 6 The contract of carriage by the latter with Singapore Airlines in Manila.
entered into by the private respondent with Singapore
Airlines, and subsequently with the petitioner, to
transport him to nine cities in different countries with
New York as the final destination is a contract of
international transportation and the provisions of the
Convention

automatically

apply

and

exclusively

Petitioner disputes the ruling of the lower court that it


is. Petitioner's main argument is that the issuance of
a new ticket in Geneva created a contract of carriage
separate and distinct from that entered by the private
respondent in Manila.

govern the rights and liabilities of the airline and its We find the petitioner's argument without merit.
passengers. 7 This includes Section 28 (1) which
enumerates the four places where an action for Art 1(3) of the Warsaw Convention which states:
damages may be brought.

"Transportation to be performed by several successive

The threshold issue of jurisdiction of Philippine carriers shall be deemed, for the purposes of this
courts under Art. 28 (1) must first be resolved before convention, to be one undivided transportation, if it
any pronouncements may be made on the liability of has been regarded by the parties as a single
the carrier thereunder. 8 The objections raised by the operation, whether it has been agreed upon under the
private respondent that this case is released from the form of a single contract or a series of contracts, and
terms of the Convention because the incident on it shall not lose its international character merely
which this action is predicated did not occur in the because one contract or series of contracts is to be
process of embarking and disembarking from the performed entirely within the territory subject of the
carrier under Art 17. 9 and that the employees of the sovereignty, suzerainty, mandate or authority of the
petitioner airline acted with malice and bad faith same High Contracting Party."
under Art. 25 (1) 10 pertain to the merits of the case
which may be examined only if the action has first
been

properly

commenced

under

the

rules

jurisdiction set forth in Art. 28 (1).


Art. (28) (1) of the Warsaw Convention states:

on

The

contract

respondent

of
and

carriage

between

Singapore

the

Airlines

private
although

performed by different carriers under a series of


airline tickets, including that issued by the petitioner,
constitutes a single operation. Members of the IATA

are under a general pool partnership agreement


An action for damages must be wherein they act as agent of each other in the
brought at the option of the plaintiff, in the territory issuance of tickets 11 to contracted passengers to
ARTICLE 28 (1)

Page 163 of 229


boost ticket sales worldwide and at the same time purpose

underlying

this

Article

is

to

promote

provide passengers easy access to airlines which are international air travel by facilitating the procurement
otherwise inaccessible in some parts of the world. of a series of contracts for air transportation through
Booking and reservation among airline members are a single principal and obligating different airlines to
allowed even by telephone and it has become an be

bound

by

one

contract

of

transportation.

accepted practice among them. 12 A member airline Petitioner's acquiescence to take the place of the
which enters into a contract of carriage consisting of original designated carrier binds it under the contract
a series of trips to be performed by different carriers of carriage entered into by the private respondent and
is authorized to receive the fare for the whole trip and Singapore Airlines in Manila.
through the required process of interline settlement of
accounts by way of the IATA clearing house an airline
is duly compensated for the segment of the trip
serviced. 13 Thus, when the petitioner accepted the
unused portion of the conjunction tickets, entered it
in

the

IATA

clearing

house and

undertook

to

transport the private respondent over the route


covered by the unused portion of the conjunction
tickets, i.e., Geneva to New York, the petitioner tacitly
recognized its commitment under the IATA pool
arrangement

to

act

as

agent

of

The third option of the plaintiff under Art. 28 (1) of


the Warsaw Convention e.g., to sue in the place of
business of the carrier wherein the contract was
made, is therefore, Manila, and Philippine courts are
clothed with jurisdiction over this case. We note that
while this case was filed in Cebu and not in Manila
the issue of venue is no longer an issue as the
petitioner is deemed to have waived it when it
presented evidence before the trial court.

the

principal The issue raised in SP No. 31452 which is whether or


contracting airline, Singapore Airlines, as to the not the trial court committed grave abuse of
segment of the trip the petitioner agreed to discretion in ordering the deposition of the

undertake. As such, the petitioner thereby assumed petitioner's security officer taken in Geneva to be
the obligation to take the place of the carrier stricken off the record for failure of the said security
originally designated in the original conjunction officer to appear before the Philippine consul in
ticket. The petitioner's argument that it is not a Geneva to answer the cross-interrogatories filed by
designated carrier in the original conjunction tickets the private respondent does not have to be resolved.
and that it issued its own ticket is not decisive of its The subsequent appearance of the said security
liability. The new ticket was simply a replacement for officer before the Philippine consul in Geneva on
the unused portion of the conjunction ticket, both September 19, 1994 and the answer to the crosstickets being for the same amount of US$ 2,760 and interrogatories propounded by the private respondent
having the same points of departure and destination. was transmitted to the trial court by the Philippine
14 By constituting itself as an agent of the principal consul in Geneva on September 23, 1994 15 should
carrier the petitioner's undertaking should be taken be deemed as full compliance with the requisites of

as part of a single operation under the contract of the right of the private respondent to cross-examine
carriage executed by the private respondent and the petitioner's witness. The deposition filed by the
Singapore Airlines in Manila. cdll
petitioner should be reinstated as part of the evidence
The quoted provision of the Warsaw Convention Art.
1(3) clearly states that a contract of air transportation

and considered together with the answer to the crossinterrogatories.

is taken as a single operation whether it is founded on WHEREFORE, the judgment of the appellate court in
a single contract or a series of contracts. The number CA-G.R. SP No. 30946 is affirmed. The case is
of tickets issued does not detract from the oneness of ordered remanded to the court of origin for further
the contract of carriage as long as the parties regard proceedings. The decision of the appellate court in
the contract as a single operation. The evident CA-G.R. SP. No. 31452 is set aside. The deposition of

Page 164 of 229


the petitioner's security officer is reinstated as part of damage of or loss to the subject cargo within the
the evidence.

LLpr

period required by the Warsaw Convention and/or in


the airway bill. The respondents obtained a favorable

SO ORDERED.

judgment from the trial court. Petitioner's appeal was

Melo, Vitug, Panganiban and Purisima, JJ., concur.


28.

dismissed by the Court of Appeals for lack of merit.


ECSHAD
Hence, the instant Petition for Review.

THIRD DIVISION

In granting the petition, the Supreme Court held that


the filing of a claim with the carrier within the time

[G.R. No. 150094. August 18, 2004.]

limitation therefor actually constitutes a condition


FEDERAL EXPRESS CORPORATION, petitioner, vs. precedent to the accrual of a right of action against a
AMERICAN HOME ASSURANCE COMPANY and carrier for loss of or damage to the goods. When an
PHILAM

INSURANCE

COMPANY,

respondents.

INC., airway bill or any contract of carriage for that


matter has a stipulation that requires a notice of

Emiliano S. Samson for petitioner.


Astorga & Repol Law Office for respondents.
SYNOPSIS
Smithkline Beecham of Nebraska, USA delivered to
Burlington Air Express, an agent of petitioner, a

claim for loss of or damage to the goods shipped and


the stipulation is not complied with, its enforcement
can be prevented and the liability cannot be imposed
on the carrier. Failure to comply with such a
stipulation, as in this case, bars recovery for the loss
or damage suffered.
SYLLABUS

shipment of 109 cartons of veterinary biologicals for 1.


REMEDIAL LAW; APPEALS; PETITION FOR
delivery to consignee Smithkline and French Overseas REVIEW; PROPER WHERE PARTY QUESTIONED
Company in Makati City. That same day, Burlington THE CORRECTNESS OF LEGAL CONCLUSIONS

insured the cargoes with the respondent American DRAWN BY THE COURT OF APPEALS FROM
Home Assurance Company (AHAC). The following day, UNDISPUTED FACTS. The correctness of legal
the Burlington turned over the custody of the cargoes conclusions drawn by the Court of Appeals from
to petitioner, which transported the same to Manila. undisputed facts is a question of law cognizable by
Due to poor storage, the cargoes were received in the Supreme Court. In the present case, the facts are
damaged condition. Hence, Smithkline abandoned undisputed. Petitioner is questioning the conclusions
the shipment and filed a claim with the respondent drawn from such facts. Hence, this case is a proper
AHAC through its representative in the Philippines, subject for review by this Court. EHCaDS
the respondent Philam Insurance Co., Inc. which
ID.;
ID.;
ID.;
QUESTION
OF
LAW
recompensed Smithkline for the whole insured 2.
amount. Thereafter, respondents filed an action for DISTINGUISHED FROM QUESTION OF FACT. The
damages against the petitioner imputing negligence in determination of the parties' respective rights under
the handling of the cargo. Petitioner opposed the the Certificate of Insurance involves a question of law,
action
contending, among
others,
that
the not a question of fact. "As distinguished from a
respondents' claim and right of action were already question of law which exists 'when the doubt or
barred. According to the petitioner, neither the difference arises as to what the law is on a certain
respondents nor the consignee, filed with the carrier state of facts' 'there is a question of fact when the
any written notice or complaint regarding its claim for doubt or difference arises as to the truth or the

Page 165 of 229


falsehood of alleged facts'; or when the 'query the cargo is jurisprudentially upheld." In the exercise
necessarily invites calibration of the whole evidence of its subrogatory right, an insurer may proceed
considering
existence

mainly

and

the

relevancy

credibility
of

of

witnesses, against an erring carrier. To all intents and purposes,

specific surrounding it stands in the place and in substitution of the

circumstance, their relation to each other and to the consignee. A fortiori, both the insurer and the
whole and the probabilities of the situation.'"
3.

consignee are bound by the contractual stipulations

COMMERCIAL LAW; COMMON CARRIERS;

under the bill of lading.

CLAIM FOR LOSS OR DAMAGE; PARTY ENTITLED 5.

ID.; ID.; ID.; REQUIREMENT OF GIVING

TO THE INSURANCE PROCEEDS. The Certificate NOTICE OF LOSS OF OR INJURY TO THE GOODS
specifies that loss of or damage to the insured cargo WITHIN THE TIME LIMITATION CONSTITUTES A
is "payable to order . . . upon surrender of this CONDITION PRECEDENT TO THE ACCRUAL OF A
Certificate". Such wording conveys the right of RIGHT OF ACTION; REASONS. In this jurisdiction,
collecting on any such damage or loss, as fully as if the filing of a claim with the carrier within the time
the property were covered by a special policy in the limitation therefor actually constitutes a condition
name of the holder itself. At the back of the precedent to the accrual of a right of action against a
Certificate appears the signature of the representative carrier for loss of or damage to the goods. The shipper
of Burlington. This document has thus been duly or consignee must allege and prove the fulfillment of
indorsed in blank and is deemed a bearer instrument. the condition. If it fails to do so, no right of action
Since the Certificate was in the possession of against the carrier can accrue in favor of the former.
Smithkline, the latter had the right of collecting or of The aforementioned requirement is a reasonable
being indemnified for loss of or damage to the insured condition

precedent;

it

does

not

constitute

shipment, as fully as if the property were covered by a limitation of action. The requirement of giving notice
special policy in the name of the holder. Hence, being of loss of or injury to the goods is not an empty
the holder of the Certificate and having an insurable formalism. The fundamental reasons for such a
interest in the goods, Smithkline was the proper stipulation are (1) to inform the carrier that the cargo
payee of the insurance proceeds.
4.

ID.;

ID.;

ID.;

UPON

HScaCT
PAYMENT

has been damaged, and that it is being charged with


TO

THE

CONSIGNEE OF AN INDEMNITY FOR THE LOSS OR


DAMAGE

TO

THE

INSURED

GOODS,

THE

INSURER'S ENTITLEMENT TO SUBROGATION PRO


TANTO EQUIPS IT WITH A CAUSE OF ACTION.
Upon receipt of the insurance proceeds, the consignee

liability therefor; and (2) to give it an opportunity to


examine the nature and extent of the injury. "This
protects the carrier by affording it an opportunity to
make an investigation of a claim while the matter is
fresh and easily investigated so as to safeguard itself
from false and fraudulent claims."

