[G.R. No. 147079.

December 21, 2004]

A.F. SANCHEZ BROKERAGE INC., petitioners, vs. THE HON. COURT

OF APPEALS and FGU INSURANCE
CORPORATION, respondents.

DECISION
CARPIO MORALES, J.:

Before this Court on a petition for Certiorari is the appellate courts

Decision of August 10, 2000 reversing and setting aside the judgment of
[1]

Branch 133, Regional Trial Court of Makati City, in Civil Case No. 93-76B
which dismissed the complaint of respondent FGU Insurance Corporation
(FGU Insurance) against petitioner A.F. Sanchez Brokerage, Inc. (Sanchez
Brokerage).
On July 8, 1992, Wyeth-Pharma GMBH shipped on board an aircraft of
KLM Royal Dutch Airlines at Dusseldorf, Germany oral contraceptives
consisting of 86,800 Blisters Femenal tablets, 14,000 Blisters Nordiol tablets
and 42,000 Blisters Trinordiol tablets for delivery to Manila in favor of the
consignee, Wyeth-Suaco Laboratories, Inc. The Femenal tablets were placed
[2]

in 124 cartons and the Nordiol tablets were placed in 20 cartons which were
packed together in one (1) LD3 aluminum container, while the Trinordial
tablets were packed in two pallets, each of which contained 30 cartons.
[3]

Wyeth-Suaco insured the shipment against all risks with FGU Insurance
which issued Marine Risk Note No. 4995 pursuant to Marine Open Policy No.
138.[4]

Upon arrival of the shipment on July 11, 1992 at the Ninoy Aquino
International Airport (NAIA), it was discharged without exception and
[5] [6]

delivered to the warehouse of the Philippine Skylanders, Inc. (PSI) located

also at the NAIA for safekeeping. [7]

In order to secure the release of the cargoes from the PSI and the Bureau
of Customs, Wyeth-Suaco engaged the services of Sanchez Brokerage which
had been its licensed broker since 1984. As its customs broker, Sanchez
[8]

Brokerage calculates and pays the customs duties, taxes and storage fees for
the cargo and thereafter delivers it to Wyeth-Suaco.
[9]
 On July 29, 1992, Mitzi Morales and Ernesto Mendoza, representatives of
Sanchez Brokerage, paid PSI storage fee amounting to P8,572.35 a receipt
for which, Official Receipt No. 016992, was issued. On the receipt, another
[10]

representative of Sanchez Brokerage, M. Sison, acknowledged that he [11]

received the cargoes consisting of three pieces in good condition. [12]

Wyeth-Suaco being a regular importer, the customs examiner did not

inspect the cargoes which were thereupon stripped from the aluminum
[13]

containers and loaded inside two transport vehicles hired by Sanchez

[14]

Brokerage. [15]

Among those who witnessed the release of the cargoes from the PSI
warehouse were Ruben Alonso and Tony Akas, employees of Elite Adjusters
[16]

and Surveyors Inc. (Elite Surveyors), a marine and cargo surveyor and
insurance claim adjusters firm engaged by Wyeth-Suaco on behalf of FGU
Insurance.
Upon instructions of Wyeth-Suaco, the cargoes were delivered to Hizon
Laboratories Inc. in Antipolo City for quality control check. The delivery [17]

receipt, bearing No. 07037 dated July 29, 1992, indicated that the delivery
consisted of one container with 144 cartons of Femenal and Nordiol and 1
pallet containing Trinordiol. [18]

On July 31, 1992, Ronnie Likas, a representative of Wyeth-Suaco,

acknowledged the delivery of the cargoes by affixing his signature on the
delivery receipt. Upon inspection, however, he, together with Ruben Alonzo
[19]

of Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol

tablets were in bad order. He thus placed a note above his signature on the
[20]

delivery receipt stating that 44 cartons of oral contraceptives were in bad

order. The remaining 160 cartons of oral contraceptives were accepted as
complete and in good order.
Ruben Alonzo thus prepared and signed, along with Ronnie Likas, a
survey report dated July 31, 1992 stating that 41 cartons of Femenal tablets
[21]

and 3 cartons of Nordiol tablets were wetted (sic). [22]

The Elite Surveyors later issued Certificate No. CS-0731-

1538/92 attached to which was an Annexed Schedule whereon it was
[23]

indicated that prior to the loading of the cargoes to the brokers trucks at the
NAIA, they were inspected and found to be in apparent good condition. Also [24]

noted was that at the time of delivery to the warehouse of Hizon Laboratories
Inc., slight to heavy rains fell, which could account for the wetting of the 44
cartons of Femenal and Nordiol tablets. [25]
 On August 4, 1992, the Hizon Laboratories Inc. issued a Destruction
Report confirming that 38 x 700 blister packs of Femenal tablets, 3 x 700
[26]

blister packs of Femenal tablets and 3 x 700 blister packs of Nordiol tablets
were heavily damaged with water and emitted foul smell.
On August 5, 1992, Wyeth-Suaco issued a Notice of Materials
Rejection of 38 cartons of Femenal and 3 cartons of Nordiol on the ground
[27]

that they were delivered to Hizon Laboratories with heavy water damaged
(sic) causing the cartons to sagged (sic) emitting a foul order and easily
attracted flies. [28]

Wyeth-Suaco later demanded, by letter of August 25, 1992, from

[29]

Sanchez Brokerage the payment of P191,384.25 representing the value of its

loss arising from the damaged tablets.
As the Sanchez Brokerage refused to heed the demand, Wyeth-Suaco
filed an insurance claim against FGU Insurance which paid Wyeth-Suaco the
amount of P181,431.49 in settlement of its claim under Marine Risk Note
Number 4995.
Wyeth-Suaco thus issued Subrogation Receipt in favor of FGU [30]

Insurance.
On demand by FGU Insurance for payment of the amount of P181,431.49
it paid Wyeth-Suaco, Sanchez Brokerage, by letter of January 7, 1993,
[31]

disclaimed liability for the damaged goods, positing that the damage was due
to improper and insufficient export packaging; that when the sealed containers
were opened outside the PSI warehouse, it was discovered that some of the
loose cartons were wet, prompting its (Sanchez Brokerages) representative
[32]

Morales to inform the Import-Export Assistant of Wyeth-Suaco, Ramir

Calicdan, about the condition of the cargoes but that the latter advised to still
deliver them to Hizon Laboratories where an adjuster would assess the
damage. [33]

Hence, the filing by FGU Insurance of a complaint for damages before the
Regional Trial Court of Makati City against the Sanchez Brokerage.
The trial court, by Decision of July 29, 1996, dismissed the complaint,
[34]

holding that the Survey Report prepared by the Elite Surveyors is bereft of any
evidentiary support and a mere product of pure guesswork. [35]

On appeal, the appellate court reversed the decision of the trial court, it
holding that the Sanchez Brokerage engaged not only in the business of
customs brokerage but also in the transportation and delivery of the cargo of
its clients, hence, a common carrier within the context of Article 1732 of the
New Civil Code. [36]

Noting that Wyeth-Suaco adduced evidence that the cargoes were

delivered to petitioner in good order and condition but were in a damaged
state when delivered to Wyeth-Suaco, the appellate court held that Sanchez
Brokerage is presumed negligent and upon it rested the burden of proving that
it exercised extraordinary negligence not only in instances when negligence is
directly proven but also in those cases when the cause of the damage is not
known or unknown. [37]

The appellate court thus disposed:

IN THE LIGHT OF ALL THE FOREGOING, the appeal of the Appellant is

GRANTED. The Decision of the Court a quo is REVERSED. Another Decision
is hereby rendered in favor of the Appellant and against the Appellee as
follows:

1. The Appellee is hereby ordered to pay the Appellant the principal

amount of P181, 431.49, with interest thereupon at the rate of
6% per annum, from the date of the Decision of the Court, until
the said amount is paid in full;

2. The Appellee is hereby ordered to pay to the Appellant the

amount of P20,000.00 as and by way of attorneys fees; and

3. The counterclaims of the Appellee are DISMISSED. [38]

Sanchez Brokerages Motion for Reconsideration having been denied by

the appellate courts Resolution of December 8, 2000 which was received by
petitioner on January 5, 2001, it comes to this Court on petition for certiorari
filed on March 6, 2001.
In the main, petitioner asserts that the appellate court committed grave
and reversible error tantamount to abuse of discretion when it found petitioner
a common carrier within the context of Article 1732 of the New Civil Code.
Respondent FGU Insurance avers in its Comment that the proper course
of action which petitioner should have taken was to file a petition for review on
certiorari since the sole office of a writ of certiorari is the correction of errors of
jurisdiction including the commission of grave abuse of discretion amounting
to lack or excess of jurisdiction and does not include correction of the
appellate courts evaluation of the evidence and factual findings thereon.
 On the merits, respondent FGU Insurance contends that petitioner, as a
common carrier, failed to overcome the presumption of negligence, it being
documented that petitioner withdrew from the warehouse of PSI the subject
shipment entirely in good order and condition. [39]

The petition fails.

Rule 45 is clear that decisions, final orders or resolutions of the Court of
Appeals in any case, i.e., regardless of the nature of the action or proceedings
involved, may be appealed to this Court by filing a petition for review, which
would be but a continuation of the appellate process over the original case. [40]

The Resolution of the Court of Appeals dated December 8, 2000 denying

the motion for reconsideration of its Decision of August 10, 2000 was received
by petitioner on January 5, 2001. Since petitioner failed to appeal within 15
days or on or before January 20, 2001, the appellate courts decision had
become final and executory. The filing by petitioner of a petition for certiorari
on March 6, 2001 cannot serve as a substitute for the lost remedy of appeal.
In another vein, the rule is well settled that in a petition for certiorari, the
petitioner must prove not merely reversible error but also grave abuse of
discretion amounting to lack or excess of jurisdiction.
Petitioner alleges that the appellate court erred in reversing and setting
aside the decision of the trial court based on its finding that petitioner is liable
for the damage to the cargo as a common carrier. What petitioner is ascribing
is an error of judgment, not of jurisdiction, which is properly the subject of an
ordinary appeal.
Where the issue or question involves or affects the wisdom or legal
soundness of the decision not the jurisdiction of the court to render said
decision the same is beyond the province of a petition for certiorari. The [41]

supervisory jurisdiction of this Court to issue a cert writ cannot be exercised in

order to review the judgment of lower courts as to its intrinsic correctness,
either upon the law or the facts of the case. [42]

Procedural technicalities aside, the petition still fails.

The appellate court did not err in finding petitioner, a customs broker, to be
also a common carrier, as defined under Article 1732 of the Civil Code, to wit:

Art. 1732. Common carriers are persons, corporations, firms or associations

engaged in the business of carrying or transporting passengers or goods or
both, by land, water, or air, for compensation, offering their services to the
public.
 Anacleto F. Sanchez, Jr., the Manager and Principal Broker of Sanchez
Brokerage, himself testified that the services the firm offers include the
delivery of goods to the warehouse of the consignee or importer.
ATTY. FLORES:
Q: What are the functions of these license brokers, license customs broker?
WITNESS:
As customs broker, we calculate the taxes that has to be paid in cargos, and those
upon approval of the importer, we prepare the entry together for processing and
claims from customs and finally deliver the goods to the warehouse of the
importer.[43]

Article 1732 does not distinguish between one whose principal business
activity is the carrying of goods and one who does such carrying only as an
ancillary activity. The contention, therefore, of petitioner that it is not a
[44]

common carrier but a customs broker whose principal function is to prepare

the correct customs declaration and proper shipping documents as required
by law is bereft of merit. It suffices that petitioner undertakes to deliver the
goods for pecuniary consideration.
In this light, petitioner as a common carrier is mandated to observe, under
Article 1733 of the Civil Code, extraordinary diligence in the vigilance over
[45]

the goods it transports according to all the circumstances of each case. In the
event that the goods are lost, destroyed or deteriorated, it is presumed to
have been at fault or to have acted negligently, unless it proves that it
observed extraordinary diligence. [46]

The concept of extra-ordinary diligence was explained in Compania

Maritima v. Court of Appeals: [47]

The extraordinary diligence in the vigilance over the goods tendered for
shipment requires the common carrier to know and to follow the required
precaution for avoiding damage to, or destruction of the goods entrusted to it
for sale, carriage and delivery. It requires common carriers to render service
with the greatest skill and foresight and to use all reasonable means to
ascertain the nature and characteristics of goods tendered for shipment, and
to exercise due care in the handling and stowage, including such methods as
their nature requires. [48]

In the case at bar, it was established that petitioner received the cargoes
from the PSI warehouse in NAIA in good order and condition; and that upon [49]

delivery by petitioner to Hizon Laboratories Inc., some of the cargoes were

found to be in bad order, as noted in the Delivery Receipt issued by [50]
petitioner, and as indicated in the Survey Report of Elite Surveyors and the
[51]

Destruction Report of Hizon Laboratories, Inc. [52]

In an attempt to free itself from responsibility for the damage to the goods,
petitioner posits that they were damaged due to the fault or negligence of the
shipper for failing to properly pack them and to the inherent characteristics of
the goods ; and that it should not be faulted for following the instructions of
[53]

Calicdan of Wyeth-Suaco to proceed with the delivery despite information

conveyed to the latter that some of the cartons, on examination outside the
PSI warehouse, were found to be wet. [54]

While paragraph No. 4 of Article 1734 of the Civil Code exempts a

[55]

common carrier from liability if the loss or damage is due to the character of
the goods or defects in the packing or in the containers, the rule is that if the
improper packing is known to the carrier or his employees or is apparent upon
ordinary observation, but he nevertheless accepts the same without protest or
exception notwithstanding such condition, he is not relieved of liability for the
resulting damage. [56]

If the claim of petitioner that some of the cartons were already damaged
upon delivery to it were true, then it should naturally have received the cargo
under protest or with reservations duly noted on the receipt issued by PSI. But
it made no such protest or reservation. [57]

Moreover, as observed by the appellate court, if indeed petitioners

employees only examined the cargoes outside the PSI warehouse and found
some to be wet, they would certainly have gone back to PSI, showed to the
warehouseman the damage, and demanded then and there for Bad Order
documents or a certification confirming the damage. Or, petitioner would
[58]

have presented, as witness, the employees of the PSI from whom Morales
and Domingo took delivery of the cargo to prove that, indeed, part of the
cargoes was already damaged when the container was allegedly opened
outside the warehouse. [59]

Petitioner goes on to posit that contrary to the report of Elite Surveyors, no

rain fell that day. Instead, it asserts that some of the cargoes were already wet
on delivery by PSI outside the PSI warehouse but such notwithstanding
Calicdan directed Morales to proceed with the delivery to Hizon Laboratories,
Inc.
While Calicdan testified that he received the purported telephone call of
Morales on July 29, 1992, he failed to specifically declare what time he
received the call. As to whether the call was made at the PSI warehouse when
the shipment was stripped from the airport containers, or when the cargoes
were already in transit to Antipolo, it is not determinable. Aside from that
phone call, petitioner admitted that it had no documentary evidence to prove
that at the time it received the cargoes, a part of it was wet, damaged or in
bad condition. [60]

The 4-page weather data furnished by PAGASA on request of Sanchez

[61]

Brokerage hardly impresses, no witness having identified it and interpreted

the technical terms thereof.
The possibility on the other hand that, as found by Hizon Laboratories,
Inc., the oral contraceptives were damaged by rainwater while in transit to
Antipolo City is more likely then. Sanchez himself testified that in the past,
there was a similar instance when the shipment of Wyeth-Suaco was also
found to be wet by rain.
ATTY. FLORES:
Q: Was there any instance that a shipment of this nature, oral contraceptives, that
arrived at the NAIA were damaged and claimed by the Wyeth-Suaco without any
question?
WITNESS:
A: Yes sir, there was an instance that one cartoon (sic) were wetted (sic) but Wyeth-
Suaco did not claim anything against us.
ATTY. FLORES:
Q: HOW IS IT?
WITNESS:
A: We experienced, there was a time that we experienced that there was a cartoon
(sic) wetted (sic) up to the bottom are wet specially during rainy season.[62]

Since petitioner received all the cargoes in good order and condition at the
time they were turned over by the PSI warehouseman, and upon their delivery
to Hizon Laboratories, Inc. a portion thereof was found to be in bad order, it
was incumbent on petitioner to prove that it exercised extraordinary diligence
in the carriage of the goods. It did not, however. Hence, its presumed
negligence under Article 1735 of the Civil Code remains unrebutted.
WHEREFORE, the August 10, 2000 Decision of the Court of Appeals is
hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
SPOUSES DANTE CRUZ and G.R. No. 186312
LEONORA CRUZ,
Petitioners, Present:

CARPIO MORALES, J.,

Chairperson,
BRION,
- versus - BERSAMIN,
ABAD,* and
SUN HOLIDAYS, INC., VILLARAMA, JR., JJ.
Respondent.
Promulgated:
June 29, 2010

x-------------------------------------------------x

DECISION

CARPIO MORALES, J.:

Spouses Dante and Leonora Cruz (petitioners) lodged a Complaint on January 25,
2001[1] against Sun Holidays, Inc. (respondent) with the Regional Trial Court
(RTC) of Pasig City for damages arising from the death of their son Ruelito C.
Cruz (Ruelito) who perished with his wife on September 11, 2000 on board the
boat M/B Coco Beach III that capsized en route to Batangas from Puerto Galera,
Oriental Mindoro where the couple had stayed at Coco Beach Island Resort
(Resort) owned and operated by respondent.

The stay of the newly wed Ruelito and his wife at the Resort from September 9 to
11, 2000 was by virtue of a tour package-contract with respondent that included
transportation to and from the Resort and the point of departure in Batangas.

Miguel C. Matute (Matute),[2] a scuba diving instructor and one of the survivors,
gave his account of the incident that led to the filing of the complaint as follows:
Matute stayed at the Resort from September 8 to 11, 2000. He was originally
scheduled to leave the Resort in the afternoon of September 10, 2000, but was
advised to stay for another night because of strong winds and heavy rains.

On September 11, 2000, as it was still windy, Matute and 25 other Resort guests
including petitioners son and his wife trekked to the other side of
the Coco Beach mountain that was sheltered from the wind where they
boarded M/B Coco Beach III, which was to ferry them to Batangas.

Shortly after the boat sailed, it started to rain. As it moved farther away from
Puerto Galera and into the open seas, the rain and wind got stronger, causing the
boat to tilt from side to side and the captain to step forward to the front, leaving the
wheel to one of the crew members.

The waves got more unwieldy. After getting hit by two big waves which
came one after the other, M/B Coco Beach III capsized putting all passengers
underwater.
The passengers, who had put on their life jackets, struggled to get out of the
boat. Upon seeing the captain, Matute and the other passengers who reached the
surface asked him what they could do to save the people who were still trapped
under the boat. The captain replied Iligtas niyo na lang ang sarili niyo (Just save
yourselves).

Help came after about 45 minutes when two boats owned by Asia Divers in
Sabang, Puerto Galera passed by the capsized M/B Coco Beach III. Boarded on
those two boats were 22 persons, consisting of 18 passengers and four crew
members, who were brought to Pisa Island. Eight passengers, including petitioners
son and his wife, died during the incident.

At the time of Ruelitos death, he was 28 years old and employed as a contractual
worker for Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a
basic monthly salary of $900.[3]
Petitioners, by letter of October 26, 2000,[4] demanded indemnification from
respondent for the death of their son in the amount of at least P4,000,000.

Replying, respondent, by letter dated November 7, 2000,[5] denied any

responsibility for the incident which it considered to be a fortuitous event. It
nevertheless offered, as an act of commiseration, the amount of P10,000 to
petitioners upon their signing of a waiver.

As petitioners declined respondents offer, they filed the Complaint, as earlier

reflected, alleging that respondent, as a common carrier, was guilty of negligence
in allowing M/B Coco Beach III to sail notwithstanding storm warning bulletins
issued by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA) as early as 5:00 a.m. of September 11, 2000.[6]

In its Answer,[7] respondent denied being a common carrier, alleging that its boats
are not available to the general public as they only ferry Resort guests and crew
members. Nonetheless, it claimed that it exercised the utmost diligence in ensuring
the safety of its passengers; contrary to petitioners allegation, there was no storm
on September 11, 2000 as the Coast Guard in fact cleared the voyage; and M/B
Coco Beach III was not filled to capacity and had sufficient life jackets for its
passengers. By way of Counterclaim, respondent alleged that it is entitled to an
award for attorneys fees and litigation expenses amounting to not less
than P300,000.

Carlos Bonquin, captain of M/B Coco Beach III, averred that the Resort
customarily requires four conditions to be met before a boat is allowed to sail, to
wit: (1) the sea is calm, (2) there is clearance from the Coast Guard, (3) there is
clearance from the captain and (4) there is clearance from the Resorts assistant
manager.[8] He added that M/B Coco Beach III met all four conditions on
September 11, 2000,[9] but a subasco or squall, characterized by strong winds and
big waves, suddenly occurred, causing the boat to capsize.[10]
By Decision of February 16, 2005,[11] Branch 267 of the Pasig RTC dismissed
petitioners Complaint and respondents Counterclaim.
Petitioners Motion for Reconsideration having been denied by Order
dated September 2, 2005,[12] they appealed to the Court of Appeals.

By Decision of August 19, 2008,[13] the appellate court denied petitioners

appeal, holding, among other things, that the trial court correctly ruled that
respondent is a private carrier which is only required to observe ordinary diligence;
that respondent in fact observed extraordinary diligence in transporting its guests
on board M/B Coco Beach III; and that the proximate cause of the incident was a
squall, a fortuitous event.

Petitioners Motion for Reconsideration having been denied by Resolution

dated January 16, 2009,[14] they filed the present Petition for Review.[15]

Petitioners maintain the position they took before the trial court, adding that
respondent is a common carrier since by its tour package, the transporting of its
guests is an integral part of its resort business. They inform that another division of
the appellate court in fact held respondent liable for damages to the other survivors
of the incident.

Upon the other hand, respondent contends that petitioners failed to present
evidence to prove that it is a common carrier; that the Resorts ferry services for
guests cannot be considered as ancillary to its business as no income is derived
therefrom; that it exercised extraordinary diligence as shown by the conditions it
had imposed before allowing M/B Coco Beach III to sail; that the incident was
caused by a fortuitous event without any contributory negligence on its part; and
that the other case wherein the appellate court held it liable for damages involved
different plaintiffs, issues and evidence.[16]

The petition is impressed with merit.

Petitioners correctly rely on De Guzman v. Court of Appeals[17] in characterizing

respondent as a common carrier.
The Civil Code defines common carriers in the following terms:
Article 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public.

The above article makes no distinction between one whose principal

business activity is the carrying of persons or goods or both, and one
who does such carrying only as an ancillary activity (in local idiom,
as a sideline). Article 1732 also carefully avoids making any
distinction between a person or enterprise offering transportation
service on a regular or scheduled basis and one offering such service
on an occasional, episodic or unscheduled basis. Neither does Article
1732 distinguish between a carrier offering its services to the general
public, i.e., the general community or population, and one who offers
services or solicits business only from a narrow segment of the general
population. We think that Article 1733 deliberately refrained from
making such distinctions.

So understood, the concept of common carrier under Article 1732 may

be seen to coincide neatly with the notion of public service, under the
Public Service Act (Commonwealth Act No. 1416, as amended) which at
least partially supplements the law on common carriers set forth in the
Civil Code. Under Section 13, paragraph (b) of the Public Service Act,
public service includes:

. . . every person that now or hereafter may own, operate,

manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route
and whatever may be its classification, freight or carrier
service of any class, express service, steamboat, or
steamship line, pontines, ferries and water craft, engaged in
the transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant, ice-
refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications
 systems, wire or wireless broadcasting stations and other
similar public services . . . [18] (emphasis and underscoring
supplied.)

Indeed, respondent is a common carrier. Its ferry services are so intertwined

with its main business as to be properly considered ancillary thereto. The
constancy of respondents ferry services in its resort operations is underscored by
its having its own Coco Beach boats. And the tour packages it offers, which
include the ferry services, may be availed of by anyone who can afford to pay the
same. These services are thus available to the public.

That respondent does not charge a separate fee or fare for its ferry services is
of no moment. It would be imprudent to suppose that it provides said services at a
loss. The Court is aware of the practice of beach resort operators offering tour
packages to factor the transportation fee in arriving at the tour package price. That
guests who opt not to avail of respondents ferry services pay the same amount is
likewise inconsequential. These guests may only be deemed to have overpaid.

As De Guzman instructs, Article 1732 of the Civil Code defining common carriers
has deliberately refrained from making distinctions on whether the carrying of
persons or goods is the carriers principal business, whether it is offered on a
regular basis, or whether it is offered to the general public. The intent of the law is
thus to not consider such distinctions. Otherwise, there is no telling how many
other distinctions may be concocted by unscrupulous businessmen engaged in the
carrying of persons or goods in order to avoid the legal obligations and liabilities
of common carriers.

Under the Civil Code, common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence for the
safety of the passengers transported by them, according to all the circumstances of
each case.[19] They are bound to carry the passengers safely as far as human care
and foresight can provide, using the utmost diligence of very cautious persons,
with due regard for all the circumstances.[20]
 When a passenger dies or is injured in the discharge of a contract of carriage,
it is presumed that the common carrier is at fault or negligent. In fact, there is even
no need for the court to make an express finding of fault or negligence on the part
of the common carrier. This statutory presumption may only be overcome by
evidence that the carrier exercised extraordinary diligence.[21]

Respondent nevertheless harps on its strict compliance with the earlier mentioned
conditions of voyage before it allowed M/B Coco Beach III to sail on September
11, 2000. Respondents position does not impress.

The evidence shows that PAGASA issued 24-hour public weather forecasts and
tropical cyclone warnings for shipping on September 10 and 11, 2000 advising of
tropical depressions in Northern Luzon which would also affect
the province of Mindoro.[22] By the testimony of Dr. Frisco Nilo, supervising
weather specialist of PAGASA, squalls are to be expected under such weather
condition.[23]

A very cautious person exercising the utmost diligence would thus not brave such
stormy weather and put other peoples lives at risk. The extraordinary diligence
required of common carriers demands that they take care of the goods or lives
entrusted to their hands as if they were their own. This respondent failed to do.

Respondents insistence that the incident was caused by a fortuitous event

does not impress either.
The elements of a "fortuitous event" are: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtors to comply with their
obligations, must have been independent of human will; (b) the event that
constituted the caso fortuito must have been impossible to foresee or, if
foreseeable, impossible to avoid; (c) the occurrence must have been such as to
render it impossible for the debtors to fulfill their obligation in a normal manner;
and (d) the obligor must have been free from any participation in the aggravation
of the resulting injury to the creditor.[24]

To fully free a common carrier from any liability, the fortuitous event must have
been the proximate and only cause of the loss. And it should have exercised due
diligence to prevent or minimize the loss before, during and after the occurrence of
the fortuitous event.[25]

Respondent cites the squall that occurred during the voyage as the fortuitous event
that overturned M/B Coco Beach III. As reflected above, however, the occurrence
of squalls was expected under the weather condition of September 11,
2000. Moreover, evidence shows that M/B Coco Beach III suffered engine trouble
before it capsized and sank.[26] The incident was, therefore, not completely free
from human intervention.

The Court need not belabor how respondents evidence likewise fails to
demonstrate that it exercised due diligence to prevent or minimize the loss before,
during and after the occurrence of the squall.

Article 1764[27] vis--vis Article 2206[28] of the Civil Code holds the common
carrier in breach of its contract of carriage that results in the death of a passenger
liable to pay the following: (1) indemnity for death, (2) indemnity for loss of
earning capacity and (3) moral damages.

Petitioners are entitled to indemnity for the death of Ruelito which is fixed
at P50,000.[29]

As for damages representing unearned income, the formula for its

computation is:
 Net Earning Capacity = life expectancy x (gross annual income -
reasonable and necessary living expenses).

Life expectancy is determined in accordance with the formula:

2 / 3 x [80 age of deceased at the time of death] [30]

The first factor, i.e., life expectancy, is computed by applying the formula
(2/3 x [80 age at death]) adopted in the American Expectancy Table of Mortality or
the Actuarial of Combined Experience Table of Mortality.[31]
The second factor is computed by multiplying the life expectancy by the net
earnings of the deceased, i.e., the total earnings less expenses necessary in the
creation of such earnings or income and less living and other incidental expenses.
[32]
The loss is not equivalent to the entire earnings of the deceased, but only such
portion as he would have used to support his dependents or heirs. Hence, to be
deducted from his gross earnings are the necessary expenses supposed to be used
by the deceased for his own needs.[33]

In computing the third factor necessary living expense, Smith Bell Dodwell
Shipping Agency Corp. v. Borja[34] teaches that when, as in this case, there is no
showing that the living expenses constituted the smaller percentage of the gross
income, the living expenses are fixed at half of the gross income.

Applying the above guidelines, the Court determines Ruelito's life

expectancy as follows:

Life expectancy = 2/3 x [80 - age of deceased at the time of death]

2/3 x [80 - 28]
2/3 x [52]
Life expectancy = 35
 Documentary evidence shows that Ruelito was earning a basic monthly
salary of $900[35] which, when converted to Philippine peso applying the annual
average exchange rate of $1 = P44 in 2000,[36] amounts to P39,600. Ruelitos net
earning capacity is thus computed as follows:

Net Earning Capacity = life expectancy x (gross annual income -

reasonable and necessary living expenses).

= 35 x (P475,200 - P237,600)
= 35 x (P237,600)

Net Earning Capacity = P8,316,000

Respecting the award of moral damages, since respondent common carriers

breach of contract of carriage resulted in the death of petitioners son, following
Article 1764 vis--vis Article 2206 of the Civil Code, petitioners are entitled to
moral damages.

Since respondent failed to prove that it exercised the extraordinary diligence

required of common carriers, it is presumed to have acted recklessly, thus
warranting the award too of exemplary damages, which are granted in contractual
obligations if the defendant acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.[37]

Under the circumstances, it is reasonable to award petitioners the amount

of P100,000 as moral damages and P100,000 as exemplary damages.[38]

Pursuant to Article 2208[39] of the Civil Code, attorney's fees may also be
awarded where exemplary damages are awarded. The Court finds that 10% of the
total amount adjudged against respondent is reasonable for the purpose.
 Finally, Eastern Shipping Lines, Inc. v. Court of Appeals [40] teaches that
when an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
delicts or quasi-delicts is breached, the contravenor can be held liable for payment
of interest in the concept of actual and compensatory damages, subject to the
following rules, to wit

1. When the obligation is breached, and it consists in the payment

of a sum of money, i.e., a loan or forbearance of money, the interest due
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12%
per annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of

money, is breached, an interest on the amount of damages awarded may
be imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of
the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount finally
adjudged.

3. When the judgment of the court awarding a sum of money

becomes final and executory, the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed
to be by then an equivalent to a forbearance of credit. (emphasis
supplied).
Since the amounts payable by respondent have been determined with certainty only
in the present petition, the interest due shall be computed upon the finality of this
decision at the rate of 12% per annum until satisfaction, in accordance with
paragraph number 3 of the immediately cited guideline in Easter Shipping Lines,
Inc.

WHEREFORE, the Court of Appeals Decision of August 19,

2008 is REVERSED and SET ASIDE. Judgment is rendered in favor of
petitioners ordering respondent to pay petitioners the following: (1) P50,000 as
indemnity for the death of Ruelito Cruz; (2) P8,316,000 as indemnity for Ruelitos
loss of earning capacity; (3) P100,000 as moral damages; (4) P100,000 as
exemplary damages; (5) 10% of the total amount adjudged against respondent as
attorneys fees; and (6) the costs of suit.

The total amount adjudged against respondent shall earn interest at the rate of 12%
per annum computed from the finality of this decision until full payment.

SO ORDERED.

[G.R. No. 144274. September 20, 2004]

NOSTRADAMUS VILLANUEVA petitioner, vs. PRISCILLA R. DOMINGO

and LEANDRO LUIS R. DOMINGO, respondents.

DECISION
CORONA, J.:

This is a petition to review the decision of the Court of Appeals in CA-

[1]

G.R. CV No. 52203 affirming in turn the decision of the trial court finding
petitioner liable to respondent for damages. The dispositive portion read:
WHEREFORE, the appealed decision is hereby AFFIRMED except the award of
attorneys fees including appearance fees which is DELETED.

SO ORDERED. [2]

The facts of the case, as summarized by the Court of Appeals, are as

follows:

[Respondent] Priscilla R. Domingo is the registered owner of a silver Mitsubishi

Lancer Car model 1980 bearing plate No. NDW 781 91 with [co-respondent] Leandro
Luis R. Domingo as authorized driver. [Petitioner] Nostradamus Villanueva was then
the registered owner of a green Mitsubishi Lancer bearing Plate No. PHK 201 91.

On 22 October 1991 at about 9:45 in the evening, following a green traffic light,
[respondent] Priscilla Domingos silver Lancer car with Plate No. NDW 781 91 then
driven by [co-respondent] Leandro Luis R. Domingo was cruising along the middle
lane of South Superhighway at moderate speed from north to south. Suddenly, a green
Mitsubishi Lancer with plate No. PHK 201 91 driven by Renato Dela Cruz Ocfemia
darted from Vito Cruz Street towards the South Superhighway directly into the path of
NDW 781 91 thereby hitting and bumping its left front portion. As a result of the
impact, NDW 781 91 hit two (2) parked vehicles at the roadside, the second hitting
another parked car in front of it.

Per Traffic Accident Report prepared by Traffic Investigator Pfc. Patrocinio N. Acido,
Renato dela Cruz Ocfemia was driving with expired license and positive for alcoholic
breath. Hence, Manila Assistant City Prosecutor Oscar A. Pascua recommended the
filing of information for reckless imprudence resulting to (sic) damage to property and
physical injuries.

The original complaint was amended twice: first, impleading Auto Palace Car
Exchange as commercial agent and/or buyer-seller and second, impleading Albert
Jaucian as principal defendant doing business under the name and style of Auto Palace
Car Exchange.

Except for Ocfemia, all the defendants filed separate answers to the complaint.
[Petitioner] Nostradamus Villanueva claimed that he was no longer the owner of the
car at the time of the mishap because it was swapped with a Pajero owned by Albert
Jaucian/Auto Palace Car Exchange. For her part, Linda Gonzales declared that her
presence at the scene of the accident was upon the request of the actual owner of the
Mitsubishi Lancer (PHK 201 91) [Albert Jaucian] for whom she had been working as
agent/seller. On the other hand, Auto Palace Car Exchange represented by Albert
Jaucian claimed that he was not the registered owner of the car. Moreover, it could not
be held subsidiary liable as employer of Ocfemia because the latter was off-duty as
utility employee at the time of the incident. Neither was Ocfemia performing a duty
related to his employment. [3]

After trial, the trial court found petitioner liable and ordered him to pay
respondent actual, moral and exemplary damages plus appearance and
attorneys fees:

WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering Nostradamus

Villanueva to pay the amount of P99,580 as actual damages, P25,000.00 as moral
damages, P25,000.00 as exemplary damages and attorneys fees in the amount
of P10,000.00 plus appearance fees of P500.00 per hearing with legal interest counted
from the date of judgment. In conformity with the law on equity and in accordance
with the ruling in First Malayan Lending and Finance Corporation vs. Court of
Appeals (supra), Albert Jaucian is hereby ordered to indemnify Nostradamus
Villanueva for whatever amount the latter is hereby ordered to pay under the
judgment.

SO ORDERED. [4]

The CA upheld the trial courts decision but deleted the award for
appearance and attorneys fees because the justification for the grant was not
stated in the body of the decision. Thus, this petition for review which raises a
singular issue:

MAY THE REGISTERED OWNER OF A MOTOR VEHICLE BE HELD LIABLE

FOR DAMAGES ARISING FROM A VEHICULAR ACCIDENT INVOLVING HIS
MOTOR VEHICLE WHILE BEING OPERATED BY THE EMPLOYEE OF ITS
BUYER WITHOUT THE LATTERS CONSENT AND KNOWLEDGE? [5]

Yes.

We have consistently ruled that the registered owner of any vehicle is

directly and primarily responsible to the public and third persons while it is
being operated. The rationale behind such doctrine was explained way back
[6]

in 1957 in Erezo vs. Jepte : [7]

The principle upon which this doctrine is based is that in dealing with vehicles
registered under the Public Service Law, the public has the right to assume or presume
that the registered owner is the actual owner thereof, for it would be difficult for the
public to enforce the actions that they may have for injuries caused to them by the
vehicles being negligently operated if the public should be required to prove who the
actual owner is. How would the public or third persons know against whom to enforce
their rights in case of subsequent transfers of the vehicles? We do not imply by his
doctrine, however, that the registered owner may not recover whatever amount he had
paid by virtue of his liability to third persons from the person to whom he had actually
sold, assigned or conveyed the vehicle.

Under the same principle the registered owner of any vehicle, even if not used for a
public service, should primarily be responsible to the public or to third persons for
injuries caused the latter while the vehicle is being driven on the highways or streets.
The members of the Court are in agreement that the defendant-appellant should be
held liable to plaintiff-appellee for the injuries occasioned to the latter because of the
negligence of the driver, even if the defendant-appellant was no longer the owner of
the vehicle at the time of the damage because he had previously sold it to another.
What is the legal basis for his (defendant-appellants) 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.

The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that no vehicle
may be used or operated upon any public highway unless the same is property
registered. It has been stated that the system of licensing and the requirement that each
machine must carry a registration number, conspicuously displayed, is one of the
precautions taken to reduce the danger of injury to pedestrians and other travelers
from the careless management of automobiles. And to furnish a means of ascertaining
the identity of persons violating the laws and ordinances, regulating the speed and
operation of machines upon the highways (2 R.C.L. 1176). Not only are vehicles to be
registered and that no motor vehicles are to be used or operated without being
properly registered for the current year, but that dealers in motor vehicles shall furnish
thee Motor Vehicles Office a report showing the name and address of each purchaser
of motor vehicle during the previous month and the manufacturers serial number and
motor number. (Section 5(c), Act No. 3992, as amended.)

Registration is required not to make said registration the operative act by which
ownership in vehicles is transferred, as in land registration 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.
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 owner so that if any accident happens, or that any damage or injury is
caused by the vehicle on the public highways, responsibility therefore can be fixed on
a 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 persons responsible for damages or injuries caused
on public highways:

One of the principal purposes of motor vehicles legislation is identification of the

vehicle and of the operator, in case of accident; and another is that the knowledge that
means of detection are always available may act as a deterrent from lax observance of
the law and of the rules of conservative and safe operation. Whatever purpose there
may be in these statutes, it is subordinate at the last to the primary purpose of
rendering it certain that the violator of the law or of the rules of safety shall not escape
because of lack of means to discover him. The purpose of the statute is thwarted, and
the displayed number becomes a share 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 pace a middleman between them and the public, and escape
liability by the manner in which they recompense servants. (King vs. Brenham
Automobile Co., Inc. 145 S.W. 278, 279.)

With the above policy in mind, the question that 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 by 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 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 usually 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.

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 and requires.

In synthesis, we hold that the registered owner, the defendant-appellant herein, is

primarily responsible for the damage caused to the vehicle of the plaintiff-appellee,
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.
[8]

Petitioner insists that he is not liable for damages since the driver of the
vehicle at the time of the accident was not an authorized driver of the new
(actual) owner of the vehicle. He claims that the ruling in First Malayan
Leasing and Finance Corporation vs. CA implies that to hold the registered
[9]

owner liable for damages, the driver of the vehicle must have been
authorized, allowed and permitted by its actual owner to operate and drive it.
Thus, if the vehicle is driven without the knowledge and consent of the actual
owner, then the registered owner cannot be held liable for damages.
He further argues that this was the underlying theory behind Duavit vs.
CA wherein the court absolved the registered owner from liability after
[10]

finding that the vehicle was virtually stolen from the owners garage by a
person who was neither authorized nor employed by the owner. Petitioner
concludes that the ruling in Duavit and not the one in First Malayan should be
applicable to him.
Petitioners argument lacks merit. Whether the driver is authorized or not
by the actual owner is irrelevant to determining the liability of the registered
owner who the law holds primarily and directly responsible for any accident,
injury or death caused by the operation of the vehicle in the streets and
highways. To require the driver of the vehicle to be authorized by
the actual owner before the registered owner can be held accountable is to
defeat the very purpose why motor vehicle legislations are enacted in the first
place.
 Furthermore, there is nothing in First Malayan which even remotely
suggests that the driver must be authorized before the registered owner can
be held accountable. In First Malayan, the registered owner, First Malayan
Corporation, was held liable for damages arising from the accident even if the
vehicle involved was already owned by another party:

This Court has consistently ruled that regardless of who the actual owner is of a motor
vehicle might be, the registered owner is the operator of the same with respect to the
public and third persons, and as such, directly and primarily responsible for the
consequences of its operation. In contemplation of law, the owner/operator of
record is the employer of the driver, the actual operator and employer being
considered merely as his agent (MYC-Agro-Industrial Corporation vs. Vda. de Caldo,
132 SCRA 10, citing Vargas vs. Langcay, 6 SCRA 174; Tamayo vs. Aquino, 105 Phil.
949).

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 person, and as such is
responsible for the consequences incident to its operation, we must hold and consider
such owner-operator of record as the 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. [11]

Contrary to petitioners position, the First Malayan ruling is applicable to

him since the case involves the same set of facts ― the registered owner had
previously sold the vehicle to someone else and was being driven by an
employee of the new (actual) owner. Duavit is inapplicable since the vehicle
there was not transferred to another; the registered and the actual owner was
one and the same person. Besides, in Duavit, the defense of the registered
owner, Gilberto Duavit, was that the vehicle was practically stolen from his
garage by Oscar Sabiano, as affirmed by the latter:

Defendant Sabiano, in his testimony, categorically admitted that he took the jeep from
the garage of defendant Duavit without the consent and authority of the latter. He
testified further that Duavit even filed charges against him for the theft of the jeep but
which Duavit did not push through as his (Sabianos) parents apologized to Duavit on
his behalf.
[12]
 As correctly pointed out by the CA, the Duavit ruling is not applicable to
petitioners case since the circumstance of unauthorized use was not present.
He in fact voluntarily delivered his car to Albert Jaucian as part of the
downpayment for a vehicle he purchased from Jaucian. Thus, he could not
claim that the vehicle was stolen from him since he voluntarily ceded
possession thereof to Jaucian. It was the latter, as the new (actual) owner,
who could have raised the defense of theft to prove that he was not liable for
the acts of his employee Ocfemia. Thus, there is no reason to apply
the Duavit ruling to this case.
The ruling in First Malayan has been reiterated in BA Finance Corporation
vs. CA and more recently in Aguilar, Sr. vs. Commercial Savings Bank.
[13]

In BA Finance, we held the registered owner liable even if, at the time of the
[14]

accident, the vehicle was leased by another party and was driven by the
lessees employee. In Aguilar, the registered owner-bank answered for
damages for the accident even if the vehicle was being driven by the Vice-
President of the Bank in his private capacity and not as an officer of the Bank,
as claimed by the Bank. We find no reason to deviate from these decisions.
The main purpose of vehicle registration is the easy identification of the
owner who can be held responsible for any accident, damage or injury caused
by the vehicle. Easy identification prevents inconvenience and prejudice to a
third party injured by one who is unknown or unidentified. To allow a registered
owner to escape liability by claiming that the driver was not authorized by the
new (actual) owner results in the public detriment the law seeks to avoid.
Finally, the issue of whether or not the driver of the vehicle during the
accident was authorized is not at all relevant to determining the liability of the
registered owner. This must be so if we are to comply with the rationale and
principle behind the registration requirement under the motor vehicle law.
WHEREFORE, the petition is hereby DENIED. The January 26, 2000
decision of the Court of Appeals is AFFIRMED.
SO ORDERED.

UCPB GENERAL INSURANCE G.R. No. 168433

CO., INC.,
Petitioner, Present:
QUISUMBING, J.,
Chairperson,
CARPIO MORALES,
- versus - TINGA,
VELASCO, JR., and
BRION, JJ.
ABOITIZ SHIPPING CORP. Promulgated:
EAGLE EXPRESS LINES,
DAMCO INTERMODAL SERVICES,
INC., and PIMENTEL CUSTOMS February 10, 2009
BROKERAGE CO.,
Respondents.

x---------------------------------------------------------------------------x

DECISION

TINGA, J.:

UCPB General Insurance Co., Inc. (UCPB) assails the Decision [1] of the Court of
Appeals dated October 29, 2004, which reversed the Decision [2] dated November
29, 1999 of the Regional Trial Court of Makati City, Branch 146, and its
Resolution[3] dated June 14, 2005, which denied UCPBs motion for
reconsideration.

The undisputed facts, culled from the assailed Decision, are as follows:

On June 18, 1991, three (3) units of waste water treatment plant
with accessories were purchased by San Miguel Corporation (SMC for
brevity) from Super Max Engineering Enterprises, Co., Ltd.
of Taipei, Taiwan. The goods came from Charleston, U.S.A. and arrived
at the port of Manila on board MV SCANDUTCH STAR. The same
were then transported to Cebu on board MV ABOITIZ SUPERCON II.
After its arrival at the port of Cebu and clearance from the Bureau of
Customs, the goods were delivered to and received by SMC at its plant
site on August 2, 1991. It was then discovered that one electrical motor
of DBS Drive Unit Model DE-30-7 was damaged.
 Pursuant to an insurance agreement, plaintiff-appellee paid SMC
the amount of P1,703,381.40 representing the value of the damaged unit.
In turn, SMC executed a Subrogation Form dated March 31, 1992 in
favor of plaintiff-appellee.

Consequently, plaintiff-appellee filed a Complaint on July 21,

1992 as subrogee of SMC seeking to recover from defendants the
amount it had paid SMC.

On September 20, 1994, plaintiff-appellee moved to admit its

Amended Complaint whereby it impleaded East Asiatic Co. Ltd. (EAST
for brevity) as among the defendants for being the general agent of
DAMCO. In its Order dated September 23, 1994, the lower court
admitted the said amended complaint.

Upon plaintiff-appellees motion, defendant DAMCO was declared

in default by the lower court in its Order dated January 6, 1995.

In the meantime, on January 25, 1995, defendant EAST filed a

Motion for Preliminary Hearing on its affirmative defenses seeking the
dismissal of the complaint against it on the ground of prescription, which
motion was however denied by the court a quo in its Order
dated September 1, 1995. Such denial was elevated by defendant EAST
to this Court through a Petition for Certiorari on October 30, 1995 in CA
G.R. SP No. 38840. Eventually, this Court issued its Decision
dated February 14, 1996 setting aside the lower courts assailed order of
denial and further ordering the dismissal of the complaint against
defendant EAST. Plaintiff-appellee moved for reconsideration thereof
but the same was denied by this Court in its Resolution dated November
8, 1996. As per Entry of Judgment, this Courts decision ordering the
dismissal of the complaint against defendant EAST became final and
executory on December 5, 1996.

Accordingly, the court a quo noted the dismissal of the complaint

against defendant EAST in its Order dated December 5, 1997. Thus, trial
ensued with respect to the remaining defendants.

On November 29, 1999, the lower court rendered its assailed

Decision, the dispositive portion of which reads:
 WHEREFORE, all the foregoing premises considered,
judgment is hereby rendered declaring DAMCO Intermodal
Systems, Inc., Eagle Express Lines, Inc. and defendant Aboitiz
Shipping solidarily liable to plaintiff-subrogee for the damaged
shipment and orders them to pay plaintiff jointly and severally the
sum of P1,703,381.40.

No costs.

SO ORDERED.

Not convinced, defendants-appellants EAGLE and ABOITIZ now

come to this Court through their respective appeals x x x [4]

The appellate court, as previously mentioned, reversed the decision of the trial
court and ruled that UCPBs right of action against respondents did not accrue
because UCPB failed to file a formal notice of claim within 24 hours from (SMCs)
receipt of the damaged merchandise as required under Art. 366 of the Code of
Commerce. According to the Court of Appeals, the filing of a claim within the time
limitation in Art. 366 is a condition precedent to the accrual of a right of action
against the carrier for the damages caused to the merchandise.

In its Memorandum[5] dated February 8, 2007, UCPB asserts that the claim
requirement under Art. 366 of the Code of Commerce does not apply to this case
because the damage to the merchandise had already been known to the
carrier. Interestingly, UCPB makes this revelation: x x x damage to the cargo was
found upon discharge from the foreign carrier onto the International Container
Terminal Services, Inc. (ICTSI) in the presence of the carriers representative who
signed the Request for Bad Order Survey[6] and the Turn Over of Bad Order
Cargoes.[7] On transshipment, the cargo was already damaged when loaded on
board the inter-island carrier.[8] This knowledge, UCPB argues, dispenses with the
need to give the carrier a formal notice of claim. Incidentally, the carriers
representative mentioned by UCPB as present at the time the merchandise was
unloaded was in fact a representative of respondent Eagle Express Lines (Eagle
Express).
UCPB claims that under the Carriage of Goods by Sea Act (COGSA), notice of
loss need not be given if the condition of the cargo has been the subject of joint
inspection such as, in this case, the inspection in the presence of the Eagle Express
representative at the time the cargo was opened at the ICTSI.

UCPB further claims that the issue of the applicability of Art. 366 of the Code of
Commerce was never raised before the trial court and should, therefore, not have
been considered by the Court of Appeals.

Eagle Express, in its Memorandum[9] dated February 7, 2007, asserts that it cannot
be held liable for the damage to the merchandise as it acted merely as a freight
forwarders agent in the transaction. It allegedly facilitated the transshipment of the
cargo from Manila to Cebu but represented the interest of the cargo owner, and not
the carriers. The only reason why the name of the Eagle Express representative
appeared on the Permit to Deliver Imported Goods was that the form did not have
a space for the freight forwarders agent, but only for the agent of the shipping
line. Moreover, UCPB had previously judicially admitted that upon verification
from the Bureau of Customs, it was East Asiatic Co., Ltd. (East Asiatic), regarding
whom the original complaint was dismissed on the ground of prescription, which
was the real agent of DAMCO Intermodal Services, Inc. (DAMCO), the ship
owner.

Eagle Express argues that the applicability of Art. 366 of the Code of Commerce
was properly raised as an issue before the trial court as it mentioned this issue as a
defense in its Answer to UCPBs Amended Complaint.Hence, UCPBs contention
that the question was raised for the first time on appeal is incorrect.

Aboitiz Shipping Corporation (Aboitiz), on the other hand, points out, in its
Memorandum[10] dated March 29, 2007, that it obviously cannot be held liable for
the damage to the cargo which, by UCPBs admission, was incurred not during
transshipment to Cebu on
board one of Aboitizs vessels, but was already existent at the time of unloading
in Manila. Aboitiz also argues that Art. 366 of the Code of Commerce is applicable
and serves as a condition precedent to the accrual of UCPBs cause of action
against it.