(Smithkline) executed a subrogation Receipt in favor 6.

ID.;

ID.;

ID.;

ScaAET

NON-COMPLIANCE

WITH

of respondents. The latter were thus authorized "to NOTICE REQUIREMENT BARS RECOVERY FOR THE
file claims and begin suit against any such carrier, LOSS OR DAMAGES SUFFERED; NOTICE MUST
vessel, person, corporation or government". Upon PRECEDE A SUIT FOR ENFORCEMENT. When an
payment to the consignee of an indemnity for the loss airway bill or any contract of carriage for that
of or damage to the insured goods, the insurer's matter has a stipulation that requires a notice of
entitlement to subrogation pro tanto being of the claim for loss of or damage to goods shipped and the
highest equity equips it with a cause of action in stipulation is not complied with, its enforcement can
case of a contractual breach or negligence. "Further, be prevented and the liability cannot be imposed on
the insurer's subrogatory right to sue for recovery the carrier. To stress, notice is a condition precedent,
under the bill of lading in case of loss of or damage to and the carrier is not liable if notice is not given in

Page 166 of 229


accordance with the stipulation. Failure to comply On

January

26,

1994,

SMITHKLINE

Beecham

with such a stipulation bars recovery for the loss or (SMITHKLINE for brevity) of Nebraska, USA delivered
damage suffered. Being a condition precedent, the to Burlington Air Express (BURLINGTON), an agent of
notice must precede a suit for enforcement. In the [Petitioner] Federal Express Corporation, a shipment
present case, there is neither an allegation nor a of 109 cartons of veterinary biologicals for delivery to
showing

of

respondents'

compliance

with

this consignee

SMITHKLINE

and

French

Overseas

requirement within the prescribed period. While Company in Makati City, Metro Manila. The shipment
respondents may have had a cause of action then, was covered by Burlington Airway Bill No. 11263825
they cannot now enforce it for their failure to comply with the words, REFRIGERATE WHEN NOT IN
with the aforesaid condition precedent.

TRANSIT and PERISHABLE stamp marked on its


face. That same day, Burlington insured the cargoes

DECISION

in the amount of $39,339.00 with American Home


Assurance

PANGANIBAN, J p:

Company

(AHAC).

The following

day,

Burlington turned over the custody of said cargoes to

Basic is the requirement that before suing to recover Federal Express which transported the same to
loss of or damage to transported goods, the plaintiff Manila. The first shipment, consisting of 92 cartons
must give the carrier notice of the loss or damage, arrived in Manila on January 29, 1994 in Flight No.
within

the

period

prescribed

by

the

Warsaw 0071-28NRT

Convention and/or the airway bill. HDTISa

and

was

immediately

stored

at

[Cargohaus Inc.s] warehouse. While the second,


consisting of 17 cartons, came in two (2) days later, or

The Case

on January 31, 1994, in Flight No. 0071-30NRT

Before us is a Petition for Review 1 under Rule 45 of which was likewise immediately stored at Cargohaus
the Rules of Court, challenging the June 4, 2001 warehouse. Prior to the arrival of the cargoes, Federal

informed
GETC
Cargo
International
Decision 2 and the September 21, 2001 Resolution 3 Express
of the Court of Appeals (CA) in CA-GR CV No. 58208. Corporation, the customs broker hired by the
The assailed Decision disposed as follows:

consignee to facilitate the release of its cargoes from

the Bureau of Customs, of the impending arrival of its


WHEREFORE, premises considered, the present clients cargoes. CDaSAE
appeal is hereby DISMISSED for lack of merit. The
appealed Decision of Branch 149 of the Regional Trial On February 10, 1994, DARIO C. DIONEDA

Court of Makati City in Civil Case No. 95-1219, (DIONEDA), twelve (12) days after the cargoes arrived
entitled American Home Assurance Co. and PHILAM in Manila, a non-licensed customs broker who was
EXPRESS assigned by GETC to facilitate the release of the
CORPORATION and/or CARGOHAUS, INC. (formerly subject cargoes, found out, while he was about to
U-WAREHOUSE, INC.), is hereby AFFIRMED and cause the release of the said cargoes, that the same
Insurance

Co.,

Inc.

v.

FEDERAL

REITERATED.

[were] stored only in a room with two (2) air

Costs against the [petitioner and Cargohaus, Inc.]. 4

refrigerator.

The assailed Resolution denied petitioners Motion for


Reconsideration.
The Facts

conditioners running, to cool the place instead of a


When

he

asked

an

employee

of

Cargohaus why the cargoes were stored in the cool


room only, the latter told him that the cartons where
the vaccines were contained specifically indicated
therein that it should not be subjected to hot or cold

temperature. Thereafter, DIONEDA, upon instructions


The antecedent facts are summarized by the appellate from GETC, did not proceed with the withdrawal of
court as follows:
the vaccines and instead, samples of the same were

Page 167 of 229


taken and brought to the Bureau of Animal Industry appellate court held that the shipping Receipts were a
of the Department of Agriculture in the Philippines by prima facie proof that the goods had indeed been
SMITHKLINE

for

examination

wherein

it

was delivered to the carrier in good condition. We quote

discovered that the ELISA reading of vaccinates sera from the ruling as follows:
are below the positive reference serum.

Where the plaintiff introduces evidence which shows

As a consequence of the foregoing result of the prima facie that the goods were delivered to the
veterinary biologics test, SMITHKLINE abandoned the carrier in good condition [i.e., the shipping receipts],
shipment and, declaring total loss for the unusable and that the carrier delivered the goods in a damaged
shipment, filed a claim with AHAC through its condition, a presumption is raised that the damage
representative

in

the

Philippines,

the

Philam occurred through the fault or negligence of the

Insurance Co., Inc. (PHILAM) which recompensed carrier, and this casts upon the carrier the burden of
SMITHKLINE for the whole insured amount of showing that the goods were not in good condition
THIRTY

NINE

THOUSAND

THREE

HUNDRED when delivered to the carrier, or that the damage was

THIRTY NINE DOLLARS ($39,339.00). Thereafter, occasioned by some cause excepting the carrier from
[respondents] filed an action for damages against the absolute

liability.

This

the

[petitioner]

failed

to

[petitioner] imputing negligence on either or both of discharge. . . . 6


them in the handling of the cargo.

Found devoid of merit was petitioners claim that

Trial ensued and ultimately concluded on March 18, respondents

had

no

personality

to

sue.

This

1997 with the [petitioner] being held solidarily liable argument was supposedly not raised in the Answer or
for the loss as follows:

during trial.

WHEREFORE, judgment is hereby rendered in favor Hence, this Petition. 7


of [respondents] and [petitioner and its Co-Defendant
Cargohaus] are directed to pay [respondents], jointly
and severally, the following:
1.

The Issues
In its Memorandum, petitioner raises the following

Actual damages in the amount of the peso

issues for our consideration: aHTCIc

equivalent of US$39,339.00 with interest from the I.


time of the filing of the complaint to the time the
Are the decision and resolution of the Honorable
same is fully paid.
2.
and
3.

Court of Appeals proper subject for review by the


Attorneys fees in the amount of P50,000.00 Honorable Court under Rule 45 of the 1997 Rules of
Civil Procedure?
Costs of suit.

II.

SO ORDERED.

Is the conclusion of the Honorable Court of Appeals

Aggrieved, [petitioner] appealed to [the CA]. 5

Test

Report

issued

by

claim

that

respondents

have

no

personality to sue because the payment was made by

Ruling of the Court of Appeals


The

petitioners

the respondents to Smithkline when the insured


the

United

States

Department of Agriculture (Animal and Plant Health

under the policy is Burlington Air Express is devoid of


merit correct or not?

Inspection Service) was found by the CA to be III.


inadmissible in evidence. Despite this ruling, the

Page 168 of 229


Is the conclusion of the Honorable Court of Appeals Pertinent to this issue is the Certificate of Insurance
that the goods were received in good condition, 10 (Certificate) that both opposing parties cite in
correct or not?

support of their respective positions. They differ only


in their interpretation of what their rights are under

IV.

its terms. The determination of those rights involves a

Are Exhibits F and G hearsay evidence, and question of law, not a question of fact. As
distinguished from a question of law which exists
therefore, not admissible?
when the doubt or difference arises as to what the

V.

law is on a certain state of facts there is a

Is the Honorable Court of Appeals correct in ignoring


and disregarding respondents own admission that
petitioner is not liable? and

question of fact when the doubt or difference arises


as to the truth or the falsehood of alleged facts; or
when the query necessarily invites calibration of the
whole evidence considering mainly the credibility of
witnesses,

VI.

existence

and

relevancy

of

specific

surrounding circumstance, their relation to each


Is the Honorable Court of Appeals correct in ignoring other and to the whole and the probabilities of the
the Warsaw Convention? 8
situation. 11
Simply stated, the issues are as follows: (1) Is the Proper Payee
Petition proper for review by the Supreme Court? (2)
Is Federal Express liable for damage to or loss of the The Certificate specifies that loss of or damage to the
insured goods?

insured cargo is payable to order . . . upon surrender

This Courts Ruling

collecting on any such damage or loss, as fully as if

of this Certificate. Such wording conveys the right of


the property were covered by a special policy in the

The Petition has merit.

name of the holder itself. At the back of the

Preliminary Issue:

Certificate appears the signature of the representative

Propriety of Review

indorsed in blank and is deemed a bearer instrument.

of Burlington. This document has thus been duly

The correctness of legal conclusions drawn by the Since the Certificate was in the possession of
Court of Appeals from undisputed facts is a question Smithkline, the latter had the right of collecting or of
of law cognizable by the Supreme Court. 9
being indemnified for loss of or damage to the insured
In the present case, the facts are undisputed. As will
be shown shortly, petitioner is questioning the
conclusions drawn from such facts. Hence, this case
is a proper subject for review by this Court. CScTDE
Main Issue:

shipment, as fully as if the property were covered by a


special policy in the name of the holder. Hence, being
the holder of the Certificate and having an insurable
interest in the goods, Smithkline was the proper
payee of the insurance proceeds.
Subrogation

Liability for Damages

Upon receipt of the insurance proceeds, the consignee

no (Smithkline) executed a subrogation Receipt 12 in


personality to sue thus, no cause of action against favor of respondents. The latter were thus authorized
it because the payment made to Smithkline was to file claims and begin suit against any such carrier,
vessel,
person,
corporation
or
government.
erroneous.
Petitioner

contends

that

respondents

have

Page 169 of 229


Undeniably, the consignee had a legal right to receive presented within (120) days from the date of issue of
the goods in the same condition it was delivered for the [Airway Bill]. 16
transport to petitioner. If that right was violated, the
consignee would have a cause of action against the
person responsible therefor. DcSEHT

Relevantly, petitioners airway bill states:


12./12.1

Upon payment to the consignee of an indemnity for

The person entitled to delivery must

make a complaint to the carrier in writing in the case:

the loss of or damage to the insured goods, the 12.1.1 of visible damage to the goods, immediately
insurers entitlement to subrogation pro tanto after discovery of the damage and at the latest within
being of the highest equity equips it with a cause of fourteen (14) days from receipt of the goods;
action in case of a contractual breach or negligence.

13 Further, the insurers subrogatory right to sue for 12.1.2 of other damage to the goods, within fourteen
recovery under the bill of lading in case of loss of or (14) days from the date of receipt of the goods;
damage to the cargo is jurisprudentially upheld. 14

12.1.3 delay, within twenty-one (21) days of the date

In the exercise of its subrogatory right, an insurer the goods are placed at his disposal; and
may proceed against an erring carrier. To all intents
and purposes, it stands

in the

place and in

substitution of the consignee. A fortiori, both the


insurer

and

the

consignee

are

bound

by

the

contractual stipulations under the bill of lading. 15


Prescription of Claim

12.1.4 of non-delivery of the goods, within one


hundred and twenty (120) days from the date of the
issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may
be made to the carrier whose air waybill was used, or
to the first carrier or to the last carrier or to the

From the initial proceedings in the trial court up to carrier who performed the transportation during
the present, petitioner has tirelessly pointed out that which the loss, damage or delay took place. 17
respondents claim and right of action are already
barred. The latter, and even the consignee, never filed
with the carrier any written notice or complaint

Article 26 of the Warsaw Convention, on the other


hand, provides:

regarding its claim for damage of or loss to the subject ART. 26.(1) Receipt by the person entitled to the
cargo within the period required by the Warsaw delivery of baggage or goods without complaint shall
Convention and/or in the airway bill. Indeed, this fact be prima facie evidence that the same have been
has never been denied by respondents and is plainly delivered in good condition and in accordance with
evident from the records.
the document of transportation. aECSHI

Airway Bill No. 11263825, issued by Burlington as (2)


In case of damage, the person entitled to
agent of petitioner, states:
delivery must complain to the carrier forthwith after
6.

No action shall be maintained in the case of

damage to or partial loss of the shipment unless a


written notice, sufficiently describing the goods
concerned, the approximate date of the damage or
loss, and the details of the claim, is presented by
shipper or consignee to an office of Burlington within

the discovery of the damage, and, at the latest, within


3 days from the date of receipt in the case of baggage
and 7 days from the date of receipt in the case of
goods. In case of delay the complaint must be made at
the latest within 14 days from the date on which the
baggage or goods have been placed at his disposal.

(14) days from the date the goods are placed at the (3)
Every complaint must be made in writing
disposal of the person entitled to delivery, or in the upon the document of transportation or by separate
case of total loss (including non-delivery) unless

Page 170 of 229


notice

in

writing

dispatched

within

the

times prescribed period. While respondents may have had a

aforesaid.
(4)

cause of action then, they cannot now enforce it for

Failing complaint within the times aforesaid,

no action shall lie against the carrier, save in the case


of fraud on his part. 18

their failure to comply with the aforesaid condition


precedent.
In view of the foregoing, we find no more necessity to
pass upon the other issues raised by petitioner.

Condition Precedent
In this jurisdiction, the filing of a claim with the
carrier within the time limitation therefor actually
constitutes a condition precedent to the accrual of a
right of action against a carrier for loss of or damage
to the goods. 19 The shipper or consignee must allege
and prove the fulfillment of the condition. If it fails to
do so, no right of action against the carrier can
accrue in favor of the former. The aforementioned

We note that respondents are not without recourse.


Cargohaus,

Inc.

petitioners

co-defendant

in

respondents Complaint below has been adjudged


by the trial court as liable for, inter alia, actual
damages in the amount of the peso equivalent of US
$39,339. 25 This judgment was affirmed by the
Court of Appeals and is already final and executory.
26

requirement is a reasonable condition precedent; it WHEREFORE, the Petition is GRANTED, and the
does not constitute a limitation of action. 20

assailed Decision REVERSED insofar as it pertains to

The requirement of giving notice of loss of or injury to


the

goods

is

not

an

empty

formalism.

The

Petitioner

Federal

Express

Corporation.

No

pronouncement as to costs.

fundamental reasons for such a stipulation are (1) to SO ORDERED. CEASaT


inform the carrier that the cargo has been damaged,
and that it is being charged with liability therefor; and

Corona and Carpio-Morales, JJ ., concur.

(2) to give it an opportunity to examine the nature Sandoval-Gutierrez, J ., is on leave.


and extent of the injury. This protects the carrier by
affording it an opportunity to make an investigation of
a

claim while

the

matter

is fresh

and

easily

investigated so as to safeguard itself from false and

BUMPED OFF PASSENGER; MISPLACED


AND LOST BAGGAGE

fraudulent claims. 21

29.

When an airway bill or any contract of carriage for

THIRD DIVISION

that matter has a stipulation that requires a notice

of claim for loss of or damage to goods shipped and [G.R. No. 60673. May 19, 1992.]
the stipulation is not complied with, its enforcement
AMERICAN
WORLD
AIRWAYS,
can be prevented and the liability cannot be imposed PAN

INC.,

on the carrier. To stress, notice is a condition petitioner, vs. JOSE K. RAPADAS and THE COURT
precedent, and the carrier is not liable if notice is not OF APPEALS, respondents.
given in accordance with the stipulation. 22 Failure to

comply with such a stipulation bars recovery for the Froilan P. Pobre for private respondent.
loss or damage suffered. 23

SYLLABUS

Being a condition precedent, the notice must precede


a suit for enforcement. 24 In the present case, there
is neither an allegation nor a showing of respondents
compliance

with

this

requirement

within

the

1.

COMMERCIAL

WARSAW

LAW;

CONVENTION;

COMMON

CARRIER;

INTERNATIONAL

CARRIAGE; DEFINED. The Warsaw Convention, as

Page 171 of 229


amended, specifically provides that it is applicable to Mr. Justice J.B.L. Reyes, Lawyer's Journal, January
international carriage which it defines in Article 1, 31, 1951, p. 49) And as held in Randolph v. American
par. 2 as follows: "(2) For the purposes of this Airlines, 103 Ohio App. 172, 144 N.E. 2d 878;
Convention, the expression 'international carriage' Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d
means any carriage in which, according to the 483, 'a contract limiting liability upon an agreed
agreement between the parties, the place of departure valuation does not offend against the policy of the law
and the place of destination, whether or not there be forbidding one from contracting against his own
a breach in the carriage or a transhipment, are negligence.' "Considering, therefore, that petitioner
situated either within the territories of two High had failed to declare a higher value for his baggage,
Contracting Parties or within the territory of a single he cannot be permitted a recovery in excess of
High Contracting Party if there is an agreed stopping P100.00 . . ." (91 SCRA 223 at page 231)" We hasten
place within the territory of another State, even if that to add that while contracts of adhesion are not
State is not a High Contracting Party.

Carriage entirely prohibited, neither is a blind reliance on them

between two points within the territory of a single encouraged. In the face of facts and circumstances
High Contracting Party without an agreed stopping showing they should be ignored because of their
place within the territory of another State is not basically one sided nature, the Court does not
international

carriage

for

the

purposes

of

this hesitate to rule out blind adherence to their terms.

Convention." ("High Contracting Party" refers to a (See Sweet Lines, Inc. v. Teves, 83 SCRA 361, 368-369
state which has ratified or adhered to the Convention, [1978])
or

which

has

not

effectively

denounced

the

Convention [Article 40A(1)]).


2.

3.

ID.; ID.; ID.; ID.; ID.; RECEIPT THEREOF BY

PASSENGER WILL BIND HIM FROM STIPULATIONS

ID.; ID.; ID.; ID.; PLANE TICKETS; BEING A THEREIN; CASE AT BAR. The arguments of the

CONTRACT OF ADHESION THOUGH NOT ENTIRELY petitioner do not belie the fact that it was indeed
PROHIBITED; BLIND RELIANCE THEREON, NOT accountable for the loss of the attach case.
ENCOURAGED.

The

Convention

governs

availment of the liability limitations

What

the the petitioner is concerned about is whether or not

where the the notice, which it did not fail to state in the plane

baggage check is combined with or incorporated in ticket and which it deemed to have been read and
the

passenger

ticket

which

complies

with

the accepted by the private respondent will be considered

provisions of Article 3, Par. 1 (c). (Article 4, Par. 2) In by this Court as adequate under the circumstances of
the case at bar, the baggage check is combined with this case.

As earlier stated, the Court finds the

the passenger ticket in one document of carriage. We provisions in the plane ticket sufficient to govern the
have held in the case of Ong Yiu v. Court of Appeals, limitations of liabilities of the airline for loss of
supra, and reiterated in a similar case where herein luggage.

The passenger, upon contracting with the

petitioner was also sued for damages, Pan American airline and receiving the plane ticket, was expected to
World Airways v. Intermediate Appellate Court (164 be vigilant insofar as his luggage is concerned. If the
SCRA 268 [1988]) that: "It (plane ticket) is what is passenger fails to adduce evidence to overcome the
known as a contract of 'adhesion', in regards which it stipulations, he cannot avoid the application of the
has been said that contracts of adhesion wherein one liability limitations.
party imposes a ready made form of contract on the
other, as the plane ticket in the case at bar, are
contracts not entirely prohibited.

The one who

adheres to the contract is in reality free to reject it


entirely;

if

he

adheres,

he

gives

his

consent.

(Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing

4.

ID.; ID.; ID.; ID.; ID.; STIPULATION ON

LIABILITY LIMITATION; APPLICATION. We are not


by any means suggesting that passengers are always
bound to the stipulated amounts printed on a ticket,
found in a contract of adhesion, or printed elsewhere

Page 172 of 229


but referred to in handouts or forms.

We simply question of whether or not private respondent should

recognize that the reasons behind stipulations on be paid attorney's fees, the Court sustains the finding
liability limitations arise from the difficulty, if not of the trial court and the respondent appellate court
impossibility,

of

establishing

with

clear that it is just and equitable for the private respondent

preponderance of evidence the contents of a lost to recover expenses for litigation in the amount of
valise or suitcase. Unless the contents are declared, P5,000.00.

Article 22(4) of the Warsaw Convention,

it will always be the word of a passenger against that as amended does not preclude an award of attorney's
of the airline. If the loss of life or property is caused fees. That provision states that the limits of liability
by the gross negligence or arbitrary acts of the airline prescribed in the instrument "shall not prevent the
or the contents of the lost luggage are proved by court from awarding, in accordance with its own law,
satisfactory evidence other than the self-serving in addition, the whole or part of the court costs and
declarations of one party, the Court will not hesitate other expenses of litigation incurred by the plaintiff."
to disregard the fine print in a contract of adhesion. We,

however,

raise

the

award

to

P10,000.00

(See Sweet Lines Inc. v. Teves, supra) Otherwise, we considering the resort to the Court of Appeals and
are constrained to rule that we have to enforce the this Court.
contract as it is the only reasonable basis to arrive at
a just award.
5.

7.

ID.; ID.; CANNOT BE HELD LIABLE IN THE

ABSENCE OF ARBITRARINESS, DISCRIMINATION

ID.; ID.; ID. ; ID.; LIABILITY ON LOST OR

MISTREATMENT

ON

THE

PART

OF

ITS

UNCHECKED LUGGAGE; RULE; CASE AT BAR. PERSONNEL. Passengers are also allowed one
The attach case was originally handcarried does not handcarried bag each provided it conforms to certain
beg the conclusion that the amount of $4,750.00 in prescribed dimensions.

If Mr. Rapadas was not

cash could have been placed inside. It may be noted allowed to handcarry the lost attach case, it can only
that out of a claim for US$42,403.90 as the amount mean that he was carrying more than the allowable
lost, the trial court found for only US$5,228.90 and weight for all his luggages or more than the allowable
100 paengs.
claim.

The court had doubts as to the total number of handcarried items or more than the

The lost luggage was declared as weighing prescribed dimensions for the bag or valise.

The

around 18 pounds or approximately 8 kilograms. At evidence on any arbitrary behavior of a Pan Am


$20.00 per kilogram, the petitioner offered to pay employee or inexcusable negligence on the part of the
$160.00 as a higher value was not declared in carrier is not clear from the petition. Absent such
advance and additional charges were not paid.