The Memorandum[11] dated June 3, 2008, filed by Pimentel Customs

Brokerage Co. (Pimentel Customs), is also a reiteration of the applicability of Art.
366 of the Code of Commerce.

It should be stated at the outset that the issue of whether a claim should have
been made by SMC, or UCPB as SMCs subrogee, within the 24-hour period
prescribed by Art. 366 of the Code of Commerce was squarely raised before the
trial court.

In its Answer to Amended Complaint[12] dated May 10, 1993, Eagle Express
averred, thus:

The amended complaint states no cause of action under the

provisions of the Code of Commerce and the terms of the bill of lading;
consignee made no claim against herein defendant within twenty four
(24) hours following the receipt of the alleged cargo regarding the
condition in which said cargo was delivered; however, assuming
arguendo that the damage or loss, if any, could not be ascertained from
the outside part of the shipment, consignee never made any claim against
herein defendant at the time of receipt of said cargo; herein defendant
learned of the alleged claim only upon receipt of the complaint. [13]

Likewise, in its Answer[14] dated September 21, 1992, Aboitiz raised the
defense that UCPB did not file a claim with it and that the complaint states no
cause of action.

UCPB obviously made a gross misrepresentation to the Court when it

claimed that the issue regarding the applicability of the Code of Commerce,
particularly the 24-hour formal claim rule, was not raised as an issue before the
trial court. The appellate court, therefore, correctly looked into the validity of the
arguments raised by Eagle Express, Aboitiz and Pimentel Customs on this point
after the trial court had so ill-advisedly centered its decision merely on the matter
of extraordinary diligence.

Interestingly enough, UCPB itself has revealed that when the shipment was
discharged and opened at the ICTSI in Manila in the presence of an Eagle Express
representative, the cargo had already been found damaged. In fact, a request for
bad order survey was then made and a turnover survey of bad order cargoes was
issued, pursuant to the procedure in the discharge of bad order cargo. The shipment
was then repacked and transshipped from Manila to Cebu on board MV Aboitiz
Supercon II. When the cargo was finally received by SMC at
its Mandaue City warehouse, it was found in bad order, thereby confirming the
damage already uncovered in Manila.[15]

In charging Aboitiz with liability for the damaged cargo, the trial court
condoned UCPBs wrongful suit against Aboitiz to whom the damage could not
have been attributable since there was no evidence presented that the cargo was
further damaged during its transshipment to Cebu. Even by the exercise of
extraordinary diligence, Aboitiz could not have undone the damage to the cargo
that had already been there when the same was shipped on board its vessel.

That said, it is nonetheless necessary to ascertain whether any of the

remaining parties may still be held liable by UCPB. The provisions of the Code of
Commerce, which apply to overland, river and maritime transportation, come into
play.

Art. 366 of the Code of Commerce states:

Art. 366. Within twenty-four hours following the receipt of the

merchandise, the claim against the carrier for damage or average which
may be found therein upon opening the packages, may be made,
provided that the indications of the damage or average which gives rise
 to the claim cannot be ascertained from the outside part of such
packages, in which case the claim shall be admitted only at the time of
receipt.

After the periods mentioned have elapsed, or the transportation

charges have been paid, no claim shall be admitted against the carrier
with regard to the condition in which the goods transported were
delivered.

The law clearly requires that the claim for damage or average must be made
within 24 hours from receipt of the merchandise if, as in this case, damage cannot
be ascertained merely from the outside packaging of the cargo.

In Philippine Charter Insurance Corporation v. Chemoil Lighterage

Corporation,[16] petitioner, as subrogee of Plastic Group Phil., Inc. (PGP), filed suit
against respondent therein for the damage found on a shipment of chemicals
loaded on board respondents barge. Respondent claimed that no timely notice in
accordance with Art. 366 of the Code of Commerce was made by petitioner
because an employee of PGP merely made a phone call to respondents Vice
President, informing the latter of the contamination of the cargo. The Court ruled
that the notice of claim was not timely made or relayed to respondent in
accordance with Art. 366 of the Code of Commerce.

The requirement to give notice of loss or damage to the goods is not an

empty formalism. The fundamental reason or purpose of such a stipulation is not to
relieve the carrier from just liability, but reasonably to inform it that the shipment
has been damaged and that it is charged with liability therefor, and 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 still fresh and easily investigated so as to safeguard itself from false and
fraudulent claims.[17]
 We have construed the 24-hour claim requirement as a condition precedent
to the accrual of a right of action against a carrier for loss of, or damage to, the
goods. The shipper or consignee must allege and prove the fulfillment of the
condition. Otherwise, no right of action against the carrier can accrue in favor of
the former.[18]

The shipment in this case was received by SMC on August 2, 1991.

However, as found by the Court of Appeals, the claims were dated October 30,
1991, more than three (3) months from receipt of the shipment and, at that, even
after the extent of the loss had already been determined by SMCs surveyor. The
claim was, therefore, clearly filed beyond the 24-hour time frame prescribed by
Art. 366 of the Code of Commerce.

But what of the damage already discovered in the presence of Eagle

Expresss representative at the time the shipment was discharged
in Manila? The Request for Bad Order Survey and Turn Over Survey of Bad Order
Cargoes, respectively dated June 17, 1999 and June 28, 1991, evince the fact that
the damage to the cargo was already made known to Eagle Express and, possibly,
SMC, as of those dates.

Sec. 3(6) of the COGSA provides a similar claim mechanism as the Code of
Commerce but prescribes a period of three (3) days within which notice of claim
must be given if the loss or damage is not apparent. It states:

Sec. 3(6). Unless notice of loss or damage and the general nature
of such loss or damage be given in writing to the carrier or his agent at
the port of discharge or at the time of the removal of the goods into the
custody of the person entitled to delivery thereof under the contract of
carriage, such removal shall be prima facie evidence of the delivery by
the carrier of the goods as descibed in the bill of lading. If the loss or
damage is not apparent, the notice must be given within three days of the
delivery.
 Said notice of loss or damage may be endorsed upon the receipt of
the goods given by the person taking delivery thereof.

The notice in writing need not be given if the state of the goods
has at the time of their receipt been the subject of joint survey or
inspection.

UCPB seizes upon the last paragraph which dispenses with the written
notice if the state of the goods has been the subject of a joint survey which, in this
case, was the opening of the shipment in the presence of an Eagle Express
representative. It should be noted at this point that the applicability of the above-
quoted provision of the COGSA was not raised as an issue by UCPB before the
trial court and was only cited by UCPB in its Memorandum in this case.

UCPB, however, is ambivalent as to which party Eagle Express represented

in the transaction. By its own manifestation, East Asiatic,
and not Eagle Express, acted as the agent through which summons

and court notices may be served on DAMCO. It would be unjust to hold that Eagle
Expresss knowledge of the damage to the cargo is such that it served to preclude or
dispense with the 24-hour notice to the carrier required by Art. 366 of the Code of
Commerce. Neither did the inspection of the cargo in which Eagle Expresss
representative had participated lead to the waiver of the written notice under the
Sec. 3(6) of the COGSA. Eagle Express, after all, had acted as the agent of the
freight consolidator, not that of the carrier to whom the notice should have been
made.

At any rate, the notion that the request for bad order survey and turn over
survey of bad cargoes signed by Eagle Expresss representative is construable as
compliant with the notice requirement under Art. 366 of the Code of Commerce
was foreclosed by the dismissal of the complaint against DAMCOs representative,
East Asiatic.
As regards respondent Pimentel Customs, it is sufficient to acknowledge that it had
no participation in the physical handling, loading and delivery of the damaged
cargo and should, therefore, be absolved of liability.

Finally, UCPBs misrepresentation that the applicability of the Code of Commerce

was not raised as an issue before the trial court warrants the assessment of double
costs of suit against it.

WHEREFORE, the petition is DENIED. The Decision of the Court of

Appeals in CA-G.R. CV No. 68168, dated October 29, 2004 and its Resolution
dated June 14, 2005 are AFFIRMED. Double costs against petitioner.

SO ORDERED.

here the plaintiff alleged that the airlines subjected her to unjust
discrimination or undue or unreasonable preference or disadvantage, an act
punishable under the United States laws, then the plaintiff may claim purely
nominal compensatory damages for humiliation and hurt feelings, which are not
provided for by the Warsaw Convention. In another
case, Wolgel v. Mexicana Airlines,[20] the court pronounced that actions for damages
for the bumping off itself, rather than the incidental damages due to the delay, fall
outside the Warsaw Convention and do not prescribe in two years.

In the Petition at bar, private respondents Complaint alleged that both PAL
and Singapore Airlines were guilty of gross negligence, which resulted in his being
subjected to humiliation, embarrassment, mental anguish, serious anxiety, fear and
distress.[21] The emotional harm suffered by the private respondent as a result of
having been unreasonably and unjustly prevented from boarding the plane should
be distinguished from the actual damages which resulted from the same
incident. Under the Civil Code provisions on tort,[22] such emotional harm gives
rise to compensation where gross negligence or malice is proven.

The instant case is comparable to the case of Lathigra v. British Airways.[23]

In Lathigra, it was held that the airlines negligent act of reconfirming the
passengers reservation days before departure and failing to inform the latter that
the flight had already been discontinued is not among the acts covered by the
Warsaw Convention, since the alleged negligence did not occur during the
performance of the contract of carriage but, rather, days before the scheduled
flight.

In the case at hand, Singapore Airlines barred private respondent from

boarding the Singapore Airlines flight because PAL allegedly failed to endorse the
tickets of private respondent and his companions, despite PALsassurances to
respondent that Singapore Airlines had already confirmed their passage. While this
fact still needs to be heard and established by adequate proof before the RTC, an
action based on these allegations will not fall under the Warsaw Convention, since
the purported negligence on the part of PAL did not occur during the performance
of the contract of carriage but days before the scheduled flight. Thus, the present
action cannot be dismissed based on the statute of limitations provided under
Article 29 of the Warsaw Convention.

Had the present case merely consisted of claims incidental to the airlines
delay in transporting their passengers, the private respondents Complaint would
have been time-barred under Article 29 of the Warsaw Convention. However, the
present case involves a special species of injury resulting from the failure of PAL
and/or Singapore Airlines to transport private respondent from Singapore to Jakarta
the profound distress, fear, anxiety and humiliation that private respondent
experienced when, despite PALs earlier assurance that Singapore Airlines
confirmed his passage, he was prevented from boarding the plane and he faced the
daunting possibility that he would be stranded in Singapore Airport because the
PAL office was already closed.

These claims are covered by the Civil Code provisions on tort, and not
within the purview of the Warsaw Convention. Hence, the applicable prescription
period is that provided under Article 1146 of the Civil Code:

Art. 1146. The following actions must be instituted within four years:

(1) Upon an injury to the rights of the plaintiff;

(2) Upon a quasi-delict.

Private respondents Complaint was filed with the RTC on 15 August 1997, which
was less than four years since PAL received his extrajudicial demand on 25
January 1994. Thus, private respondents claims have not yet prescribed
and PALs Motion to Dismiss must be denied.

Moreover, should there be any doubt as to the prescription of private

respondents Complaint, the more prudent action is for the RTC to continue hearing
the same and deny the Motion to Dismiss. Where it cannot be determined with
certainty whether the action has already prescribed or not, the defense of
prescription cannot be sustained on a mere motion to dismiss based on what
appears to be on the face of the complaint.[24] And where the ground on which
prescription is based does not appear to be indubitable, the court may do well to
defer action on the motion to dismiss until after trial on the merits.[25]

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The

assailed Decision of the Court of Appeals in CA-G.R. SP No. 48664, promulgated
on 17 August 2001 is AFFIRMED. Costs against the petitioner.

SO ORDERED.
 [G.R. No. 138334. August 25, 2003]

ESTELA L. CRISOSTOMO, petitioner, vs. THE COURT OF

APPEALS and CARAVAN TRAVEL & TOURS INTERNATIONAL,
INC., respondents.

DECISION
YNARES-SANTIAGO, J.:

In May 1991, petitioner Estela L. Crisostomo contracted the services of

respondent Caravan Travel and Tours International, Inc. to arrange and
facilitate her booking, ticketing and accommodation in a tour dubbed Jewels of
Europe. The package tour included the countries of England, Holland,
Germany, Austria, Liechstenstein, Switzerland and France at a total cost of
P74,322.70. Petitioner was given a 5% discount on the amount, which
included airfare, and the booking fee was also waived because petitioners
niece, Meriam Menor, was respondent companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12,
1991 a Wednesday to deliver petitioners travel documents and plane
tickets. Petitioner, in turn, gave Menor the full payment for the package
tour. Menor then told her to be at the Ninoy Aquino International Airport (NAIA)
on Saturday, two hours before her flight on board British Airways.
Without checking her travel documents, petitioner went to NAIA on
Saturday, June 15, 1991, to take the flight for the first leg of her journey from
Manila to Hongkong. To petitioners dismay, she discovered that the flight she
was supposed to take had already departed the previous day. She learned
that her plane ticket was for the flight scheduled on June 14, 1991. She thus
called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the
British Pageant which included England, Scotland and Wales in its itinerary.
For this tour package, petitioner was asked anew to pay US$785.00 or
P20,881.00 (at the then prevailing exchange rate of P26.60). She gave
respondent US$300 or P7,980.00 as partial payment and commenced the trip
in July 1991.
Upon petitioners return from Europe, she demanded from respondent the
reimbursement of P61,421.70, representing the difference between the sum
she paid for Jewels of Europe and the amount she owed respondent for the
British Pageant tour. Despite several demands, respondent company refused
to reimburse the amount, contending that the same was non-refundable.
Petitioner was thus constrained to file a complaint against respondent for
[1]

breach of contract of carriage and damages, which was docketed as Civil

Case No. 92-133 and raffled to Branch 59 of the Regional Trial Court of
Makati City.
In her complaint, petitioner alleged that her failure to join Jewels of
[2]

Europe was due to respondents fault since it did not clearly indicate the
departure date on the plane ticket. Respondent was also negligent in
informing her of the wrong flight schedule through its employee Menor. She
insisted that the British Pageant was merely a substitute for the Jewels of
Europe tour, such that the cost of the former should be properly set-off against
the sum paid for the latter.
For its part, respondent company, through its Operations Manager,
Concepcion Chipeco, denied responsibility for petitioners failure to join the
first tour. Chipeco insisted that petitioner was informed of the correct
departure date, which was clearly and legibly printed on the plane ticket. The
travel documents were given to petitioner two days ahead of the scheduled
trip. Petitioner had only herself to blame for missing the flight, as she did not
bother to read or confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid for
Jewels of Europe, considering that the same had already been remitted to its
principal in Singapore, Lotus Travel Ltd., which had already billed the same
even if petitioner did not join the tour. Lotus European tour organizer, Insight
International Tours Ltd., determines the cost of a package tour based on a
minimum number of projected participants. For this reason, it is accepted
industry practice to disallow refund for individuals who failed to take a booked
tour. [3]

Lastly, respondent maintained that the British Pageant was not a substitute
for the package tour that petitioner missed. This tour was independently
procured by petitioner after realizing that she made a mistake in missing her
flight for Jewels of Europe. Petitioner was allowed to make a partial payment
of only US$300.00 for the second tour because her niece was then an
employee of the travel agency. Consequently, respondent prayed that
petitioner be ordered to pay the balance of P12,901.00 for the British Pageant
package tour.
After due proceedings, the trial court rendered a decision, the dispositive
[4]

part of which reads:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

 1. Ordering the defendant to return and/or refund to the plaintiff the amount of
Fifty Three Thousand Nine Hundred Eighty Nine Pesos and Forty Three
Centavos (P53,989.43) with legal interest thereon at the rate of twelve
percent (12%) per annum starting January 16, 1992, the date when the
complaint was filed;

2. Ordering the defendant to pay the plaintiff the amount of Five Thousand
(P5,000.00) Pesos as and for reasonable attorneys fees;

3. Dismissing the defendants counterclaim, for lack of merit; and

4. With costs against the defendant.

SO ORDERED. [5]

The trial court held that respondent was negligent in erroneously advising
petitioner of her departure date through its employee, Menor, who was not
presented as witness to rebut petitioners testimony. However, petitioner
should have verified the exact date and time of departure by looking at her
ticket and should have simply not relied on Menors verbal representation. The
trial court thus declared that petitioner was guilty of contributory negligence
and accordingly, deducted 10% from the amount being claimed as refund.
Respondent appealed to the Court of Appeals, which likewise found both
parties to be at fault. However, the appellate court held that petitioner is more
negligent than respondent because as a lawyer and well-traveled person, she
should have known better than to simply rely on what was told to her. This
being so, she is not entitled to any form of damages. Petitioner also forfeited
her right to the Jewels of Europe tour and must therefore pay respondent the
balance of the price for the British Pageant tour. The dispositive portion of the
judgment appealed from reads as follows:

WHEREFORE, premises considered, the decision of the Regional Trial Court dated
October 26, 1995 is hereby REVERSED and SET ASIDE. A new judgment is hereby
ENTERED requiring the plaintiff-appellee to pay to the defendant-appellant the
amount of P12,901.00, representing the balance of the price of the British Pageant
Package Tour, the same to earn legal interest at the rate of SIX PERCENT (6%) per
annum, to be computed from the time the counterclaim was filed until the finality of
this decision. After this decision becomes final and executory, the rate of TWELVE
PERCENT (12%) interest per annum shall be additionally imposed on the total
obligation until payment thereof is satisfied. The award of attorneys fees is
DELETED. Costs against the plaintiff-appellee.
SO ORDERED. [6]

Upon denial of her motion for reconsideration, petitioner filed the instant
[7]

petition under Rule 45 on the following grounds:

I

It is respectfully submitted that the Honorable Court of Appeals committed a

reversible error in reversing and setting aside the decision of the trial court by ruling
that the petitioner is not entitled to a refund of the cost of unavailed Jewels of Europe
tour she being equally, if not more, negligent than the private respondent, for in the
contract of carriage the common carrier is obliged to observe utmost care and extra-
ordinary diligence which is higher in degree than the ordinary diligence required of
the passenger. Thus, even if the petitioner and private respondent were both negligent,
the petitioner cannot be considered to be equally, or worse, more guilty than the
private respondent. At best, petitioners negligence is only contributory while the
private respondent [is guilty] of gross negligence making the principle of pari delicto
inapplicable in the case;

II

The Honorable Court of Appeals also erred in not ruling that the Jewels of Europe
tour was not indivisible and the amount paid therefor refundable;

III

The Honorable Court erred in not granting to the petitioner the consequential damages
due her as a result of breach of contract of carriage.
[8]

Petitioner contends that respondent did not observe the standard of care
required of a common carrier when it informed her wrongly of the flight
schedule. She could not be deemed more negligent than respondent since the
latter is required by law to exercise extraordinary diligence in the fulfillment of
its obligation. If she were negligent at all, the same is merely contributory and
not the proximate cause of the damage she suffered. Her loss could only be
attributed to respondent as it was the direct consequence of its employees
gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a
certain person or association of persons obligate themselves to transport
persons, things, or news from one place to another for a fixed price. Such [9]

person or association of persons are regarded as carriers and are classified

as private or special carriers and common or public carriers. A common
[10]

carrier is defined under Article 1732 of the Civil Code as persons,

corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity
engaged in the business of transporting either passengers or goods and is
therefore, neither a private nor a common carrier. Respondent did not
undertake to transport petitioner from one place to another since its covenant
with its customers is simply to make travel arrangements in their behalf.
Respondents services as a travel agency include procuring tickets and
facilitating travel permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of
respondent company, this does not mean that the latter ipso facto is a
common carrier. At most, respondent acted merely as an agent of the airline,
with whom petitioner ultimately contracted for her carriage to Europe.
Respondents obligation to petitioner in this regard was simply to see to it that
petitioner was properly booked with the airline for the appointed date and
time. Her transport to the place of destination, meanwhile, pertained directly to
the airline.
The object of petitioners contractual relation with respondent is the latters
service of arranging and facilitating petitioners booking, ticketing and
accommodation in the package tour. In contrast, the object of a contract of
carriage is the transportation of passengers or goods. It is in this sense that
the contract between the parties in this case was an ordinary one for services
and not one of carriage. Petitioners submission is premised on a wrong
assumption.
The nature of the contractual relation between petitioner and respondent is
determinative of the degree of care required in the performance of the latters
obligation under the contract. For reasons of public policy, a common carrier in
a contract of carriage is bound by law to carry passengers as far as human
care and foresight can provide using the utmost diligence of very cautious
persons and with due regard for all the circumstances. As earlier stated,
[11]

however, respondent is not a common carrier but a travel agency. It is thus not
bound under the law to observe extraordinary diligence in the performance of
its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services, the
standard of care required of respondent is that of a good father of a family
under Article 1173 of the Civil Code. This connotes reasonable care
[12]
consistent with that which an ordinarily prudent person would have observed
when confronted with a similar situation. The test to determine whether
negligence attended the performance of an obligation is: did the defendant in
doing the alleged negligent act use that reasonable care and caution which an
ordinarily prudent person would have used in the same situation? If not, then
he is guilty of negligence. [13]

In the case at bar, the lower court found Menor negligent when she
allegedly informed petitioner of the wrong day of departure. Petitioners
testimony was accepted as indubitable evidence of Menors alleged negligent
act since respondent did not call Menor to the witness stand to refute the
allegation. The lower court applied the presumption under Rule 131, Section 3
(e) of the Rules of Court that evidence willfully suppressed would be adverse
[14]

if produced and thus considered petitioners uncontradicted testimony to be

sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was
negligent and maintains that petitioners assertion is belied by the evidence on
record. The date and time of departure was legibly written on the plane ticket
and the travel papers were delivered two days in advance precisely so that
petitioner could prepare for the trip. It performed all its obligations to enable
petitioner to join the tour and exercised due diligence in its dealings with the
latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners
testimony could not give rise to an inference unfavorable to the former. Menor
was already working in France at the time of the filing of the complaint,
thereby making it physically impossible for respondent to present her as a
[15]

witness. Then too, even if it were possible for respondent to secure Menors
testimony, the presumption under Rule 131, Section 3(e) would still not
apply. The opportunity and possibility for obtaining Menors testimony
belonged to both parties, considering that Menor was not just respondents
employee, but also petitioners niece. It was thus error for the lower court to
invoke the presumption that respondent willfully suppressed evidence under
Rule 131, Section 3(e). Said presumption would logically be inoperative if the
evidence is not intentionally omitted but is simply unavailable, or when the
same could have been obtained by both parties. [16]

In sum, we do not agree with the finding of the lower court that Menors
negligence concurred with the negligence of petitioner and resultantly caused
damage to the latter. Menors negligence was not sufficiently proved,
considering that the only evidence presented on this score was petitioners
uncorroborated narration of the events. It is well-settled that the party alleging
a fact has the burden of proving it and a mere allegation cannot take the place
of evidence. If the plaintiff, upon whom rests the burden of proving his cause
[17]

of action, fails to show in a satisfactory manner facts upon which he bases his
claim, the defendant is under no obligation to prove his exception or defense. [18]

Contrary to petitioners claim, the evidence on record shows that

respondent exercised due diligence in performing its obligations under the
contract and followed standard procedure in rendering its services to
petitioner. As correctly observed by the lower court, the plane ticket issued to
[19]

petitioner clearly reflected the departure date and time, contrary to petitioners
contention. The travel documents, consisting of the tour itinerary, vouchers
and instructions, were likewise delivered to petitioner two days prior to the trip.
Respondent also properly booked petitioner for the tour, prepared the
necessary documents and procured the plane tickets. It arranged petitioners
hotel accommodation as well as food, land transfers and sightseeing
excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the
contract as well as everything else that was essential to book petitioner for the
tour. Had petitioner exercised due diligence in the conduct of her affairs, there
would have been no reason for her to miss the flight. Needless to say, after
the travel papers were delivered to petitioner, it became incumbent upon her
to take ordinary care of her concerns. This undoubtedly would require that she
at least read the documents in order to assure herself of the important details
regarding the trip.
The negligence of the obligor in the performance of the obligation renders
him liable for damages for the resulting loss suffered by the obligee. Fault or
negligence of the obligor consists in his failure to exercise due care and
prudence in the performance of the obligation as the nature of the obligation
so demands. There is no fixed standard of diligence applicable to each and
[20]

every contractual obligation and each case must be determined upon its
particular facts. The degree of diligence required depends on the
circumstances of the specific obligation and whether one has been negligent
is a question of fact that is to be determined after taking into account the
particulars of each case.[21]

The lower court declared that respondents employee was negligent. This
factual finding, however, is not supported by the evidence on record. While
factual findings below are generally conclusive upon this court, the rule is
subject to certain exceptions, as when the trial court overlooked,
misunderstood, or misapplied some facts or circumstances of weight and
substance which will affect the result of the case. [22]

In the case at bar, the evidence on record shows that respondent

company performed its duty diligently and did not commit any contractual
breach. Hence, petitioner cannot recover and must bear her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The
decision of the Court of Appeals in CA-G.R. CV No. 51932 is
AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount
of P12,901.00 representing the balance of the price of the British Pageant
Package Tour, with legal interest thereon at the rate of 6% per annum, to be
computed from the time the counterclaim was filed until the finality of this
Decision. After this Decision becomes final and executory, the rate of 12% per
annum shall be imposed until the obligation is fully settled, this interim period
being deemed to be by then an equivalent to a forbearance of credit. [23]

SO ORDERED.