We proof, we cannot hold the carrier liable because of

note, however, that an amount of $400.00 per arbitrariness, discrimination, or mistreatment.


passenger is allowed for unchecked luggage.
the

checking-in

was

against

the

will

Since
of

the

DECISION

respondent, we treat the lost bag as partaking of GUTIERREZ, JR., J p:


involuntarily and hurriedly checked-in luggage and
continuing its earlier status as unchecked luggage. This is a petition for review assailing the decision of
The fair liability under the petitioner's own printed the respondent Court of Appeals which affirmed in
terms is $400.00. Since the trial court ruled out toto the trial court decision on the liability of
discriminatory acts or bad faith on the part of Pan petitioner Pan American World Airways for damages
Am or other reasons warranting damages, there is no due to private respondent. The trial court ruled that
factual basis for the grant of P20,000.00 damages.
6.
NOT

the petitioner can not avail of a limitation of liabilities

for lost baggages of a passenger. The dispositive


ID.; ID.; ID.; AWARD OF ATTORNEY'S FEES; portion of the trial court decision reads:
PRECLUDED THEREFROM. As to the

Page 173 of 229


"WHEREFORE,
considerations,

in

view

judgment

of
us

the

foregoing For several times, he called up Mr. Panuelos, the head

hereby

rendered of the Baggage Section of PAN AM. He also sent letters

ordering defendant to pay plaintiff by way of actual demanding and reminding the petitioner of his claim.
damages the equivalent peso value of the amount of
$5,228.90 and 100 paengs, nominal damages in the
amount

of

P20,000.00

and

attorney's

fees

of

P5,000.00, and the costs of the suit. Defendant's


counterclaim is dismissed." (Rollo, p. 13) LLpr

Rapadas received a letter from the petitioner's counsel


dated August 2, 1975 offering to settle the claim for
the sum of one hundred sixty dollars ($160.00)
representing the petitioner's alleged limit of liability
for loss or damage to a passenger's personal property

On January 16, 1975, private respondent Jose K. under the contract of carriage between Rapadas and
Rapadas held Passenger Ticket and Baggage Claim PAN AM. Refusing to accept this kind of settlement,
Check No. 026-394830084-5 for petitioner's Flight No. Rapadas filed the instant action for damages on
841 with the route from Guam to Manila. While October 1, 1975. Rapadas alleged that PAN AM
standing in line to board the flight at the Guam discriminated or singled him out in ordering that his
airport,

Rapadas

was

ordered

by

petitioner's luggage be checked in. He also alleged that PAN AM

handcarry control agent to check-in his Samsonite neglected its duty in the handling and safekeeping of
attach case. Rapadas protested pointing to the fact his attach case from the point of embarkation in
that other co-passengers were permitted to handcarry Guam to his destination in Manila. He placed the
bulkier baggages. He stepped out of the line only to go value of the lost attach case and its contents at
back again at the end of it to try if he can get through US$42,403.90. According to him, the loss resulted in
without having to register his attach case. However, his failure to pay certain monetary obligations, failure
the same man in charge of handcarry control did not to remit money sent through him to relatives, inability
fail to notice him and ordered him again to register to enjoy the fruits of his retirement and vacation pay
his baggage. For fear that he would miss the plane if earned from working in Tonga Construction Company
he insisted and argued on personally taking the valise (he retired in August 1974) and inability to return to
with him, he acceded to checking it in. He then gave Tonga to comply with then existing contracts.
his attach case to his brother who happened to be
around and who checked it in for him, but without
declaring its contents or the value of its contents. He
was given a Baggage Claim Tag No. P-749-713.
(Exhibit "B" for the plaintiff-respondent)

In

its

answer,

petitioner-defendant

PAN

AM

acknowledged responsibility for the loss of the attach


case but asserted that the claim was subject to the
"Notice of Baggage Liability Limitations" allegedly
attached to and forming part of the passenger ticket.

Upon arriving in Manila on the same date, January The petitioner argued that the same notice was also
16, 1975, Rapadas claimed and was given all his conspicuously posted in its offices for the guidance of
checked-in baggages except the attach case. Since the passengers.
Rapadas felt ill on his arrival, he sent his son, Jorge
Rapadas to request for the search of the missing
luggage. The petitioner exerted efforts to locate the
luggage through the Pan American World AirwaysManila International Airport (PAN AM-MIA) Baggage
Service.

At the trial, private respondent showed proof of his


retirement award and vacation pay amounting to
$4,750.00. He claimed that the attach case also
contained other money consisting of $1,400 allegedly
given to him by his son, Jaime, as a round trip fare of
his (plaintiff-respondent) wife, but which amount was

On January 30, 1975, the petitioner required the later found to be actually intended by Jaime as
private respondent to put the request in writing. The payment for arrears of a lot purchased from Tropical
respondent filled in a Baggage Claim Blank Form. Homes, Inc.; $3,000 allegedly given by his brothers
Thereafter, Rapadas personally followed up his claim. for

payment

of

taxes

and

for

constructing

Page 174 of 229


improvements on the Rapadas estates; and $300.00 The petitioner maintains that its liability for the lost
birthday present of the spouses Mr. and Mrs. Ruben baggage of respondent Rapadas was limited to
Canonizado to plaintiff-respondent's wife. He also $160.00 since the latter did not declare a higher value
claimed having kept several items in the attach case, for his baggage and did not pay the corresponding
namely (1) contracts and records of employment, additional charges.
letters of commendation, testimonials and newspaper
clippings on his achievement for 13 years in Tonga,
New Zealand and Australia, drafts of manuscripts,
photographs and driver's license alleged to be worth
$20,000.00; a Polaroid camera, films, calculator, and

The private respondent, on the other hand, insists


that he is entitled to as much damages as those
awarded by the court and affirmed by the respondent
appellate court.

other personal items worth $403.90; memorabilia, After a review of the various arguments of the
autographs personally acquired from Charles opposing parties as well as the records of the case,
Lindberg,
Lawrence
Rockefeller
and
Ryoichi the Court finds sufficient basis under the particular
Sasakawa, a commemorative palladium coin worth facts of this case for the availment of the liability
Tongan 100 paengs and unused Tongan stamps, all limitations under the Warsaw Convention.
totalling $7,500.00; and a plan worth $5,000.00

drawn by his son Jaime, who is an architect, for the There is no dispute, and the courts below admit, that
construction of a residential house and a 6-story there was such a Notice appearing on page two (2) of
commercial building. Rapadas claimed the amount of the airline ticket stating that the Warsaw Convention
the attach case itself to be $25.50. (See Decision in governs in case of death or injury to a passenger or of
Civil Case No. 99564 in Amended Record on Appeal, loss, damage or destruction to a passenger's luggage.
pp. 61-85).

The Notice states:

The lower court ruled in favor of complainant


Rapadas after finding no stipulation giving notice to
the baggage liability limitation. The court rejected the
claim of defendant PAN AM that its liability under the
terms of the passenger ticket is only up to $160.00.
However, it scrutinized all the claims of the plaintiff.
It

discredited

insufficient

evidence

to

show

discriminatory acts or bad faith on the part of


petitioner PANAM. LibLex

"If the passenger's journey involves an ultimate


destination or stop in a country other than the
country of departure the Warsaw Convention may be
applicable and the Convention governs and in most
cases limits the liability of carriers for death or
personal injury and in respect of loss of or damage to
baggage.

See

also

notice

headed

"Advice

to

International Passengers on Limitation of Liability."


(The latter notice refers to limited liability for death or

On appeal, the Court of Appeals affirmed the trial personal injury to passengers with proven damages
not exceeding US $75,000 per passenger; Exhibit "K"
court decision. Hence, this petition.
The main issue raised in the case at bar is whether or

for plaintiff respondent, Table of Exhibits, p. 19)

not a passenger is bound by the terms of a passenger Furthermore, paragraph 2 of the "Conditions of
ticket declaring that the limitations of liability set Contracts" also appearing on page 2 of the ticket
forth in the Warsaw Convention (October 12, 1929; states: LLjur
137

League

of

Nations

Treaty

Series

II;

See

Proclamation No. 201 [1955], 51 O.G. 4933 [October,


1955]) as amended by the Hague Protocol (September
28, 1955; 478 UNTS 373; III PTS 515), shall apply in
case of loss, damage or destruction to a registered
luggage of a passenger.

"2.

Carriage hereunder is subject to the rules and

limitations relating to liability established by the


Warsaw Convention unless such carriage is not
'international

carriage'

as

Convention." (Exhibit "K", supra)

defined

by

that

Page 175 of 229


We note that plaintiff-respondent Rapadas presented may be obtained from the carrier." (Table of Exhibits,
as proof of the Passenger Ticket and Baggage Check. p. 45)
No. 026-394830084-5 a xerox copy of its page 2
which contains the Notice and Conditions of Contract,
and

also

page

which

recites

the

Advice

to

International Passengers on Limitation of Liability. He


also presented two xerox copies of Flight Coupon No.
3 of the same passenger ticket showing the fares paid
for the trips Honolulu to Guam, Guam to Manila, and
Manila to Honolulu to prove his obligations which
remained unpaid because of the unexpected loss of

The original of the Passenger Ticket and Baggage


Check No. 026-394830084-5 itself was not presented
as evidence as it was among those returned to Mr.
Faupula. Thus, apart from the evidence offered by the
defendant airline, the lower court had no other basis
for determining whether or not there was actually a
stipulation on the specific amounts the petitioner had
expressed itself to be liable for loss of baggage.

money allegedly placed inside the missing attach Although the trial court rejected the evidence of the
case. Rapadas explained during the trial that the defendant-petitioner of a stipulation particularly
same passenger ticket was returned by him to one Mr. specifying what amounts it had bound itself to pay for
S. L. Faupula of the Union Steam Ship Company of loss of luggage, the Notice and paragraph 2 of the
New Zealand, Ltd., Tonga who demanded the payment "Conditions of Contract" should be sufficient notice
of the fares or otherwise, the return of the unused showing the applicability of the Warsaw limitations.
plane tickets (including the subject Passenger Ticket

The The Warsaw Convention, as amended, specifically


issuance of these tickets was facilitated by Mr. provides that it is applicable to international carriage
which it defines in Article 1, par. 2 as follows:
Faupula on credit.
&

Baggage

Check

No.

026-394830084-5).

For the purposes of this Convention, the


Meanwhile, the petitioner offered as evidence Exhibit "(2)
"1" also showing page 2 of the passenger ticket to expression 'international carriage' means any carriage
prove the notice and the conditions of the contract of in which, according to the agreement between the
carriage. It likewise offered Exhibit "1-A", a xerox copy parties, the place of departure and the place of
of a "Notice of Baggage Liability Limitations" which destination, whether or not there be a breach in the
the trial court disregarded and held to be non- carriage or a transshipment, are situated either
existent. The same Exhibit "1-A" contained the within the territories of two High Contracting Parties
or within the territory of a single High Contracting
following stipulations:
Party if there is an agreed stopping place within the
"NOTICE OF BAGGAGE LIABILITY LIMITATIONS territory of another State, even if that State is not a
Liability for loss, delay, or damage to baggage is High Contracting Party. Carriage between two points
limited as follows unless a higher value is declared in within the territory of a single High Contracting Party
advance and additional charges are paid: (1) for most without an agreed stopping place within the territory

international travel (including domestic portions of of another State is not international carriage for the
international journeys) to approximately $8.16 per purposes of this Convention." ("High Contracting
pound ($18.00 per kilo; now $20.00 per Exhibit "13") Party" refers to a state which has ratified or adhered
for checked baggage and $360 (now $400 per Exhibit to the Convention, or which has not effectively
"13") per passenger for unchecked baggage; (2) for denounced the Convention [Article 40A (1)])
travel wholly between U.S. points, to $500 per

passenger on most carriers (a few have lower limits). Nowhere in the Warsaw Convention, as amended, is
Excess valuation may not be declared on certain such a detailed notice of baggage liability limitations
types of valuable articles. Carriers assume no liability required. Nevertheless, it should become a common,
for fragile or perishable articles. Further information safe and practical custom among air carriers to

Page 176 of 229


indicate beforehand the precise sums equivalent to offend against the policy of the law forbidding one
those fixed by Article 22 (2) of the Convention. cdll

from contracting against his own negligence.'

The Convention governs the availment of the liability "Considering, therefore, that petitioner had failed to
limitations where the baggage check is combined with declare a higher value for his baggage, he cannot be
or

incorporated

in

the

passenger

ticket

which permitted a recovery in excess of P100.00 . . ." (91

complies with the provisions of Article 3, par. 1(c). SCRA 223 at page 231)"
(Article 4, par. 2) In the case at bar, the baggage
check is combined with the passenger ticket in one
document of carriage. The passenger ticket complies
with Article 3, par. 1(c) which provides:
"(1)

We hasten to add that while contracts of adhesion are


not entirely prohibited, neither is a blind reliance on
them

encouraged.

circumstances

In

showing

the
they

face

of

should

facts
be

and

ignored

In respect of the carriage of passengers a because of their basically one sided nature, the Court

ticket shall be delivered containing:


(a)

...

(b)

...

does not hesitate to rule out blind adherence to their


terms. (See Sweet Lines, Inc. v. Teves, 83 SCRA 361,
368-369 [1978])
The arguments of the petitioner do not belie the fact

a notice to the effect that, if the passenger's that it was indeed accountable for the loss of the
journey involves an ultimate destination or stop in a attach case. What the petitioner is concerned about
(c)

country other than the country of departure, the is whether or not the notice, which it did not fail to
Warsaw Convention may be applicable and that the state in the plane ticket and which it deemed to have

Convention governs and in most cases limits the been read and accepted by the private respondent will
liability of carriers for death or personal injury and in be considered by this Court as adequate under the
respect of loss of or damage to baggage."

circumstances of this case. As earlier stated, the


Court finds the provisions in the plane ticket

We have held in the case of Ong Yiu v. Court of sufficient to govern the limitations of liabilities of the
Appeals, supra, and reiterated in a similar case where airline for loss of luggage. The passenger, upon
herein petitioner was also sued for damages, Pan contracting with the airline and receiving the plane
American World Airways v. Intermediate Appellate ticket, was expected to be vigilant insofar as his
Court (164 SCRA 268 [1988]) that:
"It (plane ticket) is what is known as a contract of
'adhesion', in regards which it has been said that

luggage is concerned. If the passenger fails to adduce


evidence to overcome the stipulations, he cannot
avoid the application of the liability limitations.

contracts of adhesion wherein one party imposes a The facts show that the private respondent actually
ready made form of contract on the other, as the refused to register the attach case and chose to take
plane ticket in the case at bar, are contracts not it with him despite having been ordered by the PAN
entirely prohibited. The one who adheres to the AM agent to check it in. In attempting to avoid
contract is in reality free to reject it entirely; if he registering the luggage by going back to the line,
adheres, he gives his consent. (Tolentino, Civil Code, private respondent manifested a disregard of airline
Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. rules on allowable handcarried baggages. Prudence of
Reyes, Lawyer's Journal, January 31, 1951, p. 49) a reasonably careful person also dictates that cash
And as held in Randolph v. American Airlines, 103 and jewelry should be removed from checked-inOhio App. 172, 144 N.E. 2d 878; Rosenchein v. Trans luggage and placed in one's pockets or in a
World Airlines, Inc., 349 S.W. 2d 483, 'a contract handcarried Manila-paper or plastic envelope.
limiting liability upon an agreed valuation does not

Page 177 of 229


The alleged lack of enough time for him to make a contract as it is the only reasonable basis to arrive at
declaration of a higher value and to pay the a just award.
corresponding supplementary charges cannot justify
his failure to comply with the requirement that will
exclude the application of limited liability. Had he not

We note that the finding on the amount lost is more of


a probability than a proved conclusion.

wavered in his decision to register his luggage, he The trial court stated:
could have had enough time to disclose the true
xxx
worth of the articles in it and to pay the extra charges xxx
or

remove

them

from

the

checked-in-luggage.

Moreover, an airplane will not depart meantime that


its own employee is asking a passenger to comply with
a safety regulation. llcd

xxx

"We come now to the actual loss of $4,750.00 which


the plaintiff claims was the amount of his retirement
award and vacation pay. According to the plaintiff,
this was in cash of $100 denominations and was

Passengers are also allowed one handcarried bag each placed in an envelope separate from the other money
provided
it
conforms
to
certain
prescribed he was carrying. Plaintiff presented the memorandum
dimensions. If Mr. Rapadas was not allowed to award, Exhibit T-1 and the vouchers of payment,
handcarry the lost attach case, it can only mean Exhibits T-2 and T-3. Under the circumstances,
that he was carrying more than the allowable weight recited by the plaintiff in which the loss occurred, the
for all his luggages or more than the allowable Court believes that plaintiff could really have placed
number of handcarried items or more than the this amount in the attach case considering that he
prescribed dimensions for the bag or valise. The was originally handcarrying said attach case and the
evidence on any arbitrary behavior of a Pan Am same was locked, and he did not expect that he would
employee or inexcusable negligence on the part of the be required to check it in. . . . " (Amended Record on
carrier is not clear from the petition. Absent such Appeal, p. 75; Emphasis ours).
proof, we cannot hold the carrier liable because of
arbitrariness, discrimination, or mistreatment.

The above conclusion of the trial court does not arise


from the facts. That the attach case was originally

We are not by any means suggesting that passengers handcarried does not beg the conclusion that the
are always bound to the stipulated amounts printed amount of $4,750.00 in cash could have been placed
on a ticket, found in a contract of adhesion, or printed inside. It may be noted that out of a claim for
elsewhere but referred to in handouts or forms. We US$42,403.90 as the amount lost, the trial court
simply recognize that the reasons behind stipulations found for only US$5,228.90 and 100 paengs. The
on liability limitations arise from the difficulty, if not court had doubts as to the total claim.
impossibility,

of

establishing

with

clear

preponderance of evidence the contents of a lost


valise or suitcase. Unless the contents are declared, it
will always be the word of a passenger against that of
the airline. If the loss of life or property is caused by
the gross negligence or arbitrary acts of the airline or
the contents of the lost luggage are proved by
satisfactory evidence other than the self-serving
declarations of one party, the Court will not hesitate
to disregard the fine print in a contract of adhesion.
(See Sweet Lines Inc. v. Teves, supra) Otherwise, we
are constrained to rule that we have to enforce the

The lost luggage was declared as weighing around 18


pounds or approximately 8 kilograms. At $20.00 per
kilogram, the petitioner offered to pay $160.00 as a
higher value was not declared in advance and
additional charges were not paid. We note, however,
that an amount of $400.00 per passenger is allowed
for unchecked luggage. Since the checking-in was
against the will of the respondent, we treat the lost
bag as partaking of involuntarily and hurriedly
checked-in luggage and continuing its earlier status
as unchecked luggage. The fair liability under the
petitioner's own printed terms is $400.00. Since the

Page 178 of 229


trial court ruled out discriminatory acts or bad faith Tanjuatco, Oreta, Tanjuatco, Berenger & Corpus
on the part of Pan Am or other reasons warranting for private respondent.
damages, there is no factual basis for the grant of
P20,000.00 damages.

SYLLABUS

CIVIL LAW; CONTRACT OF CARRIAGE;


As to the question of whether or not private 1.
respondent should be paid attorney's fees, the Court BREACH THEREOF; PETITIONER BREACHED ITS

OF
CARRIAGE
WITH
PRIVATE
sustains the finding of the trial court and the CONTRACT
respondent appellate court that it is just and RESPONDENT WHEN IT FAILED TO DELIVER HIS

equitable for the private respondent to recover LUGGAGE AT THE DESIGNATED PLACE AND TIME.
expenses for litigation in the amount of P5,000.00. Petitioner breached its contract of carriage with
Article 22 (4) of the Warsaw Convention, as amended private respondent when it failed to deliver his
does not precluded an award of attorney's fees. That luggage at the designated place and time, it being the

provision states that the limits of liability prescribed obligation of a common carrier to carry its passengers
in the instrument "shall not prevent the court from and their luggage safely to their destination, which

awarding, in accordance with its own law, in addition, includes the duty not to delay their transportation,
the whole or part of the court costs and other and the evidence shows that petitioner acted
expenses of litigation incurred by the plaintiff." We, fraudulently or in bad faith.
however, raise the award to P10,000.00 considering
the resort to the Court of Appeals and this Court.

2.

DAMAGES;

DAMAGES

MORAL

PREDICATED

AND

UPON

EXEMPLARY
BREACH

OF

WHEREFORE, the petition is hereby GRANTED and CONTRACT OF CARRIAGE; RECOVERABLE ONLY IN
the decision of the respondent Court of Appeals is INSTANCES WHERE THE MISHAP RESULTS IN
REVERSED and SET ASIDE. The petitioner is ordered DEATH OF A PASSENGER, OR WHERE THE
to pay the private respondent damages in the amount CARRIER IS GUILTY OF FRAUD OR BAD FAITH; THE

of US$400.00 or its equivalent in Philippine Currency CONDUCT OF PETITIONER'S REPRESENTATIVE


at the time of actual payment, P10,000.00 in TOWARDS RESPONDENT JUSTIFIES THE GRANT OF
attorney's fees, and costs of the suit.

MORAL AND EXEMPLARY DAMAGES IN CASE AT

SO ORDERED.

contract of carriage may only be recoverable in

BAR. Moral damages predicated upon a breach of

Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

instances where the mishap results in death of a


passenger, or where the carrier is guilty of fraud or

FIRST DIVISION

bad faith. The language and conduct of petitioner's

30.

discourteous or arbitrary to justify the grant of moral

representative towards respondent Alcantara was


damages. The CATHAY representative was not only

[G.R. No. 60501. March 5, 1993.]

indifferent and impatient; he was also rude and

CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs.


COURT OF APPEALS and TOMAS L. ALCANTARA,
respondents.

insulting.

He

simply

advised

Alcantara

to

buy

anything he wanted. But even that was not sincere


because the representative knew that the passenger
was limited only to $20.00 which, certainly, was not

and enough to purchase comfortable clothings appropriate


for an executive conference. Considering that
Tomacruz, Manguiat & Associates for petitioner.
Alcantara was not only a revenue passenger but even
Siguion-Reyna,

Montecillo

&

Ongsiako

paid for a first class airline accommodation and


accompanied at the time by the Commercial Attach

Page 179 of 229


of the Philippine Embassy who was assisting him in limitations. However, it must not be construed to
his problem, petitioner or its agents should have been preclude the operation of the Civil Code and other
more

courteous

and

accommodating

to

private pertinent laws. It does not regulate, much less

respondent, instead of giving him a curt reply, "What exempt, the carrier from liability for damages for
can we do, the baggage is missing. I cannot do violating the rights of its passengers under the
anything . . . Anyhow, you can buy anything you contract of carriage, especially if wilfull misconduct
need, charged to Cathay Pacific." Where in breaching on the part of the carrier's employees is found or
the contract of carriage the defendant airline is not established, which is clearly the case before Us.
shown to have acted fraudulently or in bad faith,
liability for damages is limited to the natural and

DECISION

probable consequences of the breach of obligation BELLOSILLO, J p:


which the parties had foreseen or could have
reasonably foreseen. In that case, such liability does This is a petition for review on certiorari of the
damages. decision of the Court of Appeals which affirmed with
Conversely, if the defendant airline is shown to have modification that of the trial court by increasing the
acted fraudulently or in bad faith, the award of moral award of damages in favor of private respondent
not

include

moral

and

exemplary

Tomas L. Alcantara.

and exemplary damages is proper.