PCI LEASING AND FINANCE, G.R. No. 162267

INC.,
Petitioner, Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
UCPB GENERAL INSURANCE
CO., INC., Promulgated:
Respondent. July 4, 2008

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x
DECISION

AUSTRIA-MARTINEZ, J.:
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) dated December
12, 2003 affirming with modification the Decision of the Regional Trial Court (RTC)
of Makati City which ordered petitioner and Renato Gonzaga (Gonzaga) to pay, jointly
and severally, respondent the amount of P244,500.00 plus interest; and the CA
Resolution[2] dated February 18, 2004 denying petitioner's Motion for Reconsideration.

The facts, as found by the CA, are undisputed:

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 traversing
the Laurel Highway, Barangay Balintawak, Lipa City. The car was insured
with plantiff-appellee [UCPB General Insurance Inc.], then driven
by Flaviano Isaac with Conrado Geronimo, the Asst. Manager of said bank,
was hit and bumped by an 18-wheeler Fuso Tanker Truck with Plate No. PJE-
737 and Trailer Plate No. NVM-133, owned by defendants-appellants PCI
Leasing & Finance, Inc. allegedly leased to and operated by defendant-
appellant Superior Gas & Equitable Co., Inc. (SUGECO) and driven by its
employee, defendant appellant Renato Gonzaga.

The impact caused heavy damage to the Mitsubishi Lancer car resulting in an
explosion of the rear part 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.

Plaintiff-appellee paid the assured UCPB the amount

of P244,500.00 representing the insurance coverage of the damaged car.

As the 18-wheeler truck is registered under the name of PCI Leasing, repeated
demands were made by plaintiff-appellee for the payment of the aforesaid
amounts. However, no payment was made. Thus, plaintiff-appellee filed the
instant case on March 13, 1991.[3]

PCI Leasing and Finance, Inc., (petitioner) interposed the defense that it could not be held
liable for the collision, since the driver of the truck, Gonzaga, was not its employee, but
that of its co-defendant Superior Gas & Equitable Co., Inc. (SUGECO).[4] In fact, it was
SUGECO, and not petitioner, that was the actual 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 in question.[6]

After trial, the RTC rendered its Decision dated April 15, 1999,[7] the dispositive portion of
which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of

plaintiff UCPB General Insurance [respondent], ordering the defendants PCI
Leasing and Finance, Inc., [petitioner] and Renato Gonzaga, to pay jointly and
severally the former the following amounts: the principal amount
of P244,500.00 with 12% interest as of the filing of this complaint until the
same is paid; P50,000.00 as attorney's fees; and P20,000.00 as costs of suit.

SO ORDERED.[8]

Aggrieved by the decision of the trial court, petitioner appealed to the CA.

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 the adjudged principal and the interest remain unpaid
thereafter, the interest rate shall be twelve percent (12%) per annum computed
from the time the judgment becomes final and executory until it is fully
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:

 Whether petitioner, as registered owner of a motor vehicle that figured in
a quasi-delict may be held liable, jointly and severally, with the driver thereof,
for the damages caused to third parties.

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.

Anent the first issue, the CA found petitioner liable for the damage caused by the collision
since under the Public Service Act, if the property covered by a franchise is transferred or
leased to another without obtaining the requisite approval, the transfer is not binding on the
Public Service Commission and, in contemplation of law, the grantee continues to be
responsible under the franchise in relation to the operation of the vehicle, such as damage
or injury to third parties due to collisions.[10]

Petitioner claims that the CA's reliance on the Public Service Act is misplaced, since the
said law applies only to cases involving common carriers, or those which have franchises
to operate as public utilities. In contrast, the case before this Court involves a private
commercial vehicle for business use, which is not offered for service to the general public.
[11]

Petitioner's contention has partial merit, as indeed, the vehicles involved in the case at bar
are not common carriers, which makes the Public Service Act inapplicable.

However, the registered owner of the vehicle driven by a negligent driver may still
be held liable under applicable jurisprudence involving laws on compulsory motor vehicle
registration and the liabilities of employers for quasi-delictsunder 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 the operative act by

which ownership in vehicles is transferred, as in land registration 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. 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 owner so that if any accident
happens, or that any damage or injury is caused by the vehicle on the public
highways, responsibility therefor can be fixed on a 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 persons responsible for damages
or injuries caused on public highways.

One of the principal purposes of motor vehicles legislation is identification of

the vehicle and of the operator, in case of accident; and another is that the
knowledge that means of detection are always available may act as a deterrent
from lax observance of the law and of the rules of conservative and safe
operation. Whatever purpose there may be in these statutes, it is subordinate at the
last to the primary purpose of rendering it certain that the violator of the law or of
the rules of safety shall not escape because 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.)

With the above policy in mind, the question that 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
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 usually 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.

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 and requires.
In synthesis, we hold that the registered owner, the defendant-appellant
herein, is primarily responsible for the damage caused to the vehicle of the
plaintiff-appellee, 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 case is still good law and has been consistently cited in subsequent cases. [14] Thus,
there is no good reason to depart from its tenets.

For damage or injuries arising out of negligence in the operation of a motor vehicle, the
registered owner may be held civilly liable with the negligent driver either 1) subsidiarily,
if the aggrieved party seeks relief based on a delict or crime under Articles 100 and 103 of
the Revised Penal Code; or 2) solidarily, if the complainant seeks relief based on a quasi-
delict under Articles 2176 and 2180 of the Civil Code. It is the option of the plaintiff
whether to waive completely the filing of the civil action, or institute it with the criminal
action, or file it separately or independently of a criminal action; [15] his only limitation is
that he cannot recover damages twice for the same act or omission of the defendant.[16]

In case a separate civil action is filed, the long-standing principle is that the registered
owner of a motor vehicle is primarily and directly responsible for the consequences of its
operation, including the negligence of the driver, with respect to the public and all third
persons.[17] In contemplation of law, the registered owner of a motor vehicle is the
employer of its driver, with the actual operator and employer, such as a lessee, being
considered as merely the owner's agent.[18] This being the case, even if a sale has been
executed before a tortious incident, the sale, if unregistered, has no effect as to the right of
the public and third persons to recover from the registered owner. [19] The public has the
right to conclusively presume that the registered owner is the real owner, and may sue
accordingly.[20]

In the case now before the Court, there is not even a sale of the vehicle involved, but a
mere lease, which remained unregistered up to the time of the occurrence of the quasi-
delict that gave rise to the case. Since a lease, unlike a sale, does not even involve a transfer
of title or ownership, but the mere use or enjoyment of property, there is more reason,
therefore, in this instance to uphold the policy behind 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 a legitimate and
commendable purpose.[23] In earlier cases, it considered a financial lease or financing lease
a legal contract,[24] though subject to the restrictions of the so-called Recto Law or Articles
1484 and 1485 of the Civil Code.[25] In previous cases, the Court adopted the statutory
definition of a financial lease or financing lease, as:

[A] mode of extending credit through a non-cancelable lease contract under

which the lessor purchases or acquires, at the instance of the lessee, machinery,
equipment, motor vehicles, appliances, business and office machines, and other
movable or immovable property in consideration of the periodic payment by the
lessee of a fixed amount of money sufficient to amortize at least seventy (70%)
of the purchase price or acquisition cost, including any incidental expenses and
a margin of profit over an obligatory period of not less than two (2) years during
 which the lessee has the right to hold and use the leased property, x x x but with
no obligation or option on his part to purchase the leased property from the
owner-lessor at the end of the lease contract. [26]

Petitioner presented a lengthy discussion of the purported trend in other jurisdictions,

which apparently tends to favor absolving financing companies from liability for the
consequences of quasi-delictual acts or omissions involving financially leased property.
[27]
The petition adds that these developments have been legislated in our jurisdiction in
Republic Act (R.A.) No. 8556,[28] which provides:

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.

Petitioners 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.

These developments, indeed, point to a seeming emancipation of financing

companies from the obligation to compensate claimants for losses suffered from the
operation of vehicles covered by their lease. Such, however, are not applicable to petitioner
and do not exonerate it from liability in the present case.

The new law, R.A. No. 8556, notwithstanding developments in foreign jurisdictions, do
not supersede or repeal the law on compulsory motor vehicle registration. No part of the
law expressly repeals Section 5(a) and (e) of R.A. No. 4136, as amended, otherwise known
as the Land Transportation and Traffic Code, to wit:

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.

xxxx

(e) Encumbrances of motor vehicles. - Mortgages, attachments, and

other encumbrances of motor vehicles, in order to be valid against third
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.

Cancellation or foreclosure of such mortgages, attachments, and other

encumbrances shall likewise be recorded, and in the absence of such
cancellation, no certificate of registration shall be issued without the
corresponding notation of mortgage, attachment and/or other encumbrances.

x x x x (Emphasis supplied)

Neither is there an implied repeal of R.A. No. 4136. As a rule, repeal by implication is
frowned upon, unless there is clear showing that the later statute is so irreconcilably
inconsistent and repugnant to the existing law that they cannot be reconciled and made to
stand together.[29] There is nothing in R.A. No. 4136 that is inconsistent and incapable of
reconciliation.

Thus, the rule remains the same: a sale, lease, or financial lease, for that matter, that is not
registered with the Land Transportation Office, still does not bind third persons who are
aggrieved in tortious incidents, for the latter need only to rely on the public registration of a
motor vehicle as conclusive evidence of ownership.[30] A lease such as the one involved in
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.
The non-registration of the lease contract between petitioner and its lessee precludes the
former from enjoying the benefits under Section 12 of R.A. No. 8556.

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 lessees or
whoever are the actual operators of their vehicles. In the case at bar, there is, in fact, a
provision in the lease contract between petitioner and SUGECO to the effect that the latter
shall indemnify and hold the former free and harmless from any liabilities, damages, suits,
claims or judgments arising from the latter's use of the motor vehicle. [32] Whether petitioner
would act against SUGECO based on this provision is its own option.

The burden of registration of the lease contract is minuscule compared to the chaos that
may result if registered owners or operators of vehicles are freed from such
responsibility. Petitioner pays the price for its failure to obey the law on compulsory
registration of motor vehicles for registration is a pre-requisite for any person to even enjoy
the privilege of putting a vehicle on public roads.

WHEREFORE, the petition is DENIED. The Decision dated December 12, 2003 and
Resolution dated February 18, 2004 of the Court of Appeals are AFFIRMED.

Costs against petitioner.

SO ORDERED.

[G.R. No. 142305. December 10, 2003]

SINGAPORE AIRLINES LIMITED, petitioner, vs. ANDION

FERNANDEZ, respondent.
 DECISION
CALLEJO, SR., J.:

This is a petition for review on certiorari assailing the Decision of the

[1]

Court of Appeals which affirmed in toto the decision of[2]

the Regional Trial Court of Pasig City, Branch 164 in Civil Case No. 60985
filed by the respondent for damages.

The Case for the Respondent

Respondent Andion Fernandez is an acclaimed soprano here in

the Philippines and abroad. At the time of the incident, she was availing an
educational grant from the Federal Republic of Germany, pursuing a Masters
Degree in Music majoring in Voice. [3]

She was invited to sing before the King and Queen of Malaysia on
February 3 and 4, 1991. For this singing engagement, an airline passage
ticket was purchased from petitioner Singapore Airlines which would transport
her to Manilafrom Frankfurt, Germany on January 28, 1991. From Manila, she
would proceed to Malaysia on the next day. It was necessary for the
[4]

respondent to pass by Manila in order to gather her wardrobe; and to

rehearse and coordinate with her pianist her repertoire for the aforesaid
performance.
The petitioner issued the respondent a Singapore Airlines ticket for Flight
No. SQ 27, leaving Frankfurt, Germany on January 27, 1991 bound
for Singapore with onward connections from Singapore to Manila. Flight No.
SQ 27 was scheduled to leave Frankfurt at 1:45 in the afternoon of January
27, 1991, arriving at Singapore at 8:50 in the morning of January 28,
1991. The connecting flight from Singapore to Manila, Flight No. SQ 72, was
leaving Singapore at 11:00 in the morning of January 28, 1991, arriving
in Manila at 2:20 in the afternoon of the same day. [5]

On January 27, 1991, Flight No. SQ 27 left Frankfurt but arrived

in Singapore two hours late or at about 11:00 in the morning of January 28,
1991. By then, the aircraft bound for Manila had left as scheduled, leaving the
respondent and about 25 other passengers stranded in
the Changi Airport in Singapore.[6]

Upon disembarkation at Singapore, the respondent approached the transit

counter who referred her to the nightstop counter and told the lady employee
thereat that it was important for her to reach Manila on that day, January 28,
1991. The lady employee told her that there were no more flights to Manila for
that day and that respondent had no choice but to stay in Singapore. Upon
respondents persistence, she was told that she can actually fly to Hong
Konggoing to Manila but since her ticket was non-transferable, she would
have to pay for the ticket. The respondent could not accept the offer because
she had no money to pay for it. Her pleas for the respondent to make
[7]

arrangements to transport her to Manila were unheeded. [8]

The respondent then requested the lady employee to use their phone to
make a call to Manila. Over the employees reluctance, the respondent
telephoned her mother to inform the latter that she missed the connecting
flight. The respondent was able to contact a family friend who picked her up
from the airport for her overnight stay in Singapore. [9]

The next day, after being brought back to the airport, the respondent
proceeded to petitioners counter which says: Immediate Attention To
Passengers with Immediate Booking. There were four or five passengers in
line. The respondent approached petitioners male employee at the counter to
make arrangements for immediate booking only to be told: Cant you see I am
doing something. She explained her predicament but the male employee
uncaringly retorted: Its your problem, not ours. [10]

The respondent never made it to Manila and was forced to take a direct
flight from Singapore to Malaysia on January 29, 1991, through the efforts of
her mother and travel agency in Manila. Her mother also had to travel
to Malaysiabringing with her respondents wardrobe and personal things
needed for the performance that caused them to incur an expense of about
P50,000. [11]

As a result of this incident, the respondents performance before the Royal

Family of Malaysia was below par. Because of the rude and unkind treatment
she received from the petitioners personnel in Singapore, the respondent was
engulfed with fear, anxiety, humiliation and embarrassment causing her to
suffer mental fatigue and skin rashes. She was thereby compelled to seek
immediate medical attention upon her return to Manila for acute urticaria.[12]

On June 15, 1993, the RTC rendered a decision with the following
dispositive portion:

ACCORDINGLY and as prayed for, defendant Singapore Airlines is ordered to pay

herein plaintiff Andion H. Fernandez the sum of:

1. FIFTY THOUSAND (P50,000.00) PESOS as compensatory or actual

damages;
 2. TWO HUNDRED and FIFTY THOUSAND (P250,000.00) PESOS as
moral damages considering plaintiffs professional standing in the
field of culture at home and abroad;

3. ONE HUNDRED THOUSAND (P100,000.00) PESOS as exemplary

damages;

4. SEVENTY-FIVE THOUSAND (P75,000.00) PESOS as attorneys fees;

and

5. To pay the costs of suit.

SO ORDERED. [13]

The petitioner appealed the decision to the Court of Appeals.

On June 10, 1998, the CA promulgated the assailed decision finding no
reversible error in the appealed decision of the trial court.
[14]

Forthwith, the petitioner filed the instant petition for review, raising the
following errors:
I

THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO

THE DECISION OF THE TRIAL COURT THAT AWARDED DAMAGES TO
RESPONDENT FOR THE ALLEGED FAILURE OF THE PETITIONER TO
EXERCISEEXTRAORDINARY DILIGENCE.

II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE

PETITIONER ACTED IN BAD FAITH.

III

THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING THE

PETITIONERS COUNTERCLAIMS. [15]

The petitioner assails the award of damages contending that it exercised

the extraordinary diligence required by law under the given
circumstances. The delay of Flight No. SQ 27
from Frankfurt to Singapore on January 28, 1991 for more than two hours was
due to a fortuitous event and beyond petitioners control. Inclement weather
prevented the petitioners plane coming from Copenhagen, Denmark to arrive
in Frankfurt on time on January 27, 1991. The plane could not take off from
the airport as the place was shrouded with fog. This delay caused a snowball
effect whereby the other flights were consequently delayed. The plane
carrying the respondent arrived in Singapore two (2) hours behind schedule.
The delay was even compounded when the plane could not travel the
[16]

normal route which was through the Middle East due to the raging Gulf War at
that time. It had to pass through the restricted Russian airspace which was
more congested. [17]

Under these circumstances, petitioner therefore alleged that it cannot be

faulted for the delay in arriving in Singapore on January 28, 1991 and causing
the respondent to miss her connecting flight to Manila.
The petitioner further contends that it could not also be held in bad faith
because its personnel did their best to look after the needs and interests of
the passengers including the respondent. Because the respondent and the
other 25 passengers missed their connecting flight to Manila, the petitioner
automatically booked them to the flight the next day and gave them free hotel
accommodations for the night. It was respondent who did not take petitioners
offer and opted to stay with a family friend in Singapore.
The petitioner also alleges that the action of the respondent was baseless
and it tarnished its good name and image earned through the years for which,
it was entitled to damages in the amount of P1,000,000; exemplary damages
ofP500,000; and attorneys fees also in the amount of P500,000. [18]

The petition is barren of merit.

When an airline issues a ticket to a passenger, confirmed for a particular
flight on a certain date, a contract of carriage arises. The passenger then has
every right to expect that he be transported on that flight and on that date. If
he does not, then the carrier opens itself to a suit for a breach of contract of
carriage. [19]

The contract of air carriage is a peculiar one. Imbued with public interest,
the law requires common carriers to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very
cautious persons with due regard for all the circumstances. In an action for
[20]

breach of contract of carriage, the aggrieved party does not have to prove that
the common carrier was at fault or was negligent. All that is necessary to
prove is the existence of the contract and the fact of its non-performance by
the carrier. [21]
 In the case at bar, it is undisputed that the respondent carried a confirmed
ticket for the two-legged trip from Frankfurt to Manila: 1) Frankfurt-Singapore;
and 2) Singapore-Manila. In her contract of carriage with the petitioner, the
respondent certainly expected that she would fly to Manila on Flight No. SQ
72 on January 28, 1991. Since the petitioner did not transport the respondent
as covenanted by it on said terms, the petitioner clearly breached its contract
of carriage with the respondent. The respondent had every right to sue the
petitioner for this breach. The defense that the delay was due to fortuitous
events and beyond petitioners control is unavailing. In PAL vs. CA, we held [22]

that:

.... Undisputably, PALs diversion of its flight due to inclement weather was a
fortuitous event. Nonetheless, such occurrence did not terminate PALs contract with
its passengers. Being in the business of air carriage and the sole one to operate in the
country, PAL is deemed to be equipped to deal with situations as in the case at
bar. What we said in one case once again must be stressed, i.e., the relation of carrier
and passenger continues until the latter has been landed at the port of destination and
has left the carriers premises. Hence, PAL necessarily would still have to exercise
extraordinary diligence in safeguarding the comfort, convenience and safety of its
stranded passengers until they have reached their final destination...

...

...If the cause of non-fulfillment of the contract is due to a fortuitous event, it has to be
the sole and only cause (Art. 1755 C.C., Art. 1733 C.C.). Since part of the failure to
comply with the obligation of common carrier to deliver its passengers safely to their
destination lay in the defendants failure to provide comfort and convenience to its
stranded passengers using extraordinary diligence, the cause of non-fulfillment is not
solely and exclusively due to fortuitous event, but due to something which defendant
airline could have prevented, defendant becomes liable to plaintiff.

Indeed, in the instant case, petitioner was not without recourse to enable it
to fulfill its obligation to transport the respondent safely as scheduled as far as
human care and foresight can provide to her destination. Tagged as a
premiere airline as it claims to be and with the complexities of air travel, it was
certainly well-equipped to be able to foresee and deal with such situation. The
petitioners indifference and negligence by its absence and insensitivity was
exposed by the trial court, thus:
(a) Under Section 9.1 of its Traffic Manual (Exhibit 4) flights can be delayed to await the
uplift of connecting cargo and passengers arriving on a late in-bound flight As
adverted to by the trial court,Flight SQ-27/28 maybe delayed for about half an
 hour to transfer plaintiff to her connecting flight. As pointed out above, delay is
normal in commercial air transportation (RTC Decision, p. 22); or
(b) Petitioner airlines could have carried her on one of its flights bound
for Hongkong and arranged for a connecting flight from Hongkong to Manila all
on the same date. But then the airline personnel who informed her of such
possibility told her that she has to pay for that flight. Regrettably, respondent did
not have sufficient funds to pay for it. (TSN, 30 March 1992, pp.8-9; RTC
Decision, pp. 22-23) Knowing the predicament of the respondent, petitioner did
not offer to shoulder the cost of the ticket for that flight; or
(c) As noted by the trial court from the account of petitioners witness, Bob Khkimyong,
that a passenger such as the plaintiff could have been accommodated in another
international airline such as Lufthansa to bring the plaintiff to Singapore early
enough from Frankfurt provided that there was prior communication from that
station to enable her to catch the connecting flight to Manila because of the
urgency of her business in Manila(RTC Decision, p. 23)

The petitioners diligence in communicating to its passengers the

consequences of the delay in their flights was wanting. As elucidated by the
trial court:

It maybe that delay in the take off and arrival of commercial aircraft could not be
avoided and may be caused by diverse factors such as those testified to by defendants
pilot. However, knowing fully well that even before the plaintiff boarded defendants
Jumbo aircraft in Frankfurt bound for Singapore, it has already incurred a delay of
two hours. Nevertheless, defendant did not take the trouble of informing plaintiff,
among its other passengers of such a delay and that in such a case, the usual practice
of defendant airline will be that they have to stay overnight at their connecting airport;
and much less did it inquire from the plaintiff and the other 25 passengers bound for
Manila whether they are amenable to stay overnight in Singapore and to take the
connecting flight to Manila the next day. Such information should have been given
and inquiries made in Frankfurt because even the defendant airlines manual provides
that in case of urgency to reach his or her destination on the same date, the head office
of defendant in Singapore must be informed by telephone or telefax so as the latter
may make certain arrangements with other airlines in Frankfurt to bring such a
passenger with urgent business to Singapore in such a manner that the latter can catch
up with her connecting flight such as S-27/28 without spending the night in
Singapore [23]

The respondent was not remiss in conveying her apprehension about the
delay of the flight when she was still in Frankfurt. Upon the assurance of
petitioners personnel in Frankfurt that she will be transported to Manila on the
same date, she had every right to expect that obligation fulfilled. She testified,
to wit:
 Q: Now, since you were late, when the plane that arrived from Frankfurt was late, did
you not make arrangements so that your flight from Singapore to Manila would be
adjusted?
A: I asked the lady at the ticket counter, the one who gave the boarding pass in
Frankfurt and I asked her, Since my flight going to Singapore would be late, what
would happen to my Singapore-Manila flight? and then she said, Dont worry,
Singapore Airlines would be responsible to bring you to Manila on the same
date. And then they have informed the name of the officer, or whatever, that our
flight is going to be late.[24]

When a passenger contracts for a specific flight, he has a purpose in

making that choice which must be respected. This choice, once exercised,
must not be impaired by a breach on the part of the airline without the latter
incurring any liability. For petitioners failure to bring the respondent to her
[25]

destination, as scheduled, we find the petitioner clearly liable for the breach of
its contract of carriage with the respondent.
We are convinced that the petitioner acted in bad faith. Bad faith means a
breach of known duty through some motive of interest or ill will. Self-
enrichment or fraternal interest, and not personal ill will, may well have been
the motive; but it is malice nevertheless. Bad faith was imputed by the trial
[26]

court when it found that the petitioners employees at the Singapore airport did
not accord the respondent the attention and treatment allegedly warranted
under the circumstances. The lady employee at the counter was unkind and of
no help to her. The respondent further alleged that without her threats of suing
the company, she was not allowed to use the companys phone to make long
distance calls to her mother in Manila. The male employee at the counter
where it says: Immediate Attention to Passengers with Immediate Booking
was rude to her when he curtly retorted that he was busy attending to other
passengers in line.The trial court concluded that this inattentiveness and
rudeness of petitioners personnel to respondents plight was gross enough
amounting to bad faith. This is a finding that is generally binding upon the
Court which we find no reason to disturb.
Article 2232 of the Civil Code provides that in a contractual or quasi-
contractual relationship, exemplary damages may be awarded only if the
defendant had acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner.In this case, petitioners employees acted in a wanton,
oppressive or malevolent manner. The award of exemplary damages is,
therefore, warranted in this case.
WHEREFORE, the Petition is DENIED. The Decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.
 [G.R. No. 161730. January 28, 2005]

JAPAN AIRLINES, petitioner, vs. MICHAEL ASUNCION and JEANETTE

ASUNCION, respondents.