3.
ONLY

TEMPERATE
UPON

DAMAGES;

PROOF

THAT

RECOVERABLE The facts are undisputed: On 19 October 1975,


THE CLAIMANT respondent Tomas L. Alcantara was a first class

SUSTAINED SOME PECUNIARY LOSS. However, passenger of petitioner Cathay Pacific Airways, Ltd.
respondent Alcantara is not entitled to temperate (CATHAY for brevity) on its Flight No. CX-900 from
damages, contrary to the ruling of the court a quo, in Manila to Hongkong and onward from Hongkong to
the absence of any showing that he sustained some Jakarta on Flight No. CX-711. The purpose of his trip
that was to attend the following day, 20 October 1975, a
respondent's luggage was ultimately delivered to him conference with the Director General of Trade of
Indonesia, Alcantara being the Executive Vicewithout serious or appreciable damage.
President and General Manager of Iligan Cement
4.
WARSAW
CONVENTION;
DOES
NOT Corporation, Chairman of the Export Committee of
pecuniary

loss.

It

cannot

be

gainsaid

OPERATE AS AN EXCLUSIVE ENUMERATION OF the


Philippine
Cement
Corporation,
and
THE INSTANCES FOR DECLARING A CARRIER representative of the Cement Industry Authority and
LIABLE FOR BREACH OF CONTRACT OF CARRIAGE the Philippine Cement Corporation. He checked in his

OR AS AN ABSOLUTE LIMIT OF THE EXTENT OF luggage which contained not only his clothing and
THAT LIABILITY; DOES NOT PRECLUDE THE articles for personal use but also papers and
OPERATION OF THE CIVIL CODE AND OTHER documents he needed for the conference.
PERTINENT LAWS. As We have repeatedly held,

although the Warsaw Convention has the force and Upon his arrival in Jakarta, respondent discovered
effect of law in this country, being a treaty that his luggage was missing. When he inquired
commitment assumed by the Philippine government, about his luggage from CATHAY's representative in
said convention does not operate as an exclusive Jakarta, private respondent was told that his luggage
enumeration of the instances for declaring a carrier was left behind in Hongkong. For this, respondent
liable for breach of contract of carriage or as an Alcantara was offered $20.00 as "inconvenience
absolute limit of the extent of that liability. The money" to buy his immediate personal needs until the
Warsaw Convention declares the carrier liable for luggage could be delivered to him.
damages in the enumerated cases and under certain

Page 180 of 229


His luggage finally reached Jakarta more than twenty On its first assigned error, CATHAY argues that
four (24) hours after his arrival. However, it was not although it failed to transport respondent Alcantara's
delivered to him at his hotel but was required by luggage on time, the one-day delay was not made in
petitioner to be picked up by an official of the bad faith so as to justify moral, exemplary and
Philippine Embassy.

temperate damages. It submits that the conclusion of

On 1 March 1976, respondent filed his complaint


against petitioner with the Court of First Instance
(now Regional Trial Court) of Lanao del Norte praying
for temperate, moral and exemplary damages, plus
attorney's fees.
On 18 April 1976, the trial court rendered its decision
ordering CATHAY to pay Plaintiff P20,000.00 for
moral damages, P5,000.00 for temperate damages,
P10,000.00 for exemplary damages, and P25,000.00
for attorney's fees, and the costs. 1

respondent appellate court that private respondent


was treated rudely and arrogantly when he sought
assistance from CATHAY's employees has no factual
basis, hence, the award of moral damages has no leg
to stand on.
Petitioner's first assigned error involves findings of
fact which are not reviewable by this Court. 2 At any
rate, it is not impressed with merit. Petitioner
breached

its

contract

of

carriage

with

private

respondent when it failed to deliver his luggage at the


designated place and time, it being the obligation of a

Both parties appealed to the Court of Appeals. common carrier to carry its passengers and their
CATHAY assailed the conclusion of the trial court luggage safely to their destination, which includes the

3 and the
that it was accountable for breach of contract and duty not to delay their transportation,
questioned the non-application by the court of the evidence shows that petitioner acted fraudulently or
Warsaw Convention as well as the excessive damages in bad faith.
awarded on the basis of its finding that respondent
Alcantara

was

rudely

treated

by

petitioner's

employees during the time that his luggage could not


be found. For his part, respondent Alcantara assigned
as error the failure of the trial court to grant the full
amount of damages sought in his complaint.

rendered its decision affirming the findings of fact of


the trial court but modifying its award by increasing
moral

damages

to

P80,000.00,

of carriage may only be recoverable in instances


where the mishap results in death of a passenger, 4
or where the carrier is guilty of fraud or bad faith. 5
In the case at bar, both the trial court and the

On 11 November 1981, respondent Court of Appeals

the

Moral damages predicated upon a breach of contract

exemplary

damages to P20,000.00 and temperate or moderate


damages to P10,000.00. The award of P25,000.00 for
attorney's fees was maintained.

appellate court found that CATHAY was grossly


negligent and reckless when it failed to deliver the
luggage of petitioner at the appointed place and time.
We agree. CATHAY alleges that as a result of
mechanical trouble, all pieces of luggage on board the
first aircraft bound for Jakarta were unloaded and
transferred to the second aircraft which departed an
hour and a half later. Yet, as the Court of Appeals

The same grounds raised by petitioner in the Court of noted, petitioner was not even aware that it left
Appeals are reiterated before Us. CATHAY contends behind private respondent's luggage until its attention
that: (1) the Court of Appeals erred in holding was called by the Hongkong Customs authorities.
petitioner liable to respondent Alcantara for moral, More, bad faith or otherwise improper conduct may
as be attributed to the employees of petitioner. While the
attorney's fees; and, (2) the Court of Appeals erred in mere failure of CATHAY to deliver respondent's
failing to apply the Warsaw Convention on the liability luggage at the agreed place and time did not ipso
exemplary

and

temperate

of a carrier to its passengers.

damages

as

well

facto amount to willful misconduct since the luggage


was eventually delivered to private respondent, albeit

Page 181 of 229


belatedly, 6 We are persuaded that the employees of CATHAY representative was not only indifferent and
CATHAY acted in bad faith. We refer to the deposition impatient; he was also rude and insulting. He simply
of

Romulo

Philippine
respondent

Palma,
Embassy

Commercial
at

Alcantara

Jakarta,
when

the

Attach
who

of

was

latter

the advised Alcantara to buy anything he wanted. But


with even that was not sincere because the representative

sought knew that the passenger was limited only to $20.00

assistance from the employees of CATHAY. This which,

certainly,

was

not

enough

to

purchase

deposition was the basis of the findings of the lower comfortable clothings appropriate for an executive
courts when both awarded moral damages to private conference. Considering that Alcantara was not only a
respondent. Hereunder is part of Palma's testimony revenue passenger but even paid for a first class
"Q:

What did Mr. Alcantara say, if any?

airline accommodation and accompanied at the time


by the Commercial Attach of the Philippine Embassy

Mr. Alcantara was of course . . . . I could who was assisting him in his problem, petitioner or
understand his position. He was furious for the its agents should have been more courteous and
A.

experience because probably he was thinking he was accommodating to private respondent, instead of
going to meet the Director-General the following day giving him a curt reply, "What can we do, the baggage
and, well, he was with no change of proper clothes is missing. I cannot do anything . . . Anyhow, you can
and so, I would say, he was not happy about the buy anything you need, charged to Cathay Pacific."
situation.

CATHAY's

Q:

What did Mr. Alcantara say?

anxieties and apprehensions. To compound matters,

A:

He was trying to press the fellow to make the

report and if possible make the delivery of his baggage


as soon as possible.

employees

should

have

been

more

solicitous to a passenger in distress and assuaged his


CATHAY refused to have the luggage of Alcantara
delivered to him at his hotel; instead, he was required
to pick it up himself and an official of the Philippine
Embassy. Under the circumstances, it is evident that

any?

And what did the agent or duty officer say, if petitioner was remiss in its duty to provide proper
and adequate assistance to a paying passenger, more

A:

The duty officer, of course, answered back

Q:

so one with first class accommodation.

saying 'What can we do, the baggage is missing. I Where in breaching the contract of carriage the
cannot do anything.' something like it. 'Anyhow you defendant airline is not shown to have acted
can buy anything you need, charged to Cathay fraudulently or in bad faith, liability for damages is
limited to the natural and probable consequences of
Pacific.'

the breach of obligation which the parties had


What was the demeanor or comportment of foreseen or could have reasonably foreseen. In that
the duty officer of Cathay Pacific when he said to Mr. case, such liability does not include moral and
Alcantara 'You can buy anything chargeable to Cathay exemplary damages. 8 Conversely, if the defendant
Q:

Pacific'?
A:

If I had to look at it objectively, the duty officer

would like to dismiss the affair as soon as possible by


saying indifferently 'Don't worry. It can be found.'" 7
Indeed, the aforequoted testimony shows that the
language and conduct of petitioner's representative
towards respondent Alcantara was discourteous or
arbitrary to justify the grant of moral damages. The

airline is shown to have acted fraudulently or in bad


faith, the award of moral and exemplary damages is
proper.
However, respondent Alcantara is not entitled to
temperate damages, contrary to the ruling of the
court a quo, in the absence of any showing that he
sustained some pecuniary loss. 9 It cannot be
gainsaid that respondent's luggage was ultimately

Page 182 of 229


delivered to him without serious or appreciable the fear of losing the opportunity to fulfill the purpose
damage.

of his trip. In fact, for want of appropriate clothings

As regards its second assigned error, petitioner airline


contends that the extent of its liability for breach of
contract should be limited absolutely to that set forth
in the Warsaw Convention. We do not agree. As We
have

repeatedly

held,

although

the

Warsaw

for the occasion brought about by the delay of the


arrival of his luggage, to his embarrassment and
consternation respondent Alcantara had to seek
postponement of his pre-arranged conference with the
Director General of Trade of the host country.

Convention has the force and effect of law in this In one case, 13 this Court observed that a traveller
country, being a treaty commitment assumed by the would naturally suffer mental anguish, anxiety and
Philippine government, said convention does not shock when he finds that his luggage did not travel
operate as an exclusive enumeration of the instances with him and he finds himself in a foreign land
for declaring a carrier liable for breach of contract of without any article of clothing other than what he has
carriage or as an absolute limit of the extent of that on.
liability. 10 The Warsaw Convention declares the
carrier liable for damages in the enumerated cases
and under certain limitations. 11 However, it must
not be construed to preclude the operation of the Civil
Code and other pertinent laws. It does not regulate,
much less exempt, the carrier from liability for
damages for violating the rights of its passengers
under the contract of carriage, 12 especially if wilfull
misconduct on the part of the carrier's employees is
found or established, which is clearly the case before
Us. For, the Warsaw Convention itself provides in Art.
25 that
"(1)

damages. We however find the award by the Court of


Appeals of P80,000.00 for moral damages excessive,
hence, We reduce the amount to P30,000.00. The
exemplary damages of P20,000.00 being reasonable is
maintained,

as

well

as

P25,000.00

considering

the
that

attorney's

fees

of

petitioner's

act

or

omission has compelled Alcantara to litigate with


third persons or to incur expenses to protect his
interest. 14
WHEREFORE, the assailed decision of respondent

The carrier shall not be entitled to avail

himself of the provisions of this convention which


exclude or limit his liability, if the damage is caused
by his wilfull misconduct or by such default on his
part as, in accordance with the law of the court to
which the case is submitted, is considered to be
equivalent to wilfull misconduct."
(2)

Thus, respondent is entitled to moral and exemplary

Court of Appeals is AFFIRMED with the exception of


the award of temperate damages of P10,000.00 which
is deleted, while the award of moral damages of
P80,000.00 is reduced to P30,000.00. The award of
P20,000.00 for exemplary damages is maintained as
reasonable

together

with

the

attorney's

fees of

P25,000.00. The moral and exemplary damages shall


earn interest at the legal rate from 1 March 1976

Similarly the carrier shall not be entitled to when the complaint was filed until full payment.

avail himself of the said provisions, if the damage is


caused under the same circumstances by any agent

SO ORDERED.

of the carrier acting within the scope of his Cruz, Grio-Aquino and Quiason, JJ ., concur.
employment."
When

petitioner

airline

misplaced

respondent's

31.

luggage and failed to deliver it to its passenger at the THIRD DIVISION


appointed place and time, some special species of
injury must have been caused to him. For sure, the [G.R. No. 83612. November 24, 1994.]
latter underwent profound distress and anxiety, and

Page 183 of 229


INTERNATIONAL
LAW;
LUFTHANSA GERMAN AIRLINES, petitioner, vs. 2.
COURT OF APPEALS and TIRSO V. ANTIPORDA, CONVENTION ON CONTRACT OF

WARSAW
CARRIAGE;

SR., respondents.