DECISION
YNARES-SANTIAGO, J.:

This petition for review seeks to reverse and set aside the October 9, 2002
decision[1] of the Court of Appeals and its January 12, 2004 resolution,[2] which
affirmed in toto the June 10, 1997 decision of the Regional Trial Court of
Makati City, Branch 61 in Civil Case No. 92-3635.[3]
On March 27, 1992, respondents Michael and Jeanette Asuncion left
Manila on board Japan Airlines (JAL) Flight 742 bound for Los Angeles. Their
itinerary included a stop-over in Narita and an overnight stay at Hotel Nikko
Narita. Upon arrival at Narita, Mrs. Noriko Etou-Higuchi of JAL endorsed their
applications for shore pass and directed them to the Japanese immigration
official.[4] A shore pass is required of a foreigner aboard a vessel or aircraft
who desires to stay in the neighborhood of the port of call for not more than 72
hours.
During their interview, the Japanese immigration official noted that Michael
appeared shorter than his height as indicated in his passport. Because of this
inconsistency, respondents were denied shore pass entries and were brought
instead to the Narita Airport Rest House where they were billeted overnight.
The immigration official also handed Mrs. Higuchi a Notice[5] where it was
stated that respondents were to be watched so as not to escape.
Mr. Atsushi Takemoto of the International Service Center (ISC), the agency
tasked by Japans Immigration Department to handle passengers who were
denied shore pass entries, brought respondents to the Narita Airport Rest
House where they stayed overnight until their departure the following day for
Los Angeles. Respondents were charged US$400.00 each for their
accommodation, security service and meals.
 On December 12, 1992, respondents filed a complaint for
damages[6] claiming that JAL did not fully apprise them of their travel
requirements and that they were rudely and forcibly detained at Narita Airport.
JAL denied the allegations of respondents. It maintained that the refusal of
the Japanese immigration authorities to issue shore passes to respondents is
an act of state which JAL cannot interfere with or prevail upon. Consequently,
it cannot impose upon the immigration authorities that respondents be billeted
at Hotel Nikko instead of the airport resthouse.[7]
On June 10, 1997, the trial court rendered its decision, the dispositive
portion of which reads:

WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of

plaintiffs ordering defendant JAL to pay plaintiffs as follows:

1. the sum of US$800.00 representing the expenses incurred at the Narita

Airport with interest at 12% per annum from March 27, 1992 until the sum
is fully paid;

2. the sum of P200,000.00 for each plaintiff as moral damages;

3. the amount of P100,000.00 for each plaintiff as exemplary damages;

4. the amount of P100,000.00 as attorneys fees; and

5. costs of suit.

SO ORDERED.[8]

The trial court dismissed JALs counterclaim for litigation expenses,

exemplary damages and attorneys fees.
On October 9, 2002, the Court of Appeals affirmed in toto the decision of
the trial court. Its motion for reconsideration having been denied, [9] JAL now
files the instant petition.
The basic issue for resolution is whether JAL is guilty of breach of
contract.
Under Article 1755 of the Civil Code, a common carrier such as JAL is
bound to carry its passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with due regard
for all the circumstances. When an airline issues a ticket to a passenger,
confirmed for a particular flight on a certain date, a contract of carriage arises.
The passenger has every right to expect that he be transported on that flight
and on that date and it becomes the carriers obligation to carry him and his
luggage safely to the agreed destination.[10] If the passenger is not so
transported or if in the process of transporting he dies or is injured, the carrier
may be held liable for a breach of contract of carriage.[11]
We find that JAL did not breach its contract of carriage with respondents. It
may be true that JAL has the duty to inspect whether its passengers have the
necessary travel documents, however, such duty does not extend to
checking the veracity of every entry in these documents. JAL could not vouch
for the authenticity of a passport and the correctness of the entries therein.
The power to admit or not an alien into the country is a sovereign act which
cannot be interfered with even by JAL. This is not within the ambit of the
contract of carriage entered into by JAL and herein respondents. As such, JAL
should not be faulted for the denial of respondents shore pass applications.
Prior to their departure, respondents were aware that upon arrival in
Narita, they must secure shore pass entries for their overnight stay.
Respondents mother, Mrs. Imelda Asuncion, insisted though that Ms. Linda
Villavicencio of JAL assured her that her children would be granted the
passes.[12] This assertion was satisfactorily refuted by Ms. Villavicencios
testimony during the cross examination, to wit:

ATTY. GONZAGA:

Q I will show to you Exh. 9 which is the TIM and on page 184 hereof,
particularly number 10, and I quote, Those holding tickets with
confirmed seats and other documents for their onward journey and
continuing their journey to a third country provided that they obtain an
indorsement with an application of shore pass or transit pass from the
airline ground personnel before clearing the immigration formality?

WITNESS:

A Yes, Sir.

Q Did you tell this provision to Mrs. Asuncion?

A Yes, Sir. I did.

Q Are you sure?

A Yes, Sir.
Q Did you give a copy?

A No, Sir, I did not give a copy but verbally I explained to her the procedure
they have to undergo when they get to narita airport.

Q And you read the contents of this [TIM]?

A No, Sir, I did not read it to her but I explained to her the procedure that each
passenger has to go through before when they get to narita airport before
they line up in the immigration counter.

Q In other words, you told Mrs. Asuncion the responsibility of securing shore
passes bears solely on the passengers only?

A Yes, Sir.

Q That the airline has no responsibility whatsoever with regards (sic) to the
application for shore passes?

A Yes, Sir.[13]

Next, respondents claimed that petitioner breached its contract of carriage

when it failed to explain to the immigration authorities that they had overnight
vouchers at the Hotel Nikko Narita. They imputed that JAL did not exhaust all
means to prevent the denial of their shore pass entry applications.
To reiterate, JAL or any of its representatives have no authority to interfere
with or influence the immigration authorities. The most that could be expected
of JAL is to endorse respondents applications, which Mrs. Higuchi did
immediately upon their arrival in Narita.
As Mrs. Higuchi stated during her deposition:

ATTY. QUIMBO

Q: Madam Witness, what assistance did you give, if any, to the plaintiffs
during this interview?

A: No, I was not present during their interview. I cannot assist.

Q: Why not?
 A: It is forbidden for a civilian personnel to interfere with the Immigration
agents duties.[14]

Q: During the time that you were in that room and you were given this notice
for you to sign, did you tell the immigration agent that Michael and
Jeanette Asuncion should be allowed to stay at the Hotel Nikko Narita
because, as passengers of JAL, and according to the plaintiff, they had
vouchers to stay in that hotel that night?

A: No, I couldnt do so.

Q: Why not?

A: This notice is evidence which shows the decision of immigration

authorities. It shows there that the immigration inspector also designated
Room 304 of the Narita Airport Resthouse as the place where the
passengers were going to wait for their outbound flight. I cannot
interfere with that decision.[15]

Mrs. Higuchi did all she could to assist the respondents. Upon being
notified of the denial of respondents applications, Mrs. Higuchi immediately
made reservations for respondents at the Narita Airport Rest House which is
really more a hotel than a detention house as claimed by respondents.[16]
More importantly, nowhere in respondent Michaels testimony did he state
categorically that Mrs. Higuchi or any other employee of JAL treated them
rudely or exhibited improper behavior throughout their stay. We therefore find
JAL not remiss in its obligations as a common carrier.
Moral damages may be recovered in cases where one willfully causes
injury to property, or in cases of breach of contract where the other party acts
fraudulently or in bad faith. Exemplary damages are imposed by way of
example or correction for the public good, when the party to a contract acts in
wanton, fraudulent, oppressive or malevolent manner. Attorneys fees are
allowed when exemplary damages are awarded and when the party to a suit
is compelled to incur expenses to protect his interest.[17] There being no
breach of contract nor proof that JAL acted in wanton, fraudulent or
malevolent manner, there is no basis for the award of any form of damages.
Neither should JAL be held liable to reimburse respondents the amount of
US$800.00. It has been sufficiently proven that the amount pertained to ISC,
an agency separate and distinct from JAL, in payment for the
accommodations provided to respondents. The payments did not in any
manner accrue to the benefit of JAL.
However, we find that the Court of Appeals correctly dismissed JALs
counterclaim for litigation expenses, exemplary damages and attorneys fees.
The action was filed by respondents in utmost good faith and not manifestly
frivolous. Respondents honestly believed that JAL breached its contract. A
persons right to litigate should not be penalized by holding him liable for
damages. This is especially true when the filing of the case is to enforce what
he believes to be his rightful claim against another although found to be
erroneous.[18]
WHEREFORE, in view of the foregoing, the instant petition is PARTLY
GRANTED. The October 9, 2002 decision of the Court of Appeals and its
January 12, 2004 resolution in CA-G.R. CV No. 57440, are REVERSED and
SET ASIDE insofar as the finding of breach on the part of petitioner and the
award of damages, attorneys fees and costs of the suit in favor of
respondents is concerned. Accordingly, there being no breach of contract on
the part of petitioner, the award of actual, moral and exemplary damages, as
well as attorneys fees and costs of the suit in favor of respondents Michael
and Jeanette Asuncion, is DELETED for lack of basis. However, the dismissal
for lack of merit of petitioners counterclaim for litigation expenses, exemplary
damages and attorneys fees, is SUSTAINED. No pronouncement as to costs.
SO ORDERED.

[G.R. No. 71929 : December 4, 1990.]

192 SCRA 9
ALITALIA, Petitioner, vs. INTERMEDIATE APPELLATE COURT and FELIPA E. PABLO,
Respondents.

DECISION

NARVASA, J.:

Dr. Felipa Pablo — an associate professor in the University of the Philippines, 1 and a
research grantee of the Philippine Atomic Energy Agency — was invited to take part at a
meeting of the Department of Research and Isotopes of the Joint FAO-IAEA Division of
Atomic Energy in Food and Agriculture of the United Nations in Ispra, Italy. 2 She was
invited in view of her specialized knowledge in "foreign substances in food and the
agriculture environment." She accepted the invitation, and was then scheduled by the
organizers, to read a paper on "The Fate of Radioactive Fusion Products Contaminating
Vegetable Crops." 3 The program announced that she would be the second speaker on the
first day of the meeting. 4 To fulfill this engagement, Dr. Pablo booked passage on
petitioner airline, ALITALIA.
She arrived in Milan on the day before the meeting in accordance with the itinerary and
time table set for her by ALITALIA. She was however told by the ALITALIA personnel there
at Milan that her luggage was "delayed inasmuch as the same . . . (was) in one of the
succeeding flights from Rome to Milan." 5 Her luggage consisted of two (2) suitcases: one
contained her clothing and other personal items; the other, her scientific papers, slides and
other research material. But the other flights arriving from Rome did not have her baggage
on board.
By then feeling desperate, she went to Rome to try to locate her bags herself. There, she
inquired about her suitcases in the domestic and international airports, and filled out the
forms prescribed by ALITALIA for people in her predicament. However, her baggage could
not be found. Completely distraught and discouraged, she returned to Manila without
attending the meeting in Ispra, Italy.: nad

Once back in Manila she demanded that ALITALIA make reparation for the damages thus
suffered by her. ALITALIA offered her "free airline tickets to compensate her for any alleged
damages. . . ." She rejected the offer, and forthwith commenced the action 6 which has
given rise to the present appellate proceedings.
As it turned out, Prof. Pablo's suitcases were in fact located and forwarded to Ispra, 7 Italy,
but only on the day after her scheduled appearance and participation at the U.N. meeting
there. 8 Of course Dr. Pablo was no longer there to accept delivery; she was already on her
way home to Manila. And for some reason or other, the suitcases were not actually restored
to Prof. Pablo by ALITALIA until eleven (11) months later, and four (4) months after
institution of her action. 9
After appropriate proceedings and trial, the Court of First Instance rendered judgment in Dr.
Pablo's favor: 10
"(1) Ordering the defendant (ALITALIA) to pay . . . (her) the sum of TWENTY
THOUSAND PESOS (P20,000.00), Philippine Currency, by way of nominal damages;
(2) Ordering the defendant to pay . . . (her) the sum of FIVE THOUSAND PESOS
(P5,000.00), Philippine Currency, as and for attorney's fees; (and)
(3) Ordering the defendant to pay the costs of the suit."
ALITALIA appealed to the Intermediate Appellate Court but failed to obtain a reversal of the
judgment. 11 Indeed, the Appellate Court not only affirmed the Trial Court's decision but
also increased the award of nominal damages payable by ALITALIA to P40,000.00. 12 That
increase it justified as follows: 13
"Considering the circumstances, as found by the Trial Court and the negligence
committed by defendant, the amount of P20,000.00 under present inflationary
conditions as awarded . . . to the plaintiff as nominal damages, is too little to make
up for the plaintiff's frustration and disappointment in not being able to appear at
said conference; and for the embarrassment and humiliation she suffered from the
academic community for failure to carry out an official mission for which she was
singled out by the faculty to represent her institution and the country. After weighing
 carefully all the considerations, the amount awarded to the plaintiff for nominal
damages and attorney's fees should be increased to the cost of her round trip air
fare or at the present rate of peso to the dollar at P40,000,00."
ALITALIA has appealed to this Court on Certiorari. Here, it seeks to make basically the same
points it tried to make before the Trial Court and the Intermediate Appellate Court, i.e.:
1) that the Warsaw Convention should have been applied to limit ALITALIA'S liability;
and
2) that there is no warrant in fact or in law for the award to Dr. Pablo of nominal
damages and attorney's fees. 14
In addition, ALITALIA postulates that it was error for the Intermediate Appellate Court to
have refused to pass on all the assigned errors and in not stating the facts and the law on
which its decision is based. 15
Under the Warsaw Convention, 16 an air carrier is made liable for damages for:
1) the death, wounding or other bodily injury of a passenger if the accident causing
it took place on board the aircraft or in the course of its operations of embarking or
disembarking; 17
2) the destruction or loss of, or damage to, any registered luggage or goods, if the
occurrence causing it took place during the carriage by air;" 18 and
3) delay in the transportation by air of passengers, luggage or goods. 19
In these cases, it is provided in the Convention that the "action for damages, however,
founded, can only be brought subject to conditions and limits set out" therein. 20
The Convention also purports to limit the liability of the carriers in the following manner: 21
1. In the carriage of passengers the liability of the carrier for each passenger is
limited to the sum of 250,000 francs . . . Nevertheless, by special contract, the
carrier and the passenger may agree to a higher limit of liability.: nad

2. a) In the carriage of registered baggage and of cargo, the liability of the carrier is
limited to a sum of 250 francs per kilogramme, unless the passenger or consignor
has made, at the time when the package was handed over to the carrier, a special
declaration of interest in delivery at destination 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 sum is greater than the actual
value to the consignor at delivery.
b) In the case of loss, damage or delay of part of registered baggage or cargo, or of
any object contained therein, the weight to be taken into consideration in
determining the amount to which the carrier's liability is limited shall be only the
total weight of the package or packages concerned. Nevertheless, when the loss,
damage or delay of a part of the registered baggage or cargo, or of an object
contained therein, affects the value of other packages covered by the same baggage
check or the same air way bill, the total weight of such package or packages shall
also be taken into consideration in determining the limit of liability.
3. As regards objects of which the passenger takes charge himself the liability of the
carrier is limited to 5000 francs per passenger.
4. The limits prescribed . . shall not prevent the court from awarding, in accordance
with its own law, in addition, the whole or part of the court costs and of the other
expenses of litigation incurred by the plaintiff. The foregoing provision shall not apply
 if the amount of the damages awarded, excluding court costs and other expenses of
the litigation, does not exceed the sum which the carrier has offered in writing to the
plaintiff within a period of six months from the date of the occurrence causing the
damage, or before the commencement of the action, if that is later.
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 to be equivalent to wilful misconduct," or "if the damage is (similarly) caused . .
by any agent of the carrier acting within the scope of his employment." 22 The Hague
Protocol amended the Warsaw Convention by removing the provision that if the airline took
all necessary steps to avoid the damage, it could exculpate itself completely, 23 and
declaring the stated limits of liability not applicable "if it is proved that the damage resulted
from an act or omission of the carrier, its servants or agents, done with intent to cause
damage or recklessly and with knowledge that damage would probably result." The same
deletion was effected by the Montreal Agreement of 1966, with the result that a passenger
could recover unlimited damages upon proof of wilful misconduct. 24
The Convention does not thus operate as an exclusive enumeration of the instances of an
airline's liability, or as an absolute limit of the extent of that liability. Such a proposition is
not borne out by the language of the Convention, as this Court has now, and at an earlier
time, pointed out. 25 Moreover, slight reflection readily leads to the conclusion that it
should be deemed a limit of liability only in those cases where the cause of the death or
injury to person, or destruction, loss or damage to property or delay in its transport is not
attributable to or 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. The Convention's
provisions, in short, do not "regulate or exclude liability for other breaches of contract by
the carrier" 26 or misconduct of its officers and employees, or for some particular or
exceptional type of damage. Otherwise, "an air carrier would be exempt from any liability
for damages in the event of its absolute refusal, in bad faith, to comply with a contract of
carriage, which is absurd." 27 Nor may it for a moment be supposed that if a member of
the aircraft complement should inflict some physical injury on a passenger, or maliciously
destroy or damage the latter's property, the Convention might successfully be pleaded as
the sole gauge to determine the carrier's liability to the passenger. 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. It is in this sense that the Convention has been applied, or ignored, depending
on the peculiar facts presented by each case. :-cralaw

In Pan American World Airways, Inc. v. I.A.C., 28 for example, the Warsaw Convention was
applied as regards the limitation on the carrier's liability, there being a simple loss of
baggage without any otherwise improper conduct on the part of the officials or employees of
the airline or other special injury sustained by the passenger.
On the other hand, the Warsaw Convention has invariably been held inapplicable, or as not
restrictive of the carrier's liability, where there was satisfactory evidence of malice or bad
faith attributable to its officers and employees. 29 Thus, an air carrier was sentenced to
pay not only compensatory but also moral and exemplary damages, and attorney's fees, for
instance, where its employees rudely put a passenger holding a first-class ticket in the
tourist or economy section, 30 or ousted a brown Asiatic from the plane to give his seat to
a white man, 31 or gave the seat of a passenger with a confirmed reservation to
another, 32 or subjected a passenger to extremely rude, even barbaric treatment, as by
calling him a "monkey." 33
In the case at bar, no bad faith or otherwise improper conduct may be ascribed to the
employees of petitioner airline; and Dr. Pablo's luggage was eventually returned to her,
belatedly, it is true, but without appreciable damage. The fact is, nevertheless, that some
special species of injury was caused to Dr. Pablo because petitioner ALITALIA misplaced her
baggage and failed to deliver it to her at the time appointed — a breach of its contract of
carriage, to be sure — with the result that she was unable to read the paper and make the
scientific presentation (consisting of slides, autoradiograms or films, tables and tabulations)
that she had painstakingly labored over, at the prestigious international conference, to
attend which she had traveled hundreds of miles, to her chagrin and embarrassment and
the disappointment and annoyance of the organizers. She felt, not unreasonably, that the
invitation for her to participate at the conference, extended by the Joint FAO/IAEA Division
of Atomic Energy in Food and Agriculture of the United Nations, was a singular honor not
only to herself, but to the University of the Philippines and the country as well, an
opportunity to make some sort of impression among her colleagues in that field of scientific
activity. The opportunity to claim this honor or distinction was irretrievably lost to her
because of Alitalia's breach of its contract.
Apart from this, there can be no doubt that Dr. Pablo underwent profound distress and
anxiety, which gradually turned to panic and finally despair, from the time she learned that
her suitcases were missing up to the time when, having gone to Rome, she finally realized
that she would no longer be able to take part in the conference. As she herself put it, she
"was really shocked and distraught and confused."
Certainly, the compensation for the injury suffered by Dr. Pablo cannot under the
circumstances be restricted to that prescribed by the Warsaw Convention for delay in the
transport of baggage.
She is not, of course, entitled to be compensated for loss or damage to her luggage. As
already mentioned, her baggage was ultimately delivered to her in Manila, tardily but safely.
She is however entitled to nominal damages — which, as the law says, is adjudicated in
order that a right of the plaintiff, which has been violated or invaded by the defendant, may
be vindicated and recognized, and not for the purpose of indemnifying the plaintiff for any
loss suffered — and this Court agrees that the respondent Court of Appeals correctly set the
amount thereof at P40,000.00. As to the purely technical argument that the award to her of
such nominal damages is precluded by her omission to include a specific claim therefor in
her complaint, it suffices to draw attention to her general prayer, following her plea for
moral and exemplary damages and attorney's fees, "for such other and further just and
equitable relief in the premises," which certainly is broad enough to comprehend an
application as well for nominal damages. Besides, petitioner should have realized that the
explicit assertion, and proof, that Dr. Pablo's right had been violated or invaded by it —
absent any claim for actual or compensatory damages, the prayer thereof having been
voluntarily deleted by Dr. Pablo upon the return to her of her baggage — necessarily raised
the issue of nominal damages. : rd

This Court also agrees that respondent Court of Appeals correctly awarded attorney's fees to
Dr. Pablo, and the amount of P5,000.00 set by it is reasonable in the premises. The law
authorizes recovery of attorney's fees inter alia where, as here, "the defendant's act or
omission has compelled the plaintiff to litigate with third persons or to incur expenses to
protect his interest," 34 or "where the court deems it just and equitable." 35
WHEREFORE, no error being perceived in the challenged decision of the Court of Appeals, it
appearing on the contrary to be entirely in accord with the facts and the law, said decision is
hereby AFFIRMED, with costs against the petitioner.
SO ORDERED.
 [G.R. No. 104685. March 14, 1996]

SABENA BELGIAN WORLD AIRLINES, petitioner, vs. HON. COURT OF

APPEALS and MA. PAULA SAN AGUSTIN, respondents.

DECISION
VITUG, J.:

The appeal before the Court involves the issue of an airlines liability for
lost luggage. The petition for review assails the decision of the Court Appeals,
dated 27 February 1992, affirming an award of damages made by the trial
[1]

court in a complaint filed by private respondent against petitioner.

The factual background of the case, narrated by the trial court and
reproduced at length by the appellate court, is hereunder quoted:

On August 21, 1987, plaintiff was a passenger on board Flight SN 284 of defendant
airline originating from Casablanca to Brussels, Belgium on her way back to Manila.
Plaintiff checked in her luggage which contained her valuables, namely: jewelries
valued at $2,350.00; clothes $1,500.00; shoes/bag $150; accessories $75; luggage
itself $10.00; or a total of $4,265.00, for which she was issued Tag No. 71423. She
stayed overnight in Brussels and her luggage was 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 hut
the luggage was missing. She was advised to accomplish and submit a property
Irregularity Report which she submitted and filed on the same day.

She followed up her claim on September 14, 1987 but the luggage remained to be
missing.

On September 15, 1987, she filed her formal complaint with the office of Ferge
Massed, defendants Local Manager, demanding immediate attention (Exh. A).

On September 30, 1987, on the occasion of plaintiffs following up of her luggage

claim, she was furnished copies of defendants telexes with an information that the
Brussels 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 filling 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.

Defendant asserts in its Answer and its evidence tend to show that while it admits that
the plaintiff was a passenger on board Flight No. SN 284 with a piece of checked in
luggage bearing Tag No. 71423, the loss of the luggage was due to plaintiffs sole if
not contributory negligence; that she did not declare the valuable items in her
checked-in luggage at the flight counter when she checked in for her flight from
Casablanca to Brussels so that either the representative of the defendant at the counter
would have advised her to secure an insurance on the 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 have retrieved her undeclared
valuables from her baggage at the Brussels Airport since her flight from Brussels to
Manila will still have to visit for confirmation inasmuch as only her flight from
Casablanca to Brussels was confirmed; that defendant incorporated in all Sabena
Plane Tickets, including 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 he 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 plaintiffs 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) x x x US$4,265.00 or its legal exchange in Philippine pesos;

(b) x x x P30,000.00 as moral damages;

(c) x x x P10,000.00 as exemplary damages;

(d) x x x P10,000.00 attorneys fees; and

(e) (t)he costs of the suit. [3]

 Sabena appealed the decision of the Regional Trial Court to the Court of
Appeals. The appellate court, in its decision of 27 February 1992, affirmed in
toto the trial courts judgment.
Petitioner airline company, in contending that the alleged negligence of
private respondent should be considered the primary cause for the loss of her
luggage, avers that, despite her awareness that the flight ticket had been
confirmed only for Casablanca and Brussels, and that her flight from Brussels
to Manila had yet to be confirmed, she did not retrieve the luggage upon
arrival in Brussels. Petitioner insists that private respondent, being a
seasoned international traveler, must have likewise been familiar with the
standard provisions contained in her flight ticket that items of value are
required to be hand-carried by the passenger and that the liability of the airline
or loss, delay or damage to baggage would be limited, in any event, to only
US$20.00 per kilo unless a higher value is declared in advance and
corresponding additional charges are paid thereon. At the Casablanca
International Airport, private respondent, in checking in her luggage, evidently
did not declare its contents or value. Petitioner cites Section 5(c), Article IX, of
the General Conditions of 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, precious
metals, negotiable papers, securities or other valuables.
[4]

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. 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. This rule is not different in the case of common carriers in the carriage
of goods which, indeed, are bound to observe not just the due diligence of a
good father of a family but that of extraordinary care in the vigilance over the
goods. The appellate court has aptly observed:

x x x Art. 1733 of the [Civil] Code provides that from the very nature of their business
and by reasons of public policy, common carriers are bound to observe extraordinary
diligence in the vigilance over the goods transported by them. This extraordinary
responsibility, according to Art. 1736, lasts from the time the goods are
unconditionally placed in the possession of and received by the carrier until they are
delivered actually or constructively to the consignee or person who has the right to
receive them. Art. 1737 states that the common carriers duty to observe extraordinary
diligence in the vigilance over the goods transported by them remains in full force and
effect even when they are temporarily unloaded or stored in transit. And Art. 1735
establishes the presumption that if the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they had observed extraordinary diligence as required in Article
1733.

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) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.

Not one of the above excepted causes obtains in this case. [5]

The above rules remain basically unchanged even when the contract is
breached by tort although noncontradictory principles on quasi-delict may
[6]

then be assimilated as also forming part of the governing law. Petitioner is not
thus entirely off track when it has likewise raised in its defense the tort
doctrine of proximate cause. Unfortunately for petitioner, however, the doctrine
cannot, in this particular instance, support its case. 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[7]

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.