APPLICABLE ONLY TO OCCURRENCE OF ACCIDENT

SYLLABUS

the Warsaw Convention, particularly Section 2, Article

1.

OR DELAY; CASE AT BAR. On the issue of whether

CIVIL LAW; OBLIGATION AND CONTRACTS;

CONTRACT OF CARRIAGE; CARRIER ISSUING A


CONFIRMED TICKET COVERING A FIVE-LEG TRIP
ABOARD

DIFFERENT

AIRLINES,

PRINCIPAL;

LIABILITY FOR BREACH OF CONTRACT, PRINCIPAL.


As ruled by the trial court, with the Court of
Appeals concurring favorably, Antiporda was issued a
confirmed Lufthansa ticket all throughout the five-leg
trip. The fourth paragraph of the "Conditions of
Contract" stipulated in the ticket indubitably showed
that the contract of carriage was considered as one of
continuous

air

transportation

from

Manila

to

Blantyre, Malawi, thus: "4. . . . carriage to be


performed hereunder by several successive carriers is
regarded as a single operation." In light of the
stipulations expressly specified in the ticket defining
the true nature of its contract of carriage with
Antiporda, Lufthansa cannot claim that its liability
thereon ceased at Bombay Airport and thence, shifted
to the various carriers that assumed the actual task

30 thereof is applicable herein, we agree with the


Court of Appeals in ruling in the negative. We
reiterate what has been settled in KLM: "1. The
applicability insisted upon by the KLM of Article 30 of
the Warsaw Convention cannot be sustained. That
article presupposes the occurrence of either an
accident or a delay, neither of which took place at the
Barcelona airport; what is here manifest, instead, is
that the Aer Lingus, through its manager there,
refused to transport the respondents to their planned
and contracted destination. . . ." Consequently,
Section 2, Article 30 of the Warsaw Convention which
does not contemplate the instance of "bumping-off"
but merely of simple delay, cannot provide a handy
excuse for Lufthansa as to exculpate it from any
liability to Antiporda. The payment of damages is,
thus, deemed warranted by this Court. We find no
reversible error in the lower court's award of moral
and exemplary damages, including attorney's fees in
favor of Antiporda.

of transporting said private respondent. We, therefore, 3.


STATUTORY
CONSTRUCTION;
reject Lufthansa's theory that from the time another CONSTRUCTION REQUIRED ONLY WHERE TERMS
carrier was engaged to transport Antiporda on OF LAW ARE AMBIGUOUS; "BUMPING-OFF" DOES
another segment of his trip, it merely acts as a ticket- NOT CONSTITUTE "DELAY". Lufthansa prays this
issuing agent in behalf of said carrier. In the very court to take heed of jurisprudence in the United
nature of their contract, Lufthansa is clearly the States where the term "delay" was interpreted to
principal in the contract of carriage with Antiporda include "bumping-off" or failure to carry a passenger
and remains to be so, regardless of those instances with a confirmed reservation. These decisions in the
when actual carriage was to be performed by various United States are not controlling in this jurisdiction.
carriers. The issuance of a confirmed Lufthansa ticket We are not prepared, absent reasons of compelling
in favor of Antiporda covering his entire five-leg trip nature, to entertain an extended meaning of the term
aboard successive carriers concretely attests to this. "delay," which in KLM was given its ordinary
This also serves as proof that Lufthansa, in effect signification. "Construction and interpretation come
guaranteed that the successive carriers, such as air only after it has been demonstrated that application
Kenya would honor his ticket; assure him of a space is impossible or inadequate without them. The
therein and transport him on a particular segment of ordinary language of a statute must be given its
his trip. This ruling finds corroboration in the ordinary meaning and limited to a reasonable
Supreme Court decision in KLM, where the same interpretation." In its ordinary sense, "delay" means
issues were confronted.
to prolong the time of or before; to stop, detain or

Page 184 of 229


hinder for a time, or cause someone or something to government, coupled with the fact that he failed to
be behind in schedule or usual rate of movement in meet

his

progress. "Bumping-off," which is the refusal to Malawi

professional

due

to

the

commitment

in

Blantyre,

"bumping

off"

incident

transport passengers with confirmed reservation to accompanied by rude and discourteous behavior on
their planned and contracted destinations, totally the part of airline officials who should have been the
forecloses said passengers' right to be transported, first to attend to his travel needs.
whereas delay merely postpones for a time being the
enforcement of such right.
4.

CIVIL LAW; OBLIGATIONS AND CONTRACTS;

CONTRACT

OF

CARRIAGE;

DECISION
ROMERO, J p:

BREACH

THEREOF In this petition for review on certiorari, the Court is


MANIFESTED WITH BAD FAITH; CASE AT BAR. confronted with the issue of whether or not petitioner

Clearly, bad faith attended the performance of the Lufthansa German Airlines which issued a confirmed
contract of carriage, for even while Antiporda was in Lufthansa ticket to private respondent Antiporda
Bombay, representatives of Lufthansa already tried to covering a five-leg trip abroad different airlines should
evade liability first, by claiming that the contract of be held liable for damages occasioned by the
carriage between Lufthansa and Antiporda ceased at "bumping-off" of said private respondent Antiporda by
Bombay airport, in disregard of the fact that Air Kenya, one of the airlines contracted to carry him

Antiporda was holding a Lufthansa ticket for the to a particular destination of the five-leg trip.
entire five-leg trip; second, despite Berndt Loewe's
knowledge that Antiporda's seat was allowed to be Tirso V. Antiporda, Sr. was an associate director of the
given to another passenger, the same suppressed the Central Bank of the Philippines and a registered
information and feigned ignorance of the matter, consultant of the Asian Development Bank, the World
presenting altogether another reason why Antiporda Bank and the UNDP. He was, contracted by Sycip,
was not listed in the manifest, i.e. that Air Kenya Gorres, Velayo & Co. (SGV) to be the institutional
Boeing 707 was overbooked, notwithstanding clear financial specialist for the agricultural credit
proof that Lufthansa in Manila confirmed his institution project of the Investment and Development
reservation for said flight. Antiporda is likewise Bank of Malawi in Africa. According to the letter of
entitled to the award of exemplary damages on the August 30, 1984 addressed to Antiporda from J.F.
basis of Article 2232 of the Civil Code.

Singson of SGV, he would render his services to the


Malawi bank as an independent contractor for which
he would be paid US$9,167 for a 50-day period

5.

REMEDIAL LAW; EVIDENCE; FINDINGS OF

FACTS OF THE TRIAL COURT, GENERALLY UPHELD


ON APPEAL. There is every indication that
Lufthansa, through its representatives in Bombay,
acted in a reckless and malevolent manner in dealing
with Antiporda. These findings of the trial court were
affirmed by the Court of Appeals on the ground that
there are no cogent reasons to justify a contrary

commencing sometime in September 1984. For the


engagement, Antiporda would be provided one roundtrip economy ticket from Manila to Blantyre and back
with a maximum travel time of four days per roundtrip and, in addition, a travel allowance of $50 per
day, a travel insurance coverage of P100,000 and
major hospitalization with AFIA and an accident
insurance coverage of P150,000. 1

finding. The same holds true with this Court. The On September 17, 1984, Lufthansa, through SGV,
findings of fact of lower courts are binding on us and issued ticket No. 3477712678 for Antiporda's
will not be generally disturbed on appeal. In affirming confirmed flights to Malawi, Africa. The ticket
the lower court's award of damages to Antiporda, we particularized his itinerary as follows:
take into account his high position in the

Page 185 of 229


Carrier

Flight Date

Time

Manila to

SQ

25-9-84

1530

081

Status

OK

for Nairobi via Addis Ababa only on September 27,


LH

695

25-9-84

OK

couple of days late for his appointment with people


from the institution he was to work with in Malawi.

Bombay to

KQ

203

26-9-84

OK

Consequently,

on January

8, 1985, Antiporda's

counsel wrote the general manager of Lufthansa in


Manila demanding P1,000,000 in damages for the

Nairobi

airline's "malicious, wanton, disregard of the contract

Nairobi to

QM

335

26-9-84

OK

of carriage." 2 In reply, Lufthansa general manager


Hagen Keilich assured Antiporda that the matter
would be investigated.

Lilongwe
Lilongwe to
1600

1984. He finally arrived in Blantyre at 9:00 o'clock in


the evening of September 28, 1984, more than a

Bombay

1395

1984. He requested that the situation be remedied


on board. Stranded in Bombay, Antiporda was booked

Singapore to

0215

Blantyre, Malawi in the afternoon of September 26,


but Air Kenya Flight 203 left for Nairobi without him

Singapore

2200

that he had an important professional engagement in

QM

031

26-9-84

OK

Apparently getting no positive action from Lufthansa,


on January 21, 1985, Antiporda filed with the
Regional Trial Court of Quezon City a complaint
against Lufthansa which was docketed as Civil Case

Blantyre
Thus, on September 25, 1984, Antiporda took the

No. Q-43810.

he The lower court, 3 guided by the Supreme Court


proceeded to Bombay on board the same airline. He ruling in KLM Dutch Airlines v. Court of Appeals, et
arrived in Bombay as scheduled and waited at the al., 4 found that Lufthansa breached the contract to
transit area of the airport for his connecting flight to transport Antiporda from Manila to Blantyre on a trip
Lufthansa

flight

to

Singapore

from

where

Nairobi which was, per schedule given him by of five legs. It said:
Lufthansa, to leave Bombay in the morning of
September 26, 1984. Finding no representative of

"The threshold issue that confronts this Court is:

Lufthansa waiting for him at the gate, Antiporda Was there a breach of obligation by the defendant in
asked the duty officer of Air India how he could get in failing to transport the plaintiff from Manila to
touch with Lufthansa. He was told to call up Blantyre, Malawi, Africa?
Lufthansa which informed him that somebody would
attend to him shortly. LLjur

The defendant admits the issuance and validity of


Ticket No. 3477712678 (Exh. B). However, it denies its

Ten minutes later, Gerard Matias, Lufthansa's traffic obligation to transport the plaintiff to his point of
officer, arrived, asked for Antiporda's ticket and told destination at Blantyre, Malawi, Africa. Defendant
him to just sit down and wait. Matias returned with claims that it was obligated to transport the plaintiff
one Leslie Benent, duty officer of Lufthansa, who only up to Bombay.
informed Antiporda that his seat in Air Kenya Flight

203 to Nairobi had been given to a very important This case is one of a contract of carriage. And the
person of Bombay who was attending a religious ticket issued by the defendant to the plaintiff is the

function in Nairobi. Antiporda protested, stressing written agreement between the parties herein. Ticket

Page 186 of 229


No. 3477712678 particularizes the itinerary of the '4.
plaintiff . . .

several successive carriers is regarded as a single

xxx

xxx

operation.'

xxx

From the ticket, therefore, it is indubitably clear that


it was the duty and responsibility of the defendant
Lufthansa to transport the plaintiff from Manila to
Blantyre, on a trip of five legs.
The posture taken by the defendant that it was Air
Kenya's,

not

Lufthansa's,

liability

to

transport

plaintiff from Bombay to Malawi, is unacceptable. The


plaintiff

. . . carriage to be performed hereunder by

dealt

exclusively

with

the

defendant

This condition embodied in the ticket issued to


plaintiff is diametrically opposed to the defense
theory that Lufthansa's liability is only limited up to
Bombay."
Pursuant to the above reasoning, the lower court held
that Lufthansa cannot limit its liability as a mere
ticket issuing agent for other airlines and only to
untoward occurrences on its own line.