It remained undisputed that private respondents luggage was lost while it

was in the custody of petitioner. It was supposed to arrive on the same flight
that private respondent took in returning to Manila on 02 September
1987. When she discovered that the luggage was missing, she promptly
accomplished and filed a 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 felt relieved when, on 23 October 1987, she was
advised that her luggage had finally been found, with its contents intact when
examined, 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, sustained
the trial court in finding petitioner ultimately guilty of gross negligence in the
handling of private respondents luggage. The loss of said baggage not only
once by twice, said the appellate court, underscores the 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 Montreal Agreement of 1966, the Guatemala
Protocol of 1971 and the Montreal Protocols of 1975). In Alitalia vs. Intermediate
Appellate Court, now Chief Justice Andres R. Narvasa, speaking for the Court, has
[8]

explained it well; he said:

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 to be equivalent to wilful misconduct, or if the damage is
(similarly) caused x x x by any agent of the carrier acting within the scope of his
employment. The Hague Protocol amended the Warsaw Convention by removing the
provision that if the airline took all necessary steps to avoid the damage, it could
exculpate itself completely, and declaring the stated limits of liability not applicable if
it is proved that the damage resulted from an act or omission of the carrier, its servants
or agents, done with intent to cause damage or recklessly and with knowledge that
damage would probably result. The same deletion was effected by the Montreal
Agreement of 1966, with the result that a passenger could recover unlimited damages
upon proof of wilful misconduct.
The Convention does not thus operate as an exclusive enumeration of the instances of
an airlines liability, or as an absolute limit of the extent of that liability. Such a
proposition is not borne out by the 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 should be deemed a limit of liability only in those cases where the
cause of the death or injury to person, or destruction, loss or damage to property or
delay in its transport is not attributable to or 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. The Contentions provisions, in short, 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. Otherwise, an air carrier would be exempt from any liability for damages in
the event of its absolute refusal, in bad faith, to comply with a contract of carriage,
which is absurd. Nor may it for a moment be supposed that if a member of the aircraft
complement should inflict some physical injury on a passenger, or maliciously destroy
or damage the latters property, the Convention might successfully be pleaded as the
sole gauge to determine the carriers liability to the passenger. 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. It is in this sense that the Convention has been applied, or ignored,
depending on the peculiar facts presented by each case.

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 non-performance of the
obligation, including moral and exemplary damages.
[9] [10]

WHEREFORE, the decision appealed from is AFFIRMED. Costs against

petitioner.
SO ORDERED.
 [G.R. No. 122308. July 8, 1997]

PURITA S. MAPA, CARMINA S. MAPA and CORNELIO P.

MAPA, petitioners, vs. COURT OF APPEALS and TRANS-WORLD
AIRLINES INC., respondents.

DECISION
DAVIDE, JR., J.:

The main issue in this petition for review under Rule 45 of the Rules of
Court is the applicability of Article 28(1) of the Warsaw Convention, which [1]

provides as follows:

ARTICLE 28. (1) An action for damages must be brought, at the option of the
plaintiff, in the territory of one of the High Contracting Parties, either before the court
of the domicile of the carrier or of his principal place of business, or where he has a
place of business through which the contract has been made, or before the court at the
place of destination.

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 affirming the 24 July 1992
[2]

Order of the Regional Trial Court of Quezon City, Branch 102, which
dismissed Civil Case No. Q-91-9620 on the ground of lack of jurisdiction in
[3]

view of the aforementioned Article 28(1) of the Warsaw Convention.

The antecedent facts, as summarized by the Court of Appeals, are as
follows:

Plaintiffs Cornelio P. Mapa and Purita S. Mapa are respectable members of the
society. Mr. Mapa is an established businessman and currently the Regional General
Manager of Akerlund and Rausing, a multinational packaging material manufacturer
based in Manila. He was previously the Senior Vice President of Phimco Industries,
an affiliate company of Swedish Match Company. Mrs. Mapa is a successful
businesswoman engaged in the commercial transactions of high value antique and
oriental arts decor items originating from Asian countries. Carmina S. Mapa is the
daughter of plaintiffs Purita and Cornelio and is a graduate of the International School
in Bangkok, Thailand, now presently enrolled at the Boston University where she is
majoring in communication.

Plaintiffs Mapa entered into contract of air transportation with defendant TWA as
evidenced by TWA ticket Nos. 015:9475:153:304 and 015:9475:153:305, purchased
in Bangkok, Thailand. Said TWA tickets are for Los Angeles-New York-Boston-St.
Louis-Chicago ....

Domicile of carrier TWA is Kansas City, Missouri, USA. Its principal place of
business is Kansas City, Missouri, USA. TWAs place of business through which the
contracts were made is Bangkok, Thailand. The place of destination is Chicago, USA.

On August 10, 1990, plaintiffs Carmina and Purita left Manila on board PAL flight
No. 104 for Los Angeles. Carmina was to commence schooling and thus was
accompanied by Purita to assist her in 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.

On August 14, 1990, plaintiffs Purita and Carmina S. Mapa arrived at the John F.
Kennedy (JFK) Airport, New York, on TWA Flight No. 904.

On August 27, 1990, plaintiffs Purita and Carmina S. Mapa departed for Boston,
taking a connecting flight on TWAs carrier, TW 0901, from JFK Airport, New York,
to Bostons Logan Airport, checking in seven (7) pieces of luggage at the TWA counter
in the JFK Airport. The seven baggages were received by a porter who issued seven
TWA baggage receipts numbered 17-8270, 71, 72, 73, 74, 75, and 76 therefor.

From the entrance gate of the terminal building, plaintiffs Purita and Carmina
proceeded to TWAs ticket counter and presented their confirmed TWA tickets
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 inquiries. The TWA ground stewardess
informed plaintiffs that they were at the wrong gate because their flight was boarding
at gate 1. Upon hearing this, plaintiffs rushed to gate 1 which was in another building
terminal. At gate 1, they were told by a TWA ground stewardess that flight 901 had
just departed. However, they were consoled that another TWA flight was leaving for
Boston after 30 minutes and plaintiffs could use the same boarding pass for the next
flight. At around 3:15 p.m., plaintiffs Purita and Carmina were able to board the next
flight. However, the plane 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. TWAs 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 TWAs failure to locate
the missing luggage and requesting plaintiffs to accomplish a passenger property
questionnaire to facilitate a further intensive and computerized search for the lost
luggage. Plaintiffs duly accomplished the passenger property questionnaire, taking
pains to write down in detail the contents of each missing baggage. The total value of
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.

On October 8, 1990, TWA offered to amicably settle the case by giving plaintiffs-
appellants two options: (a) transportation credit for future TWA travel or (b) cash
settlement. Five months lapsed without any result on TWAs intensive search.

On January 3, 1991, plaintiffs-appellants opted for transportation credit for future

TWA travel.

On January 11, 1991, TWA disregarded plaintiffs option and unilaterally declared the
payment of $2,560.00 as constituting full satisfaction of the plaintiffs claim.

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.

Despite demands by plaintiffs, TWA failed and refused without just cause to
indemnify and redress plaintiffs for the grave injury and damages they have suffered. [4]

Purita S. Mapa, Carmina S. Mapa, and Cornelio P. Mapa (herein

petitioners) then filed with the trial court on 1 August 1991 a complaint for [5]

damages, which was docketed as Civil Case No. Q-91-9620. Before a

[6]

responsive pleading was filed, the petitioners filed an Amended Complaint.

They prayed that after due trial private respondent Trans-World Airlines, Inc.
[7]

(hereafter, TWA), be ordered to pay them the following amounts: (1)

US$8,723.79, or its equivalent in Philippine currency, representing the cost of
the lost luggage and its contents; (2) US$2,949.50, or its 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, costs 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
courts over the action for damages in that pursuant to Article 28(1) of the
Warsaw Convention, the action could only be brought either in Bangkok where
the contract was entered into, or in Boston which was the 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 the back of the tickets, its liability to the
petitioners is limited to US$9.07 per pound, or US$20.00 per kilo, which is in
lieu of actual and compensatory damages. Even assuming that petitioners
bag weighed the maximum acceptable weight of 70 pounds, TWAs 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 submitted
that it could not be liable for moral and exemplary damages and attorneys
fees because it did not act in a wanton, fraudulent, reckless, oppressive, or
malevolent manner. [9]

On 7 February 1992, the petitioners filed their second Amended

Complaint to include a claim of US$2,500, or its equivalent in Philippine
[10]

Currency, representing the additional replacement cost of the items and

personal effects contained in their lost luggage; and US$4,500 representing
the travel expenses, hotel, lodging, food and other expenses of petitioner
Cornelio Mapa, who was constrained to join his family in Boston to extend the
necessary assistance in connection with the lost luggage.
After the filing of TWAs Answer to the second Amended Complaint, and[11]

petitioners Reply thereto, the trial court gave TWA ten days within which to
submit a memorandum in support of its affirmative defenses; after which the
incident would be deemed submitted for resolution. However, after TWA filed
[12]

its Memorandum, the trial court gave the petitioners five days within which to
[13]

file a reply memorandum; and TWA, two days from receipt of the latter to file
its comment thereon. The petitioners then filed their Opposition (by way of
[14]
Reply Memorandum) to which TWA filed a Reply. Thereafter, the petitioners
[15] [16]

submitted a Rejoinder ; TWA, a Surrejoinder.

[17] [18]

On 24 July 1992, the trial court issued an Order dismissing the case for
[19]

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' amended complaint. Page two
of said questionnaire accomplished by plaintiffs under the heading "Your Complete
Itinerary" shows that the TWA tickets issued to the plaintiffs form part of the contract
of transportation to be performed from Manila to the United States. Since the
Philippines and the United States are parties to the convention, plaintiffs' contracts of
transportation come within the meaning of International Transportation.

...

On the basis of the foregoing, the Court holds that the Warsaw Convention is
applicable to the case at bar, even if the basis of plaintiffs' present action is breach of
contract of carriage under the New Civil Code.

The next question to be resolved is whether or not the Court has jurisdiction to try the
present case in the light of the provision of Art. 28(1) above-quoted.

Under Art. 28(1) supra, a complaint for damages against an air carrier can be
instituted only in any of the following places/courts:

(1) The court of the domicile of the carrier;

(2) The court of its principal place of business;
(3) The court where it has a place of business through which the contract had been
made;
(4) The court of the place of destination.

In interpreting the provision of Art. 28(1) of the Warsaw Convention, the Supreme
Court in the same 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.
Venue and jurisdiction are entirely distinct matters. 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 country may be waived by the failure of the defendant to make a
timely objection. In either case, the court may render a valid judgment. Rules as to
jurisdiction can never be left to the consent or agreement of the parties, whether or not
a prohibition exists against their alteration.

A number of reasons tends to support the characterization of Article 28(1) as a

jurisdiction and not a venue provision. First, the wording of Article 32, which
indicates the places where the action for damages "must" be brought, underscores the
mandatory nature of Article 28(1). Second, this 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, as such, cannot be
left to the will of the parties regardless of the time when the damage occurred.

...

It has been shown by the defendant that the domicile of the defendant Trans World
Airlines, Inc. is Kansas City, Missouri, its principal place of business is also in Kansas
City, Missouri, the carrier's place of business through which the contracts were made
is Bangkok (Annexes A and A-1, Amended Complaint), and the place of destination
was Boston.

The Philippines not being one of the places specified in Art. 28(1) above-quoted
where the complaint may be instituted, this Court therefore, does not have jurisdiction
over the present case.

Evidently discontented with the trial court's order, the petitioners appealed
to the Court of Appeals, 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. They claimed that
[20]

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.
 The appellate court disagreed with the petitioners and affirmed the order of
the trial court. It held that the Warsaw Convention is the law which governs the
dispute between the petitioners and TWA because what is involved
is international transportation defined by said Convention in Article I(2). This
holding is founded on its determination that the two TWA tickets for Los
Angeles-New York-Boston-St. Louis-Chicago purchased in Bangkok,
Thailand, were issued in conjunction with, and therefore formed part of, the
contract of transportation performed from Manila, Philippines, to the United
States.
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. Pursuant to Article 24(1) of the Convention, all actions
[21]

for damages, whether based on tort, code law or common law, arising from
loss of baggage under Article 18 of the Warsaw Convention, can only be
brought subject to the conditions and limits set forth in the Warsaw
Convention. Article 28(1) thereof sets forth conditions and limits in that the
action for damages may be instituted only in the territory of one of the High
Contracting Parties, before the court of (1) the domicile of the carrier, (2) the
carriers 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 places, a Philippine Court, like the RTC, has no
jurisdiction over the complaint for damages.
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 pieces of baggage. Neither is Article 2176 of the New Civil
Code on torts or quasi-delicts applicable in view of the private international
law principle of lex loci delicti commissi. In addition, comformably
[22]

with Santos III v. Northwest Orient Airlines, mere allegation of willful

[23]

misconduct resulting in a tort is insufficient to exclude the case from the

comprehension of the Warsaw Convention.
Failing in their bid to reconsider the decision, the petitioners filed this
petition. They aver that respondent Court of Appeals gravely erred (1) in
holding that the Warsaw Convention is applicable to this case and (2) in
applying Article 1753 of the Civil 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.
The petitioners insist that the Warsaw Convention is 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 sovereignty, mandate, suzerainty or authority of another
Power, the contracts did not constitute international transportation as defined
by the convention. They also claim to be without legal basis the contention of
TWA that their transportation contracts were of international character
because of the handwritten notations in the tickets re INTL TKT #079-
4402956821-2 and INTL TKT #079-4402956819. Notwithstanding such
notations, the TWA tickets, viz., (a) No. 015.9475:153:304 and (b) No.
015:9475:153:305 did not cease to be for the itinerary therein
designated. Besides, it is a fact that petitioners Purita and Carmina Mapa
traveled from Manila to Los Angeles via Philippine Airlines (PAL) by virtue of
PAL tickets issued independently of the TWA tickets.
The pith issue to be resolved under the petitioners first assigned error is
whether the contracts of transportation between Purita and Carmina Mapa, on
the one hand, and TWA, on the other, were contracts of international
transportation under the Warsaw Convention. If they were, then we should
sustain the trial court and the Court of Appeals in light of our ruling in Santos
v. Northwest Orient Airlines. It appears clear to us that TWA itself, the trial
[25]

court, and the Court of Appeals impliedly admit that if the sole basis were the
two TWA tickets for Los Angeles-New 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 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 a party to the Convention.
The High Contracting Parties referred to in the Convention are the
signatories thereto and those which subsequently adhered to it. In the case of
the Philippines, the Convention was concurred in by the Senate, through
Resolution No. 19, on 16 May 1950. The Philippine instrument of accession
was signed by President Elpidio Quirino on 13 October 1950 and was
deposited with the Polish Government on 9 November 1950. The Convention
became applicable to 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]

The contracts of transportation in this case are evidenced 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.
The only way to bring the contracts between Purita and Carmina Mapa, on
the one hand, and TWA, on the other, within the first category of international
transportation is to link them with, or to make them an integral part of,
the Manila-Los Angeles travel of Purita and Carmina through PAL aircraft. The
linkages which have been pointed out by the TWA, the trial court, and the
Court of Appeals are (1) the handwritten notations, viz., INTL TKT # 079-
4402956821-2 and INTL TKT # 079-4402956819, on the two TWA tickets; and
(2) the entries made by petitioners Purita and Carmina Mapa in column YOUR
COMPLETE ITINERARY in TWAs Passenger Property Questionnaire,
wherein they mentioned their travel from Manila to Los Angeles in flight PR
102.
The alleged international tickets mentioned in the notations in conjunction
with which the two TWA tickets were issued were not presented. Clearly then,
there is at all no factual basis of the finding that the TWA tickets were issued
in conjunction with the international tickets, which are even, at least as of now,
non-existent.
As regards the petitioners 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 by petitioners Purita and Carmina Mapa, and only in connection with
[27]

their claim for their lost pieces of baggage. The loss occurred much earlier, or
on 27 August 1990. The entry can by no means be considered as a part of, or
supplement to, their contracts of transportation evidenced by the TWA tickets
which covered transportation within the United States only.
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 from points of departures not served with
aircrafts of one or the other. There could have been no difficulty for such
agreement, since TWA admitted without qualification in paragraph 1 of its
Answer to the second Amended Complaint the allegation in paragraph 1.1 of
[28]

the latter that TWA is a foreign corporation licensed to do business in the

[29]

Philippines with office address at Ground Floor, Saville Building, Sen. Gil. J.
Puyat Avenue, corner Paseo de Roxas, Makati, Metro Manila.
TWA relies on Article I(3) of the Convention, which provides as follows:
3. A carriage to be performed by several successive air carriers is deemed, for the
purposes of this Convention, to be one undivided carriage, if it has been regarded
by the parties as a single operation, whether it had been agreed upon under the
form of a single contract or of a series of contracts, 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 sovereignty, suzerainty, mandate,
or authority of the same High Contracting Party.
It also points to Article 15 of the IATA Recommend Practice 1724, which
provides: Carriage to be performed by several successive carriers under one
ticket, or under a ticket and any conjunction ticket issued in connection
therewith, is regarded as a single operation. [30]

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
Manila to Los Angeles through PAL then to New York-Boston- St. Louis-
Chicago through TWA. The dismissal then of the second Amended Complaint
by the trial court and the Court of Appeals affirmance of the dismissal were not
based on indubitable facts or grounds, but on inferences without established
factual basis.
TWA should have offered evidence for its affirmative defenses at the
preliminary hearing therefor. Section 5 of Rule 16 of the Rules of Court
expressly provides:

SEC. 5. Pleading grounds as affirmative defenses. -- Any of the grounds for dismissal
provided for in this rule, except improper venue, may be pleaded as an affirmative
defense, and a preliminary hearing may be had thereon as if a motion to dismiss had
been filed.

Without any further evidence as earlier discussed, the trial court should
have denied the affirmative defense of lack of jurisdiction because it did not
appear to be indubitable. Section 3 of Rule 16 of the Rules of Court provides:

SEC. 3. Hearing and order. -- After hearing the court may deny or grant the motion or
allow amendment of pleading, or may defer the hearing and determination of the
motion until the trial if the ground alleged therein does not appear to be indubitable.

WHEREFORE, the instant petition is GRANTED and the challenged

decision of 31 May 1995 of respondent Court of Appeals in CA-G.R. CV No.
39896, as well as the Order of 24 July 1992 of the Regional Trial Court of
Quezon City, Branch 102, in Civil Case No. Q-91-9620, is REVERSED and
SET ASIDE.
The Regional Trial Court of Quezon City, Branch 102, is hereby
DIRECTED to proceed with the pre-trial, if it has not been terminated, and
with the trial on the merits of the case and then to render judgment thereon,
taking into account the foregoing observations on the issue of jurisdiction.
SO ORDERED.
G.R. No. L-51910 August 10, 1989

LITONJUA SHIPPING COMPANY INC., petitioner

vs.
NATIONAL SEAMEN BOARD and GREGORIO P. CANDONGO respondents.

Ferrer, Valte, Mariano, Sangalang & Villanueva for petitioner.

Estratonico S. Anano for private respondent.

FELICIANO, J.:

In this Petition for Certiorari, petitioner Litonjua Shipping Company, Inc. ("Lintonjua") seeks to
annul and set aside a decision dated, 31 May 1979 of the National Seamen Board ("NSB") in
NSB Case No. 1331-77 affirming the decision dated 17 February 1977 of the NSB hearing
officer which adjudged petitioner Litonjua liable to private respondent for violation of the latter's
contract of employment and which ordered petitioner to pay damages.

Petitioner Litonjua is the duly appointed local crewing Managing Office of the Fairwind Shipping
Corporation ('Fairwind). The M/V Dufton Bay is an ocean-going vessel of foreign registry owned
by the R.D. Mullion Ship Broking Agency Ltd. ("Mullion"). On 11 September 1976, while
the Dufton Bay was in the port of Cebu and while under charter by Fairwind, the vessel's master
contracted the services of, among others, private respondent Gregorio Candongo to serve as
Third Engineer for a period of twelve (12) months with a monthly wage of US$500.00. This
agreement was executed before the Cebu Area Manning Unit of the NSB. Thereafter, private
respondent boarded the vessel. On 28 December 1976, before expiration of his contract, private
respondent was required to disembark at Port Kelang, Malaysia, and was returned to the
Philippines on 5 January 1977. The cause of the discharge was described in his Seaman's Book
as 'by owner's arrange". 1

Shortly after returning to the Philippines, private respondent filed a complaint before public
respondent NSB, which complaint was docketed as NSB-1331-77, for violation of contract,
against Mullion as the shipping company and petitioner Litonjua as agent of the shipowner and
of the charterer of the vessel.

At the initial hearing, the NSB hearing officer held a conference with the parties, at which
conference petitioner Litonjua was represented by one of its supercargos, Edmond Cruz.
Edmond Cruz asked, in writing, that the hearing be postponed for a month upon the ground that
the employee of Litonjua in charge of the case was out of town. The hearing officer denied this
request and then declared petitioner Litonjua in default. At the hearing, private respondent
testified that when he was recruited by the Captain of the Dufton Bay, the latter was
accompanied to the NSB Cebu Area Manning Unit by two (2) supercargos sent by petitioner
Litonjua to Cebu, and that the two (2) supercargos Edmond Cruz and Renato Litonjua assisted
private respondent in the procurement of his National Investigation and Security Agency (NISA)
clearance. Messrs. Cruz and Litonjua were also present during private respondent's interview
by Captain Ho King Yiu of the Dufton Bay.

On 17 February 1977, the hearing officer of the NSB rendered a judgment by default, the 2

dispositive portion of which read:

Wherefore, premises considered, judgment is hereby rendered ordering the

respondents R.D. Mullion Shipbrokers Co., Ltd., and Litonjua Shipping Co., Inc.,
jointly and solidarily to pay the complainant the sum of four thousand six hundred
fifty seven dollars and sixty three cents ($4,657.63) or its equivalent in the Phil.
currency within 10 days from receipt of the copy of this Decision the payment of
which to be coursed through the then NSB.

The above conclusion was rationalized in the following terms:

From the evidence on record it clearly appears that there was no sufficient or
valid cause for the respondents to terminate the services of complainant prior to
17 September 1977, which is the expiry date of the contract. For this reason the
respondents have violated the conditions of the contract of employment which is
a sufficient justification for this Board to render award in favor of the complainant
of the unpaid salaries due the latter as damages corresponding to the unexpired
portion of the contract including the accrued leave pay computed on the basis of
five [51 days pay for every month of service based at $500.00 monthly salary.
Complainant's wages account further show that he has an undrawn wage
amounting to US$13.19 to be paid by the respondents Philippine agency
together with his accrued leave pay. 3

Petitioner Litonjua filed a motion for reconsideration of the hearing officer's decision; the motion
was denied. Petitioner next filed an "Appeal and/or Motion for Reconsideration of the Default
Judgment dated 9 August 1977" with the central office of the NSB. NSB then suspended its
hearing officer's decision and lifted the order of default against petitioner Litonjua, thereby
allowing the latter to adduce evidence in its own behalf The NSB hearing officer, on 26 April
1978, made the following findings:

While it appears that in the preparation of the employment papers of the

complainant, what was indicated therein was R.D. Mullion Co. (HK) Ltd. referring
to Exhibit "B" (Standard Format of a Service Agreement) and Exhibit "C" (Affidavit
of Undertaking), as thecompany whom Captain Ho King Yiu, the Master of the
vessel Dufton Bay, was representing to be the shipowner, the fact remains that at
the time of the recruitment of the complainant, as duly verified by the National
Seamen Board, Cebu Area Manning Unit, the Litonjua Shipping Company was
the authorized agent of the vessel's charterer, the Fairwind Shipping Corporation,
and that in the recruitment process, the Litonjua Shipping Company through its
supercargos in the persons of Edmund Cruz and Renato Litonjua, had
knowledge thereof and in fact assisted in the interviews conducted by the Master
of the crew applicants as admitted by Renato Litonjua including the acts of
facilitating the crew's NISA clearances as testified to by complainant. Moreover,
the participation of the Litonjua Shipping Corporation in the recruitment of
complainant, together with the other crewmembers, in Cebu in September 1976
can be traced to the contents of the letter of April 5, 1976 by the Fairwind
 Shipping Limited, thru its Director David H.L. Wu addressed to the National
Seamen Board, copy of which is on file with Contracts and Licensing Division,
quote:

This is to certify that Messrs. Litonjua Shipping, Inc. is duly appointed local
crewing Managing Office to attend on our Crew requirements as well as attend to
our ship's requirements when in Philippine ports.

We further authorized Litonjua Shipping Co., Inc. to act as local representative

who can sue and be sued, and to bind and sign contracts for our behalf. 4

The NSB then lifted the suspension of the hearing officer's 17 February 1977 decision.

Petitioner Litonjua once more moved for reconsideration. On 31 May 1979, public respondent
NSB rendered a decision which affirmed its hearing offices decision of 17 February 1977 and
5

which read in part as follows:

It is clear that respondent Litonjua Shipping Co., Inc. is the authorized Philippine
agent of Fairwind Shipping Corporation, charterer of the vessel 'Dufton Bay,
wherein complainant, served as 3rd Engineer from 17 September until
disembarkation on December 28, 1976. It is also clear from the complainant's
wages account bearing the heading 'Fairwind Shipping Corporation', signed by
the Master of the vessel that the Philippine agency referred to herein directed to
pay the said withdrawn wages of $13.19 is no other than Litonjua Shipping
Company, Inc.

From this observation, it can be reasonably inferred that the master of the vessel
acted for and in behalf of Fairwind Shipping Corporation who had the obligation
to pay the salary of the complainant. It necessarily follows that Fairwind Shipping
Corporation is the employer of said complainant. Moreover, it had been
established by complainant that Litonjua Shipping Company, Inc., had knowledge
of and participated, through its employee, in the recruitment of herein
complainant.

xxx xxx xxx

In view of the foregoing, and pursuant to Art. 3 of the New Labor Code of the
Philippines, which provides that, 'The state shall afford protection to labor . . .' as
well as the provisions of Art. 4 thereof, that 'all doubts in the implementation and
interpretation of the provisions of the Code, including its implementing rules and
regulations, shall be resolved in favor of labor', it is our conclusion, that the
decision dated February 17, 1977, is based on evidence formally offered and
presented during the hearing and that there was no grave abuse of discretion
committed by the hearing officer in finding respondent Litonjua Shipping
Company, Inc., liable to complainant. (Emphasis supplied)

In the instant Petition for Certiorari, petitioner Litonjua assails the decision of public respondent
NSB declaring the charterer Fairwind as employer of private respondent, and for whose liability
petitioner was made responsible, as constituting a grave abuse of discretion amounting to lack
of jurisdiction. The principal if not the sole issue to be resolved here is whether or not the
charterer Fairwind was properly regarded as the employer of private respondent Candongo.

Petitioner Litonjua makes two (2) principal submissions in support of its contention, to wit:

1) As a general rule, admiralty law as embodied in the Philippine Code of

Commerce fastens liability for payment of the crew's wages upon the ship owner,
and not the charterer; and

2) The evidence of record is grossly inadequate to shift such liability from the
shipowner to the petitioner.6

Petitioner Litonjua contends that the shipowner, not the charterer, was the employer of private
respondent; and that liability for damages cannot be imposed upon petitioner which was a mere
agent of the charterer. It is insisted that private respondent's contract of employment and
affidavit of undertaking clearly showed that the party with whom he had contracted was none
other than Mullion, the shipowner, represented by the ship's master. Petitioner also argues that
7

its supercargos merely assisted Captain Ho King Yiu of the Dufton Bay in being private
respondent as Third Engineer. Petitioner also points to the circumstance that the discharge and
the repatriation of private respondent was specified in his Seaman's Book as having been "by
owner's arrange." Petitioner Litonjua thus argues that being the agent of the charterer and not of
the shipowner, it accordingly should not have been held liable on the contract of employment of
private respondent.

We are not persuaded by petitioner's argument. We believe that there are two (2) grounds upon
which petitioner Litonjua may be held liable to the private respondent on the contract of
employment.

The first basis is the charter party which existed between Mullion, the shipowner, and Fairwind,
the charterer. In modern maritime law and usage, there are three (3) distinguishable types of
charter parties: (a) the "bareboat" or "demise" charter; (b) the "time" charter; and (c) the
"voyage" or "trip" charter. A bareboat or demise charter is a demise of a vessel, much as a lease
of an unfurnished house is a demise of real property. The shipowner turns over possession of
his vessel to the charterer, who then undertakes to provide a crew and victuals and supplies and
fuel for her during the term of the charter. The shipowner is not normally required by the terms
of a demise charter to provide a crew, and so the charterer gets the "bare boat", i.e., without a
crew. Sometimes, of course, the demise charter might provide that the shipowner is to furnish
8

a master and crew to man the vessel under the charterer's direction, such that the master and
crew provided by the shipowner become the agents and servants or employees of the charterer,
and the charterer (and not the owner) through the agency of the master, has possession and
control of the vessel during the charter period. A time charter, upon the other hand, like a
demise charter, is a contract for the use of a vessel for a specified period of time or for the
duration of one or more specified voyages. In this case, however, the owner of a time-chartered
vessel (unlike the owner of a vessel under a demise or bare-boat charter), retains possession
and control through the master and crew who remain his employees. What the time charterer
acquires is the right to utilize the carrying capacity and facilities of the vessel and to designate
her destinations during the term of the charter. A voyage charter, or trip charter, is simply a
contract of affreightment, that is, a contract for the carriage of goods, from one or more ports of
loading to one or more ports of unloading, on one or on a series of voyages. In a voyage
charter, master and crew remain in the employ of the owner of the vessel. 9
It is well settled that in a demise or bare boat charter, the charterer is treated as owner pro hac
vice of the vessel, the charterer assuming in large measure the customary rights and liabilities
of the shipowner in relation to third persons who have dealt with him or with the vessel. In such
10

case, the Master of the vessel is the agent of the charterer and not of the shipowner. The
11

charterer or owner pro hac vice, and not the general owner of the vessel, is held liable for the
expenses of the voyage including the wages of the seamen. 12

It is important to note that petitioner Litonjua did not place into the record of this case a copy of
the charter party covering the M/V Dufton Bay. We must assume that petitioner Litonjua was
aware of the nature of a bareboat or demise charter and that if petitioner did not see fit to
include in the record a copy of the charter party, which had been entered into by its principal, it
was because the charter party and the provisions thereof were not supportive of the position
adopted by petitioner Litonjua in the present case, a position diametrically opposed to the legal
consequence of a bareboat charter. Treating Fairwind as owner pro hac vice, petitioner
13

Litonjua having failed to show that it was not such, we believe and so hold that petitioner
Litonjua, as Philippine agent of the charterer, may be held liable on the contract of employment
between the ship captain and the private respondent.

There is a second and ethically more compelling basis for holding petitioner Litonjua liable on
the contract of employment of private respondent. The charterer of the vessel, Fairwind, clearly
benefitted from the employment of private respondent as Third Engineer of the Dufton Bay,
along with the ten (10) other Filipino crewmembers recruited by Captain Ho in Cebu at the same
occasion. If private respondent had not agreed to serve as such Third Engineer, the ship
14

would not have been able to proceed with its voyage. The equitable consequence of this benefit
to the charterer is, moreover, reinforced by convergence of other circumstances of which the
Court must take account. There is the circumstance that only the charterer, through the
petitioner, was present in the Philippines. Secondly, the scope of authority or the responsibility
of petitioner Litonjua was not clearly delimited. Petitioner as noted, took the position that its
commission was limited to taking care of vessels owned by Fairwind. But the documentary
authorization read into the record of this case does not make that clear at all. The words "our
ships" may well be read to refer both to vessels registered in the name of Fairwind and vessels
owned by others but chartered by Fairwind. Indeed the commercial, operating requirements of a
vessel for crew members and for supplies and provisions have no relationship to the technical
characterization of the vessel as owned by or as merely chartered by Fairwind. In any case, it is
not clear from the authorization given by Fairwind to petitioner Litonjua that vessels chartered by
Fairwind (and owned by some other companies) were not to be taken care of by petitioner
Litonjua should such vessels put into a Philippine port. The statement of account which
the Dufton Bay'sMaster had signed and which pertained to the salary of private respondent had
referred to a Philippine agency which would take care of disbursing or paying such account.
'there is no question that Philippine agency was the Philippine agent of the charterer Fairwind.
Moreover, there is also no question that petitioner Litonjua did assist the Master of the vessel in
locating and recruiting private respondent as Third Engineer of the vessel as well as ten (10)
other Filipino seamen as crew members. In so doing, petitioner Litonjua certainly in effect
represented that it was taking care of the crewing and other requirements of a vessel chartered
by its principal, Fairwind.
15

Last, but certainly not least, there is the circumstance that extreme hardship would result for the
private respondent if petitioner Litonjua, as Philippine agent of the charterer, is not held liable to
private respondent upon the contract of employment. Clearly, the private respondent, and the
other Filipino crew members of the vessel, would be defenseless against a breach of their
respective contracts. While wages of crew members constitute a maritime lien upon the vessel,
private respondent is in no position to enforce that lien. If only because the vessel, being one of
foreign registry and not ordinarily doing business in the Philippines or making regular calls on
Philippine ports cannot be effectively held to answer for such claims in a Philippine forum. Upon
the other hand, it seems quite clear that petitioner Litonjua, should it be held liable to private
respondent for the latter's claims, would be better placed to secure reimbursement from its
principal Fairwind. In turn, Fairwind would be in an indefinitely better position (than private
respondent) to seek and obtain recourse from Mullion, the foreign shipowner, should Fairwind
feel entitled to reimbursement of the amounts paid to private respondent through petitioner
Litonjua.

We conclude that private respondent was properly regarded as an employee of the charterer
Fairwind and that petitioner Litonjua may be held to answer to private respondent for the latter's
claims as the agent in the Philippines of Fairwind. We think this result, which public respondent
reached, far from constituting a grave abuse of discretion, is compelled by equitable principles
and by the demands of substantial justice. To hold otherwise would be to leave private
respondent (and others who may find themselves in his position) without any effective recourse
for the unjust dismissal and for the breach of his contract of employment.

WHEREFORE, the Petition for certiorari is DISMISSED and the Decision of the then National
Seamen Board dated 31 May 1979 is hereby AFFIRMED. No pronouncement as to costs.

SO ORDERED.

G.R. No. L-22272 June 26, 1967

ANTONIA MARANAN, plaintiff-appellant,

vs.
PASCUAL PEREZ, ET AL., defendants.
PASCUAL PEREZ, defendant appellant.

Pedro Panganiban for plaintiff-appellant.

Magno T. Bueser for defendant-appellant.

BENGZON, J.P., J.:

Rogelio Corachea, on October 18, 1960, was a passenger in a taxicab owned and operated by
Pascual Perez when he was stabbed and killed by the driver, Simeon Valenzuela.

Valenzuela was prosecuted for homicide in the Court of First Instance of Batangas. Found guilty,
he was sentenced to suffer imprisonment and to indemnify the heirs of the deceased in the sum
of P6,000. Appeal from said conviction was taken to the Court of Appeals. 1äwphï1.ñët
On December 6 1961, while appeal was pending in the Court of Appeals, Antonia Maranan,
Rogelio's mother, filed an action in the Court of First Instance of Batangas to recover damages
from Perez and Valenzuela for the death of her son. Defendants asserted that the deceased
was killed in self-defense, since he first assaulted the driver by stabbing him from behind.
Defendant Perez further claimed that the death was a caso fortuito for which the carrier was not
liable.

The court a quo, after trial, found for the plaintiff and awarded her P3,000 as damages against
defendant Perez. The claim against defendant Valenzuela was dismissed. From this ruling, both
plaintiff and defendant Perez appealed to this Court, the former asking for more damages and
the latter insisting on non-liability. Subsequently, the Court of Appeals affirmed the judgment of
conviction earlier mentioned, during the pendency of the herein appeal, and on May 19, 1964,
final judgment was entered therein. (Rollo, p. 33).

Defendant-appellant relies solely on the ruling enunciated in Gillaco v. Manila Railroad Co., 97
Phil. 884, that the carrier is under no absolute liability for assaults of its employees upon the
passengers. The attendant facts and controlling law of that case and the one at bar are very
different however. In the Gillaco case, the passenger was killed outside the scope and the
course of duty of the guilty employee. As this Court there found:

x x x when the crime took place, the guard Devesa had no duties to discharge in
connection with the transportation of the deceased from Calamba to Manila. The
stipulation of facts is clear that when Devesa shot and killed Gillaco, Devesa was
assigned to guard the Manila-San Fernando (La Union) trains, and he was at Paco
Station awaiting transportation to Tutuban, the starting point of the train that he was
engaged to guard. In fact, his tour of duty was to start at 9:00 two hours after the
commission of the crime. Devesa was therefore under no obligation to safeguard the
passengers of the Calamba-Manila train, where the deceased was riding; and the killing
of Gillaco was not done in line of duty. The position of Devesa at the time was that of
another would be passenger, a stranger also awaiting transportation, and not that of an
employee assigned to discharge any of the duties that the Railroad had assumed by its
contract with the deceased. As a result, Devesa's assault can not be deemed in law a
breach of Gillaco's contract of transportation by a servant or employee of the carrier. . . .
(Emphasis supplied)

Now here, the killing was perpetrated by the driver of the very cab transporting the passenger, in
whose hands the carrier had entrusted the duty of executing the contract of carriage. In other
words, unlike the Gillaco case, the killing of the passenger here took place in the course of duty
of the guilty employee and when the employee was acting within the scope of his duties.

Moreover, the Gillaco case was decided under the provisions of the Civil Code of 1889 which,
unlike the present Civil Code, did not impose upon common carriers absolute liability for the
safety of passengers against wilful assaults or negligent acts committed by their employees.
The death of the passenger in the Gillaco case was truly a fortuitous event which exempted the
carrier from liability. It is true that Art. 1105 of the old Civil Code on fortuitous events has been
substantially reproduced in Art. 1174 of the Civil Code of the Philippines but both articles clearly
remove from their exempting effect the case where the law expressly provides for liability in
spite of the occurrence of force majeure. And herein significantly lies the statutory difference
between the old and present Civil Codes, in the backdrop of the factual situation before Us,
which further accounts for a different result in the Gillaco case. Unlike the old Civil Code, the
new Civil Code of the Philippines expressly makes the common carrier liable for intentional
assaults committed by its employees upon its passengers, by the wording of Art. 1759 which
categorically states that

Common carriers are liable for the death of or injuries to passengers through the
negligence or willful acts of the former's employees, although such employees may have
acted beyond the scope of their authority or in violation of the orders of the common
carriers.

The Civil Code provisions on the subject of Common Carriers1 are new and were taken from
Anglo-American Law.2There, the basis of the carrier's liability for assaults on passengers
committed by its drivers rests either on (1) the doctrine of respondeat superior or (2) the
principle that it is the carrier's implied duty to transport the passenger safely.3

Under the first, which is the minority view, the carrier is liable only when the act of the employee
is within the scope of his authority and duty. It is not sufficient that the act be within the course of
employment only.4

Under the second view, upheld by the majority and also by the later cases, it is enough that the
assault happens within the course of the employee's duty. It is no defense for the carrier that the
act was done in excess of authority or in disobedience of the carrier's orders.5 The carrier's
liability here is absolute in the sense that it practically secures the passengers from assaults
committed by its own employees.6

As can be gleaned from Art. 1759, the Civil Code of the Philippines evidently follows the rule
based on the second view. At least three very cogent reasons underlie this rule. As explained
in Texas Midland R.R. v. Monroe, 110 Tex. 97, 216 S.W. 388, 389-390, and Haver v. Central
Railroad Co., 43 LRA 84, 85: (1) the special undertaking of the carrier requires that it furnish its
passenger that full measure of protection afforded by the exercise of the high degree of care
prescribed by the law, inter alia from violence and insults at the hands of strangers and other
passengers, but above all, from the acts of the carrier's own servants charged with the
passenger's safety; (2) said liability of the carrier for the servant's violation of duty to
passengers, is the result of the formers confiding in the servant's hands the performance of his
contract to safely transport the passenger, delegating therewith the duty of protecting the
passenger with the utmost care prescribed by law; and (3) as between the carrier and the
passenger, the former must bear the risk of wrongful acts or negligence of the carrier's
employees against passengers, since it, and not the passengers, has power to select and
remove them.

Accordingly, it is the carrier's strict obligation to select its drivers and similar employees with due
regard not only to their technical competence and physical ability, but also, no less important, to
their total personality, including their patterns of behavior, moral fibers, and social attitude.

Applying this stringent norm to the facts in this case, therefore, the lower court rightly adjudged
the defendant carrier liable pursuant to Art. 1759 of the Civil Code. The dismissal of the claim
against the defendant driver was also correct. Plaintiff's action was predicated on breach of
contract of carriage7 and the cab driver was not a party thereto. His civil liability is covered in the
criminal case wherein he was convicted by final judgment.
In connection with the award of damages, the court a quo granted only P3,000 to plaintiff-
appellant. This is the minimum compensatory damages amount recoverable under Art. 1764 in
connection with Art. 2206 of the Civil Code when a breach of contract results in the passenger's
death. As has been the policy followed by this Court, this minimal award should be increased to
P6,000. As to other alleged actual damages, the lower court's finding that plaintiff's evidence
thereon was not convincing,8 should not be disturbed. Still, Arts. 2206 and 1764
award moral damages in addition to compensatory damages, to the parents of the passenger
killed to compensate for the mental anguish they suffered. A claim therefor, having been
properly made, it becomes the court's duty to award moral damages.9 Plaintiff demands P5,000
as moral damages; however, in the circumstances, We consider P3,000 moral damages, in
addition to the P6,000 damages afore-stated, as sufficient. Interest upon such damages are
also due to plaintiff-appellant. 10

Wherefore, with the modification increasing the award of actual damages in plaintiff's favor to
P6,000, plus P3,000.00 moral damages, with legal interest on both from the filing of the
complaint on December 6, 1961 until the whole amount is paid, the judgment appealed from is
affirmed in all other respects. No costs. So ordered.

G.R. No. L-31379 August 29, 1988

COMPAÑIA MARITIMA, petitioner,

vs.
COURT OF APPEALS and VICENTE CONCEPCION, respondents.

Rafael Dinglasan for petitioner.

Benjamin J. Molina for private respondent.

FERNAN, C.J.:

Petitioner Compañia Maritima seeks to set aside through this petition for review on certiorari the decision 1 of the Court of Appeals dated
December 5, 1965, adjudging petitioner liable to private respondent Vicente E. Concepcion for damages in the amount of P24,652.97 with
legal interest from the date said decision shall have become final, for petitioner's failure to deliver safely private respondent's payloader, and
for costs of suit. The payloader was declared abandoned in favor of petitioner.

The facts of the case are as follows:

Private respondent Vicente E. Concepcion, a civil engineer doing business under the name and
style of Consolidated Construction with office address at Room 412, Don Santiago Bldg., Taft
Avenue, Manila, had a contract with the Civil Aeronautics Administration (CAA) sometime in
1964 for the construction of the airport in Cagayan de Oro City Misamis Oriental.
Being a Manila — based contractor, Vicente E. Concepcion had to ship his construction
equipment to Cagayan de Oro City. Having shipped some of his equipment through petitioner
and having settled the balance of P2,628.77 with respect to said shipment, Concepcion
negotiated anew with petitioner, thru its collector, Pacifico Fernandez, on August 28, 1964 for
the shipment to Cagayan de Oro City of one (1) unit payloader, four (4) units 6x6 Reo trucks
and two (2) pieces of water tanks. He was issued Bill of Lading 113 on the same date upon
delivery of the equipment at the Manila North Harbor. 2

These equipment were loaded aboard the MV Cebu in its Voyage No. 316, which left Manila on
August 30, 1964 and arrived at Cagayan de Oro City in the afternoon of September 1, 1964.
The Reo trucks and water tanks were safely unloaded within a few hours after arrival, but while
the payloader was about two (2) meters above the pier in the course of unloading, the swivel pin
of the heel block of the port block of Hatch No. 2 gave way, causing the payloader to fall. The
3

payloader was damaged and was thereafter taken to petitioner's compound in Cagayan de Oro
City.

On September 7, 1964, Consolidated Construction, thru Vicente E. Concepcion, wrote

Compañia Maritima to demand a replacement of the payloader which it was considering as a
complete loss because of the extent of damage. Consolidated Construction likewise notified
4

petitioner of its claim for damages. Unable to elicit response, the demand was repeated in a
letter dated October 2, 1964. 5

Meanwhile, petitioner shipped the payloader to Manila where it was weighed at the San Miguel
Corporation. Finding that the payloader weighed 7.5 tons and not 2.5 tons as declared in the B-
111 of Lading, petitioner denied the claim for damages of Consolidated Construction in its letter
dated October 7, 1964, contending that had Vicente E. Concepcion declared the actual weight
of the payloader, damage to their ship as well as to his payloader could have been prevented. 6

To replace the damaged payloader, Consolidated Construction in the meantime bought a new
one at P45,000.00 from Bormaheco Inc. on December 3, 1964, and on July 6, 1965., Vicente E.
Concepcion filed an action for damages against petitioner with the then Court of First Instance
of Manila, Branch VII, docketed as Civil Case No. 61551, seeking to recover damages in the
amount of P41,225.00 allegedly suffered for the period of 97 days that he was not able to
employ a payloader in the construction job at the rate of P450.00 a day; P34,000.00
representing the cost of the damaged payloader; Pl 1, 000. 00 representing the difference
between the cost of the damaged payloader and that of the new payloader; P20,000.00
representing the losses suffered by him due to the diversion of funds to enable him to buy a new
payloader; P10,000.00 as attorney's fees; P5,000.00 as exemplary damages; and cost of the
suit.7

After trial, the then Court of First Instance of Manila, Branch VII, dismissed on April 24, 1968 the
complaint with costs against therein plaintiff, herein private respondent Vicente E. Concepcion,
stating that the proximate cause of the fall of the payloader was Vicente E. Concepcion's act or
omission in having misrepresented the weight of the payloader as 2.5 tons instead of its true
weight of 7.5 tons, which underdeclaration was intended to defraud Compañia Maritima of the
payment of the freight charges and which likewise led the Chief Officer of the vessel to use the
heel block of hatch No. 2 in unloading the payloader. 8
From the adverse decision against him, Vicente E. Concepcion appealed to the Court of
Appeals which, on December 5, 1965 rendered a decision, the dispositive portion of which
reads:

IN VIEW WHEREOF, judgment must have to be as it is hereby reversed;

defendant is condemned to pay unto plaintiff the sum in damages of P24,652.07
with legal interest from the date the present decision shall have become final; the
payloader is declared abandoned to defendant; costs against the latter. 9

Hence, the instant petition.

The principal issue in the instant case is whether or not the act of private respondent Vicente E.
Concepcion in furnishing petitioner Compañia Maritima with an inaccurate weight of 2.5 tons
instead of the payloader's actual weight of 7.5 tons was the proximate and only cause of the
damage on the Oliver Payloader OC-12 when it fell while being unloaded by petitioner's crew,
as would absolutely exempt petitioner from liability for damages under paragraph 3 of Article
1734 of the Civil Code, which provides:

Art. 1734. Common carriers are responsible for the loss, destruction, or
deterioration of the goods, unless the same is due to any of the following causes
only:

xxx xxx xxx

(3) Act or omission of the shipper or owner of the goods.

Petitioner claims absolute exemption under this provision upon the reasoning that private
respondent's act of furnishing it with an inaccurate weight of the payloader constitutes
misrepresentation within the meaning of "act or omission of the shipper or owner of the goods"
under the above- quoted article. It likewise faults the respondent Court of Appeals for reversing
the decision of the trial court notwithstanding that said appellate court also found that by
representing the weight of the payloader to be only 2.5 tons, private respondent had led
petitioner's officer to believe that the same was within the 5 tons capacity of the heel block of
Hatch No. 2. Petitioner would thus insist that the proximate and only cause of the damage to the
payloader was private respondent's alleged misrepresentation of the weight of the machinery in
question; hence, any resultant damage to it must be borne by private respondent Vicente E.
Concepcion.

The general rule under Articles 1735 and 1752 of the Civil Code is that common carriers are
presumed to have been at fault or to have acted negligently in case the goods transported by
them are lost, destroyed or had deteriorated. To overcome the presumption of liability for the
loss, destruction or deterioration of the goods under Article 1735, the common carriers must
prove that they observed extraordinary diligence as required in Article 1733 of the Civil Code.
The responsibility of observing extraordinary diligence in the vigilance over the goods is further
expressed in Article 1734 of the same Code, the article invoked by petitioner to avoid liability for
damages.

Corollary is the rule that mere proof of delivery of the goods in good order to a common carrier,
and of their arrival at the place of destination in bad order, makes out prima facie case against
the common carrier, so that if no explanation is given as to how the loss, deterioration or
destruction of the goods occurred, the common carrier must be held responsible. Otherwise
10

stated, it is incumbent upon the common carrier to prove that the loss, deterioration or
destruction was due to accident or some other circumstances inconsistent with its liability.

In the instant case, We are not persuaded by the proferred explanation of petitioner alleged to
be the proximate cause of the fall of the payloader while it was being unloaded at the Cagayan
de Oro City pier. Petitioner seems to have overlooked the extraordinary diligence required of
common carriers in the vigilance over the goods transported by them by virtue of the nature of
their business, which is impressed with a special public duty.

Thus, Article 1733 of the Civil Code provides:

Art. 1733. Common carriers, from the nature of their business and for reason of
public policy, are bound to observe extraordinary diligence in the vigilance over
the goods and for the safety of the passengers transported by them according to
all the circumstances of each case.

Such extraordinary diligence in the vigilance over the goods is further expressed
in Articles 1734, 1735 and 1745, Nos. 5, 6 and 7, ...

The extraordinary diligence in the vigilance over the goods tendered for shipment requires the
common carrier to know and to follow the required precaution for avoiding damage to, or
destruction of the goods entrusted to it for safe carriage and delivery. It requires common
carriers to render service with the greatest skill and foresight and "to use all reasonable means
to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due
care in the handling and stowage including such methods as their nature requires." Under 11

Article 1736 of the Civil Code, the responsibility to observe extraordinary diligence commences
and 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 the right to receive them without prejudice to
the provisions of Article 1738.

Where, as in the instant case, petitioner, upon the testimonies of its own crew, failed to take the
necessary and adequate precautions for avoiding damage to, or destruction of, the payloader
entrusted to it for safe carriage and delivery to Cagayan de Oro City, it cannot be reasonably
concluded that the damage caused to the payloader was due to the alleged misrepresentation
of private respondent Concepcion as to the correct and accurate weight of the payloader. As
found by the respondent Court of Appeals, the fact is that petitioner used a 5-ton capacity lifting
apparatus to lift and unload a visibly heavy cargo like a payloader. Private respondent has,
likewise, sufficiently established the laxity and carelessness of petitioner's crew in their methods
of ascertaining the weight of heavy cargoes offered for shipment before loading and unloading
them, as is customary among careful persons.