Lufthansa which issued to him the ticket for his The

lower

court

entire trip and which in effect guaranteed to the arrangement

of

added

the

that

under

International

Air

the

pool

Transport

plaintiff that he would have sure space in Air Kenya's Association (IATA), of which Lufthansa and Air Kenya
flight to Nairobi. Plaintiff, under that assurance of the are members, member airlines are agents of each
defendant, naturally, had the right to expect that his other in the issuance of tickets and, therefore, in
ticket would be honored by Air Kenya, to which, in the accordance with Ortigas v. Lufthansa, 5 an airline
legal sense, Lufthansa had endorsed and in effect company is considered bound by the mistakes
guaranteed

the

engagement

to

performance
carry

out

of

its

plaintiff's

principal committed by another member of IATA which, in


scheduled behalf of the former, had confirmed a passenger's

itinerary previously and mutually agreed upon by the reservation for accommodation.
parties. Defendant itself admitted that the flight from
Manila,

Singapore,

Blantyre,

Malawi,

Bombay,
were

all

Nairobi,
confirmed

Lilongwe,
with

the

stamped letters 'OK' thereon. In short, after issuing a


confirmed ticket from Manila to Malawi and receiv(ing)
payment from the plaintiff for such one whole trip,
how can the defendant now deny its contractual

In justifying its award of moral and exemplary


damages, the lower court emphasized that the breach
of contract was "aggravated by the discourteous and
highly arbitrary conduct of Gerard Matias, an official
of petitioner Lufthansa in Bombay." Its factual
findings on the matter are the following:

obligation by alleging that its responsibility ceased at ". . . . Bumped off from his connecting flight to Nairobi
the Bombay Airport?
and stranded in the Bombay Airport for 32 hours,
The contract of air transportation was exclusively
between the plaintiff Antiporda and the defendant
Lufthansa,

the

latter

merely

endorsing

its

performance to Air Kenya, as its subcontractor or


agent. The fourth paragraph of the 'Conditions of
Contracts' of the ticket (Exh. B) issued by Lufthansa
to plaintiff indubitably shows that the contract was
one of continuous air transportation from Manila to
Blantyre, Malawi.

when plaintiff insisted on taking his scheduled flight


to Nairobi, Gerard Matias got angry and threw the
ticket and passport on plaintiff's lap and was ordered
to go to the basement with his heavy luggages for no
reason at all. It was a difficult task for the plaintiff to
carry three luggages and yet Gerard Matias did not
even

offer

to

help

him.

Plaintiff

requested

accommodation but Matias ignored it and just left.


Not even Lufthansa office in Bombay, after learning
plaintiff's

being

accommodation

stranded
problem,

in

Bombay

provided

any

and
relief

his
to

plaintiff's sordid situation. Plaintiff had to stay in the

Page 187 of 229


transit area and could not sleep for fear that his (b)

under sections (1) and (2) Article 30 of the

luggages might be lost. Everytime he went to the Warsaw Convention, an airline carrier is liable only to
toilet, he had to drag with him his luggages. He tried untoward occurrences on its own line;
to eat the high-seasoned food available at the airport
but developed stomach trouble. It was indeed a
pathetic sight that the plaintiff, an official of the
Central Bank, a multi-awarded institutional expert,

(c)

the award of moral and exemplary damages in

addition to attorney's fees by the trial court is without


basis in fact and in law.

tasked to perform consultancy work in a World Bank The Court of Appeals not convinced with Lufthansa's
funded agricultural bank project in Malawi instead appeal, affirmed the decision on the trial court
found himself stranded in a foreign land where sought to be reviewed. LLphil
nobody was expected to help him in his predicament

except the defendant, who displayed utter lack of Explained the Court of Appeals: although the
concern of its obligation to the plaintiff and left contract of carriage was to be performed by several air
plaintiff alone in his misery at the Bombay airport."

carriers, the same is to be treated as a single

operation conducted by Lufthansa because Antiporda


6 the lower court dealt exclusively with it which issued him a
ruled that passengers have a right to be treated with Lufthansa ticket for the entire trip. By issuing a
Citing Air France v. Carrascoso,

kindness, respect, courtesy and consideration by the confirmed ticket, Lufthansa in effect guaranteed
carrier's employees apart from their right to be Antiporda a sure seat with Air Kenya. Private
protected against personal misconduct, injurious respondent Antiporda, maintained the Court of
language,

indignities

and

abuses

from

employees.

such Appeals, had the right to expect that his ticket would

be honored by Air Kenya which, in the legal sense,

Consequently, the trial court ordered Lufthansa to


pay Antiporda the following:

Lufthansa had endorsed and, in effect, guaranteed


the performance of its principal engagement to carry
out his five-leg trip.

"(a)

the amount of P300,000.00 as moral damages;

(b)

the amount of P200,000.00 as exemplary rely on Sections (1) and (2), Article 30 of the Warsaw

damages; and
(c)

The appellate court also ruled that Lufthansa cannot


Convention 7 because the provisions thereof are not

the amount of P50,000.00 as reasonable

attorney's fees.

applicable under the circumstances of the case.


Sections (1) and (2), Article 30 of the Warsaw
Convention provide:

With costs against the defendant."


Lufthansa elevated the case to the Court of Appeals
arguing that it cannot be held liable for the acts
committed by Air Kenya on the basis of the following:

"Art. 30 (1).

In the case of transportation to be

performed by various successive carriers and falling


within the definition set out in the third paragraph of
Article I, each carrier who accepts passengers,

it merely acted as a ticket-issuing agent in baggage, or goods shall be subject to the rules set out
behalf of Air Kenya; consequently the contract of in the convention, and shall be deemed to be one of
carriage entered into is between respondent Antiporda the contracting parties to the contract of
(a)

and

Air

Lufthansa;

Kenya,

to

the

exclusion

of

petitioner transportation insofar as the contract deals with that


part of the transportation which is performed under
his supervision.

Page 188 of 229


(2)

In the case of transportation of this nature, "4.

The respondent court erred as a matter of law

the passenger or his representative can take action in affirming the trial court's award of exemplary
only

against

the

carrier

who

performed

the damages for lack of legal or factual basis therefor."

transportation during which the accident or the delay


occurred,

save

in

the

case

where,

by

express

agreement, the first carrier has assumed liability for


the whole journey. (Emphasis supplied).

The arguments propounded by petitioner Lufthansa


cannot suffice to reverse the appellate court's decision
as prayed for. Lufthansa raised four assignments of
error but the focal point at issue has been defined by

According to the Court of Appeals, Antiporda's cause us at the inception of this ponencia. LibLex
of action is not premised on the occurrence of an
accident or delay as contemplated under Section 2 of
said Article but on Air Kenya's refusal to transport
him in order to accommodate another. To support this
ruling, the Court of Appeals cited the Supreme Court
ruling in KLM Royal Dutch Airlines v. Court of
Appeals, 8 which held, inter alia, that:
"1.

Lufthansa

maintains

that

its

liability

to

any

passenger is limited to occurrences in its own line,


and, thus, in the case at bench, its liability to
Antiporda is limited to the extent that it had
transported him from Manila to Singapore and from
Singapore to Bombay; that therefrom, responsibility
for the performance of the contract of carriage is

The applicability insisted upon by the KLM of assumed

by

the

succeeding

carriers

tasked

to

Article 30 of the Warsaw Convention cannot be transport him for the remaining leg of his trip
sustained. That article presupposes the occurrence of because at that stage, its contract of carriage with
either an accident or a delay, neither of which took Antiporda ceases, with Lufthansa acting, no longer as
place at the Barcelona airport; what is here manifest, the principal in the contract of carriage, but merely
instead, is that the Aer Lingus, through its manager as a ticket-issuing agent for the other carriers.
there, refused to transport the respondents to their
planned and contracted destination."

In further advancing this line of defense, Lufthansa


invoked

Section

2,

Article

30

of

the

Warsaw

The Court of Appeals concluded that Lufthansa Convention 9 which expressly stipulates that in cases
cannot, thus, invoke Sections (1) and (2), Article 30 of where the transportation of passengers or goods is
the Warsaw Convention to evade liability.
Failing to obtain a favorable decision, Lufthansa filed
this petition for review on certiorari anchored on the
following arguments:

performed

by

various

successive

carriers,

the

passenger can take action only against the carrier


which performed the transportation, during which
the accident or delay occurred. Lufthansa further
advanced the theory that this provision of the Warsaw

The respondent court erred as a matter of law Convention is applicable to the present case, contrary
in refusing to apply the Warsaw Convention to the to the decision of the Court of Appeals which relied on
the Supreme Court ruling in KLM Royal Dutch Lines.
instant case.
"1.

10 For Lufthansa, "bumping-off" is considered delay

"2.

Respondent court's ruling that Lufthansa had since delay would inevitably result therefrom. It
deceived private respondent has no factual or legal implored this Court to re-examine our ruling in KLM
basis.
and take heed of jurisprudence 11 in the U.S. where
"3.

The respondent court erred as a matter of law

in affirming the trial court's award of moral damages


in the face of this Court's rulings concerning moral
damages in cases of breach of contract.

"delay," unlike in our ruling in KLM, contemplates the


instance of "bumping-off." In KLM, we held that the
term "delay" does not encompass the instance of
"bumping-off," the latter having been defined as
refusal to carry or transport a passenger.

Page 189 of 229


On his part, private respondent Antiporda insists that This ruling finds corroboration in the Supreme Court
he entered with Lufthansa an exclusive contract of decision in KLM, 12 where the same issues were
carriage, the nature of which is a continuous carriage confronted, thus:
by air from Manila to Blantyre Malawi; that it did not
enter into a series of independent contracts with the

"xxx

xxx

xxx

carriers that transported him for the remaining leg of The passage tickets of the respondents provide that
his trip.
the carriage to be performed thereunder by several
The basis for such claim is well-founded. As ruled by
the trial court, with the Court of Appeals concurring
favorably,

Antiporda

was

issued

confirmed

Lufthansa ticket all throughout the five-leg trip. The


fourth paragraph of the "Conditions of Contract"
stipulated in the ticket indubitably showed that the
contract of carriage was considered as one of
continuous

air

transportation

from

Manila

to

Blantyre, Malawi, thus:


"4.

successive carriers 'is to be regarded as a single


operation,' which is diametrically incompatible with
the theory of the KLM that the respondents entered
into a series of independent contracts with the
carriers which took them on the various segments of
their trip. This position of KLM we reject. The
respondents dealt exclusively with the KLM which
issued them tickets for their entire trip and which in
effect guaranteed to them that they would have sure
space in Aer Lingus flight 861. The respondents,

. . . carriage to be performed hereunder by under

that

assurance

of

the

internationally

several successive carriers is regarded as a single pr