It must be noted that the weight submitted by private respondent Concepcion appearing at the
left-hand portion of Exhibit 8 as an addendum to the original enumeration of equipment to be
12

shipped was entered into the bill of lading by petitioner, thru Pacifico Fernandez, a company
collector, without seeing the equipment to be shipped. Mr. Mariano Gupana, assistant traffic
13

manager of petitioner, confirmed in his testimony that the company never checked the
information entered in the bill of lading. Worse, the weight of the payloader as entered in the
14

bill of lading was assumed to be correct by Mr. Felix Pisang, Chief Officer of MV Cebu. 15
The weights stated in a bill of lading are prima facie evidence of the amount received and the
fact that the weighing was done by another will not relieve the common carrier where it
accepted such weight and entered it on the bill of lading. Besides, common carriers can
16

protect themselves against mistakes in the bill of lading as to weight by exercising diligence
before issuing the same. 17

While petitioner has proven that private respondent Concepcion did furnish it with an inaccurate
weight of the payloader, petitioner is nonetheless liable, for the damage caused to the
machinery could have been avoided by the exercise of reasonable skill and attention on its part
in overseeing the unloading of such a heavy equipment. And circumstances clearly show that
the fall of the payloader could have been avoided by petitioner's crew. Evidence on record
sufficiently show that the crew of petitioner had been negligent in the performance of its
obligation by reason of their having failed to take the necessary precaution under the
circumstances which usage has established among careful persons, more particularly its Chief
Officer, Mr. Felix Pisang, who is tasked with the over-all supervision of loading and unloading
heavy cargoes and upon whom rests the burden of deciding as to what particular winch the
unloading of the payloader should be undertaken. While it was his duty to determine the
18

weight of heavy cargoes before accepting them. Mr. Felix Pisang took the bill of lading on its
face value and presumed the same to be correct by merely "seeing" it. Acknowledging that
19

there was a "jumbo" in the MV Cebu which has the capacity of lifting 20 to 25 ton cargoes, Mr.
Felix Pisang chose not to use it, because according to him, since the ordinary boom has a
capacity of 5 tons while the payloader was only 2.5 tons, he did not bother to use the "jumbo"
anymore. 20

In that sense, therefore, private respondent's act of furnishing petitioner with an inaccurate
weight of the payloader upon being asked by petitioner's collector, cannot be used by said
petitioner as an excuse to avoid liability for the damage caused, as the same could have been
avoided had petitioner utilized the "jumbo" lifting apparatus which has a capacity of lifting 20 to
25 tons of heavy cargoes. It is a fact known to the Chief Officer of MV Cebu that the payloader
was loaded aboard the MV Cebu at the Manila North Harbor on August 28, 1964 by means of a
terminal crane. Even if petitioner chose not to take the necessary precaution to avoid damage
21

by checking the correct weight of the payloader, extraordinary care and diligence compel the
use of the "jumbo" lifting apparatus as the most prudent course for petitioner.

While the act of private respondent in furnishing petitioner with an inaccurate weight of the
payloader cannot successfully be used as an excuse by petitioner to avoid liability to the
damage thus caused, said act constitutes a contributory circumstance to the damage caused on
the payloader, which mitigates the liability for damages of petitioner in accordance with Article
1741 of the Civil Code, to wit:

Art. 1741. If the shipper or owner merely contributed to the loss, destruction or
deterioration of the goods, the proximate cause thereof being the negligence of
the common carrier, the latter shall be liable in damages, which however, shall be
equitably reduced.

We find equitable the conclusion of the Court of Appeals reducing the recoverable amount of
damages by 20% or 1/5 of the value of the payloader, which at the time the instant case arose,
was valued at P34,000. 00, thereby reducing the recoverable amount at 80% or 4/5 of
P34,000.00 or the sum of P27,200.00. Considering that the freight charges for the entire
cargoes shipped by private respondent amounting to P2,318.40 remained unpaid.. the same
would be deducted from the P27,000.00 plus an additional deduction of P228.63 representing
the freight charges for the undeclared weight of 5 tons (difference between 7.5 and 2.5 tons)
leaving, therefore, a final recoverable amount of damages of P24,652.97 due to private
respondent Concepcion.

Notwithstanding the favorable judgment in his favor, private respondent assailed the Court of
Appeals' decision insofar as it limited the damages due him to only P24,652.97 and the cost of
the suit. Invoking the provisions on damages under the Civil Code, more particularly Articles
2200 and 2208, private respondent further seeks additional damages allegedly because the
construction project was delayed and that in spite of his demands, petitioner failed to take any
steps to settle his valid, just and demandable claim for damages.

We find private respondent's submission erroneous. It is well- settled that an appellee, who is
not an appellant, may assign errors in his brief where his purpose is to maintain the judgment on
other grounds, but he may not do so if his purpose is to have the judgment modified or
reversed, for, in such case, he must appeal. Since private respondent did not appeal from the
22

judgment insofar as it limited the award of damages due him, the reduction of 20% or 1/5 of the
value of the payloader stands.

WHEREFORE, in view of the foregoing, the petition is DENIED. The decision of the Court of
Appeals is hereby AFFIRMED in all respects with costs against petitioner. In view of the length
of time this case has been pending, this decision is immediately executory.

G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION, respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE
INSURANCE CO., LTD., respondents.

MELENCIO-HERRERA, J.:

These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship
and cargo.
The basic facts are not in controversy:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at
Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages
valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare
parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were
insured against marine risk for their stated value with respondent Development Insurance and
Surety Corporation.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of
garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel
Corporation, and two cases of surveying instruments consigned to Aman Enterprises and
General Merchandise. The 128 cartons were insured for their stated value by respondent
Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa
Fire & Marine Insurance Co., Ltd., for US $11,385.00.

Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of
ship and cargo. The respective respondent Insurers paid the corresponding marine insurance
values to the consignees concerned and were thus subrogated unto the rights of the latter as
the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies, filed
suit against petitioner Carrier for the recovery of the amounts it had paid to the insured before
the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary
fortuitous event, hence, it is not liable under the law.

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in
the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00
as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals
which, on August 14, 1984, affirmed.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and
Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed
suit against Petitioner Carrier for the recovery of the insured value of the cargo lost with the then
Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness
of the ship and non-observance of extraordinary diligence by petitioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking
of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by
Sea Act (COGSA); and that when the loss of fire is established, the burden of proving
negligence of the vessel is shifted to the cargo shipper.

On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in
the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus
attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on
September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the
amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of
liability under the COGSA.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the
First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon
Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course
on March 25, 1985, and the parties were required to submit their respective Memoranda, which
they have done.

On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the
Resolution denying the Petition for Review and moved for its consolidation with G.R. No. 69044,
the lower-numbered case, which was then pending resolution with the First Division. The same
was granted; the Resolution of the Second Division of September 25, 1985 was set aside and
the Petition was given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica
but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its
Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where
various plaintiffs are represented by various counsel representing various
consignees or insurance companies. The common defendant in these cases is
petitioner herein, being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in
a party's pleading are deemed admissions of that party and binding upon it. And an admission
2

in one pleading in one action may be received in evidence against the pleader or his successor-
in-interest on the trial of another action to which he is a party, in favor of a party to the latter
action.3

The threshold issues in both cases are: (1) which law should govern — the Civil Code
provisions on Common carriers or the Carriage of Goods by Sea Act? and (2) who has the
burden of proof to show negligence of the carrier?

On the Law Applicable

The law of the country to which the goods are to be transported governs the liability of the
common carrier in case of their loss, destruction or deterioration. As the cargoes in question
4

were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed
primarily by the Civil Code. However, in all matters not regulated by said Code, the rights and
5

obligations of common carrier shall be governed by the Code of Commerce and by special
laws. Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of
6

the Civil Code. 7

On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over goods,
according to all the circumstances of each case. Common carriers are responsible for the loss,
8

destruction, or deterioration of the goods unless the same is due to any of the following causes
only:

(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;

xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the
phrase "natural disaster or calamity. " However, we are of the opinion that fire may not be
considered a natural disaster or calamity. This must be so as it arises almost invariably from
some act of man or by human means. 10 It does not fall within the category of an act of God unless caused by
lightning 11 or by other natural disaster or calamity. 12 It may even be caused by the actual fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to leases of rural lands where a reduction of the
rent is allowed when more than one-half of the fruits have been lost due to such event, considering that the law adopts a protection policy
towards agriculture. 14

As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article 1735 of the Civil Code provides that all cases
than those mention in Article 1734, the common carrier shall be presumed to have been at fault or to have acted negligently, unless it proves
that it has observed the extraordinary deligence required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused
by fire. The burden then is upon Petitioner Carrier to proved that it has exercised the
extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the
Appellate Court, made the following Finding of fact:

The cargoes in question were, according to the witnesses defendant placed in

hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that
smoke was coming out from hatch No. 2 and hatch No. 3; that where the smoke
was noticed, the fire was already big; that the fire must have started twenty-four
24) our the same was noticed; that carbon dioxide was ordered released and the
crew was ordered to open the hatch covers of No, 2 tor commencement of fire
fighting by sea water: that all of these effort were not enough to control the fire.

Pursuant to Article 1733, common carriers are bound to extraordinary diligence in

the vigilance over the goods. The evidence of the defendant did not show that
extraordinary vigilance was observed by the vessel to prevent the occurrence of
fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show he
amount of diligence made by the crew, on orders, in the care of the cargoes.
What appears is that after the cargoes were stored in the hatches, no regular
inspection was made as to their condition during the voyage. Consequently, the
crew could not have even explain what could have caused the fire. The
defendant, in the Court's mind, failed to satisfactorily show that extraordinary
 vigilance and care had been made by the crew to prevent the occurrence of the
fire. The defendant, as a common carrier, is liable to the consignees for said lack
of deligence required of it under Article 1733 of the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence required by law, Petitioner Carrier cannot
escape liability for the loss of the cargo.

And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of
the Civil Code, it is required under Article 1739 of the same Code that the "natural disaster"
must have been the "proximate and only cause of the loss," and that the carrier has "exercised
due diligence to prevent or minimize the loss before, during or after the occurrence of the
disaster. " This Petitioner Carrier has also failed to establish satisfactorily.

Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It
is provided therein that:

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from

(b) Fire, unless caused by the actual fault or privity of the carrier.

xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there
was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was
noticed, the fire was already big; that the fire must have started twenty-four (24) hours before
the same was noticed; " and that "after the cargoes were stored in the hatches, no regular
inspection was made as to their condition during the voyage." The foregoing suffices to show
that the circumstances under which the fire originated and spread are such as to show that
Petitioner Carrier or its servants were negligent in connection therewith. Consequently, the
complete defense afforded by the COGSA when loss results from fire is unavailing to Petitioner
Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as
provided in section 4(5) of the COGSA, which reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for any
loss or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of 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 the shipper before shipment and inserted in bill of lading. This
declaration if embodied in the bill of lading shall be prima facie evidence, but all
be conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In
 no event shall the carrier be Liable for more than the amount of damage actually
sustained.

xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

Art. 1749. A stipulation that the common carrier's liability as limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.

It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a
fixed amount per package although the Code expressly permits a stipulation limiting such
liability. Thus, the COGSA which is suppletory to the provisions of the Civil Code, steps in and
supplements the Code by establishing a statutory provision limiting the carrier's liability in the
absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The
provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of
lading as though physically in it and as much a part thereof as though placed therein by
agreement of the parties. 16

In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-3") 1 7 limiting the carrier's liability for the loss
or destruction of the goods. Nor is there a declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not exceed
US $500 per package, or its peso equivalent, at the time of payment of the value of the goods lost, but in no case "more than the amount of
damage actually sustained."

The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"),
which was exactly the amount of the insurance coverage by Development Insurance (Exhibit
"A"), and the amount affirmed to be paid by respondent Court. The goods were shipped in 28
packages (Exhibit "C-2") Multiplying 28 packages by $500 would result in a product of $14,000
which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more than the
amount of damage actually sustained." Consequently, the aforestated amount of P256,039
should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was
P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and
amount was affirmed to be paid by respondent Court. however, multiplying seven (7) cases by
$500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would
yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those spare
parts, and not P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court
following the statutory $500 liability per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured
with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package
and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is
more than the insured value of the goods, that is $46,583, the Trial Court was correct in
awarding said amount only for the 128 cartons, which amount is less than the maximum
limitation of the carrier's liability."
We find no reversible error. The 128 cartons and not the two (2) containers should be
considered as the shipping unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
ingots and the shipper of floor covering brought action against the vessel owner and operator to
recover for loss of ingots and floor covering, which had been shipped in vessel — supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment for
the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second Division,
modified and affirmed holding that:

When what would ordinarily be considered packages 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 constitutes the "package"
referred to in liability limitation provision of Carriage of Goods by Sea Act.
Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be
treated as packages, the interest in securing international uniformity would
suggest that they should not be so treated. Carriage of Goods by Sea Act, 4(5),
46 U.S.C.A. 1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that
treating a container as a package is inconsistent with the congressional purpose
of establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F.
Supp. at 907 (footnotes omitted):

Although this approach has not completely escaped criticism,

there is, nonetheless, much to commend it. It gives needed
recognition to the responsibility of the courts to construe and apply
the statute as enacted, however great might be the temptation to
"modernize" or reconstitute it by artful judicial gloss. If COGSA's
package limitation scheme suffers from internal illness, Congress
alone must undertake the surgery. There is, in this regard, obvious
wisdom in the Ninth Circuit's conclusion in Hartford that
technological advancements, whether or not forseeable by the
COGSA promulgators, do not warrant a distortion or artificial
construction of the statutory term "package." A ruling that these
large reusable metal pieces of transport equipment qualify as
COGSA packages — at least where, as here, they were carrier
owned and supplied — would amount to just such a distortion.

Certainly, if the individual crates or cartons prepared by the

shipper and containing his goods can rightly be considered
"packages" standing by themselves, they do not suddenly lose
that character upon being stowed in a carrier's container. I would
liken these containers to detachable stowage compartments of the
ship. They simply serve to divide the ship's overall cargo stowage
space into smaller, more serviceable loci. Shippers' packages are
quite literally "stowed" in the containers utilizing stevedoring
 practices and materials analogous to those employed in traditional
on board stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on
other grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime
cases followed Judge Beeks' reasoning in Matsushita and similarly rejected the
functional economics test. Judge Kellam held that when rolls of polyester goods
are packed into cardboard cartons which are then placed in containers, the
cartons and not the containers are the packages.

xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper

into cartons which were then placed by the shipper into a carrier- furnished
container. The number of cartons was disclosed to the carrier in the bill of lading.
Eurygenes followed the Mitsui test and treated the cartons, not the container, as
the COGSA packages. However, Eurygenes indicated that a carrier could limit its
liability to $500 per container if the bill of lading failed to disclose the number of
cartons or units within the container, or if the parties indicated, in clear and
unambiguous language, an agreement to treat the container as the package.

(Admiralty Litigation in Perpetuum: The Continuing Saga of

Package Limitations and Third World Delivery Problems by
Chester D. Hooper & Keith L. Flicker, published in Fordham
International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis
supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers,
the number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers
should be considered as the shipping unit subject to the $500 limitation of liability.

True, the evidence does not disclose whether the containers involved herein were carrier-
furnished or not. Usually, however, containers are provided by the carrier. 19 In this case, the probability is
that they were so furnished for Petitioner Carrier was at liberty to pack and carry the goods in containers if they were not so packed. Thus, at
the dorsal side of the Bill of Lading (Exhibit "A") appears the following stipulation in fine print:
 11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s).

The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of
Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that
the shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first
entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal
principle in the construction of contracts that the interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity. This applies with even greater
20

force in a contract of adhesion where a contract is already prepared and the other party merely
adheres to it, like the Bill of Lading in this case, which is draw. up by the carrier.
21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044
only)

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions
of its witnesses in Japan by written interrogatories.

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it
failed to do so. On this point, the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the
time from June 27, 1978, when its answer was prepared and filed in Court, until
September 26, 1978, when the pre-trial conference was conducted for the last
time, the defendant had more than nine months to prepare its evidence. Its
belated notice to take deposition on written interrogatories of its witnesses in
Japan, served upon the plaintiff on August 25th, just two days before the hearing
set for August 27th, knowing fully well that it was its undertaking on July 11 the
that the deposition of the witnesses would be dispensed with if by next time it had
not yet been obtained, only proves the lack of merit of the defendant's motion for
postponement, for which reason it deserves no sympathy from the Court in that
regard. The defendant has told the Court since February 16, 1979, that it was
going to take the deposition of its witnesses in Japan. Why did it take until August
25, 1979, or more than six months, to prepare its written interrogatories. Only the
defendant itself is to blame for its failure to adduce evidence in support of its
defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. It cannot complain
23

now that it was denied due process when the Trial Court rendered its Decision on the basis of
the evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court
affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development
Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No. 71478.

Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the
amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in
G.R. No. 71478 is affirmed.

WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern
Shipping Lines shall pay the Development Insurance and Surety Corporation the amount of
P256,039 for the twenty-eight (28) packages of calorized lance pipes, and P71,540 for the
seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of the
complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.

2) In G.R.No.71478,the judgment is hereby affirmed.

SO ORDERED.

Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile
materials, and not the two (2) containers, should be considered as the shipping unit for the
purpose of applying the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation
adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs.
American Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes,
666, F 2nd, 746. Both cases adopted the rule that carrier-furnished containers whose contents
are fully disclosed are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the
present case, for the following reasons: (1) The facts in those cases differ materially from those
obtaining in the present case; and (2) the rule laid down in those two cases is by no means
settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company.
In Mitsui the Court held: "Certainly, if the individual crates or cartons prepared by the shipper
and containing his goods can rightly be considered "packages" standing by themselves, they do
not suddenly lose that character upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship." Cartons or crates placed inside
carrier-furnished containers are deemed stowed in the vessel itself, and do not lose their
character as individual units simply by being placed inside container provided by the carrier,
which are merely "detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-
supplied. This fact cannot be presumed. The facts of the case in fact show that this was the only
shipment placed in containers. The other shipment involved in the case, consisting of surveying
instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which
appear in the bill of lading. Absent any positive evidence on this point, we cannot say that those
words constitute a mere estimate that the shipment could fit in two containers, thereby showing
that when the goods were delivered by the shipper, they were not yet placed inside the
containers and that it was the petitioner carrier which packed the goods into its own containers,
as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such
assumption cannot be made in view of the following words clearly stamped in red ink on the
face of the bill of lading: "Shipper's Load, Count and Seal Said to Contain." This clearly indicates
that it was the shipper which loaded and counted the goods placed inside the container and
sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and
the number of cartons said to be contained inside them was indicated in the bill of lading, on the
mere say-so of the shipper. The freight paid to the carrier on the shipment was based on the
measurement (by volume) of the two containers at $34.50 per cubic meter. The shipper must
have saved on the freight charges by using containers for the shipment. Under the
circumstances, it would be unfair to the carrier to have the limitation of its liability under COGSA
fixed on the number of cartons inside the containers, rather than on the containers themselves,
since the freight revenue was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of
the COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem
of applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern technological changes
have revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about by the container
revolution, but this is a task which should be addressed by the legislative body. Until then, this Court, while mindful of American jurisprudence
on the subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to the parties concerned. There
is need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight
charges based on the freight unit, i.e., cubic meters. The shipper did not declare the value of the
shipment, for that would have entailed higher freight charges; instead of paying higher freight
charges, the shipper protected itself by insuring the shipment. As subrogee, the insurance
company can recover from the carrier only what the shipper itself is entitled to recover, not the
amount it actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or
"package" within the purview of COGSA. However, we realize that this may not be equitable as
far as the shipper is concerned. If the container is not regarded as a "package" within the terms
of COGSA, then, the $500.00 liability limitation should be based on "the customary freight unit."
Sec. 4 (5) of COGSA provides that in case of goods not shipped in packages, the limit of the
carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's
liability for the shipment in question based on "freight unit" would be $21,950.00 for the
shipment of 43.9 cubic meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile
materials, and not the two (2) containers, should be considered as the shipping unit for the
purpose of applying the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation
adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs.
American Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes,
666, F 2nd, 746. Both cases adopted the rule that carrier-furnished containers whose contents
are fully disclosed are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the
present case, for the following reasons: (1) The facts in those cases differ materially from those
obtaining in the present case; and (2) the rule laid down in those two cases is by no means
settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company.
In Mitsui the Court held: "Certainly, if the individual crates or cartons prepared by the shipper
and containing his goods can rightly be considered "packages" standing by themselves, they do
not suddenly lose that character upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship." Cartons or crates placed inside
carrier-furnished containers are deemed stowed in the vessel itself, and do not lose their
character as individual units simply by being placed inside container provided by the carrier,
which are merely "detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-
supplied. This fact cannot be presumed. The facts of the case in fact show that this was the only
shipment placed in containers. The other shipment involved in the case, consisting of surveying
instruments, was packed in two "cases."
We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which
appear in the bill of lading. Absent any positive evidence on this point, we cannot say that those
words constitute a mere estimate that the shipment could fit in two containers, thereby showing
that when the goods were delivered by the shipper, they were not yet placed inside the
containers and that it was the petitioner carrier which packed the goods into its own containers,
as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such
assumption cannot be made in view of the following words clearly stamped in red ink on the
face of the bill of lading: "Shipper's Load, Count and Seal Said to Contain." This clearly indicates
that it was the shipper which loaded and counted the goods placed inside the container and
sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and
the number of cartons said to be contained inside them was indicated in the bill of lading, on the
mere say-so of the shipper. The freight paid to the carrier on the shipment was based on the
measurement (by volume) of the two containers at $34.50 per cubic meter. The shipper must
have saved on the freight charges by using containers for the shipment. Under the
circumstances, it would be unfair to the carrier to have the limitation of its liability under COGSA
fixed on the number of cartons inside the containers, rather than on the containers themselves,
since the freight revenue was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of
the COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with the troublesome problem
of applying the statutory limitation under COGSA to containerized shipments. The law was adopted before modern technological changes
have revolutionized the shipping industry. There is need for the law itself to be updated to meet the changes brought about by the container
revolution, but this is a task which should be addressed by the legislative body. Until then, this Court, while mindful of American jurisprudence
on the subject, should make its own interpretation of the COGSA provisions, consistent with what is equitable to the parties concerned. There
is need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight
charges based on the freight unit, i.e., cubic meters. The shipper did not declare the value of the
shipment, for that would have entailed higher freight charges; instead of paying higher freight
charges, the shipper protected itself by insuring the shipment. As subrogee, the insurance
company can recover from the carrier only what the shipper itself is entitled to recover, not the
amount it actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or
"package" within the purview of COGSA. However, we realize that this may not be equitable as
far as the shipper is concerned. If the container is not regarded as a "package" within the terms
of COGSA, then, the $500.00 liability limitation should be based on "the customary freight unit."
Sec. 4 (5) of COGSA provides that in case of goods not shipped in packages, the limit of the
carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's
liability for the shipment in question based on "freight unit" would be $21,950.00 for the
shipment of 43.9 cubic meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

SULPICIO LINES, INC., G.R. No. 157009
Petitioner,
Present:

-versus - PUNO, C.J., Chairperson,

CARPIO MORALES,
LEONARDO-DE CASTRO,
DOMINGO E. CURSO, BERSAMIN, and
LUCIA E. CURSO, VILLARAMA, JR., JJ.
MELECIO E. CURSO,
SEGUNDO E. CURSO,
VIRGILIO E. CURSO, Promulgated:
DIOSDADA E. CURSO, and
CECILIA E. CURSO, March 17, 2010
Respondents.
x-----------------------------------------------------------------------------------------x

DECISION

BERSAMIN, J.:

Are the surviving brothers and sisters of a passenger of a vessel that sinks during a
voyage entitled to recover moral damages from the vessel owner as common
carrier?

This is the question presented in the appeal taken by the common carrier from the
reversal by the Court of Appeals (CA) of the decision of the Regional Trial Court
(RTC) dismissing the complaint for various damages filed by the surviving
brothers and sisters of the late Dr. Cenon E. Curso upon a finding that force
majeure had caused the sinking. The CA awarded moral and other damages to the
surviving brothers and sisters.

Antecedents
On October 23, 1988, Dr. Curso boarded at
the port of Manila the MV Doa Marilyn, an inter-island vessel owned and operated
by petitioner Sulpicio Lines, Inc., bound for Tacloban City. Unfortunately,
the MV DoaMarilyn sank in the afternoon of October 24, 1988 while at sea due to
the inclement sea and weather conditions brought about by Typhoon Unsang. The
body of Dr. Curso was not recovered, along with hundreds of other passengers of
the ill-fated vessel. At the time of his death, Dr. Curso was 48 years old, and
employed as a resident physician at the Naval District Hospital in Naval, Biliran.
He had a basic monthly salary of P3,940.00, and would have retired from
government service by December 20, 2004 at the age of 65.

On January 21, 1993, the respondents, allegedly the surviving brothers and sisters
of Dr. Curso, sued the petitioner in the RTC in Naval, Biliran to claim damages
based on breach of contract of carriage by sea, averring that the petitioner had
acted negligently in transporting Dr. Curso and the other passengers. They stated,
among others, that their parents had predeceased Dr. Curso, who died single and
without issue; and that, as such, they were Dr. Cursos surviving heirs and
successors in interest entitled to recover moral and other damages.[1] They prayed
for judgment, as follows: (a) compensatory damages of P1,924,809.00; (b) moral
damages of P100,000.00; (c) exemplary or corrective damages in the amount
deemed proper and just; (d) expenses of litigation of at least P50,000.00; (e)
attorneys fees of P50,000.00; and (f) costs of suit.

The petitioner denied liability, insisting that the sinking of the vessel was due
to force majeure (i.e., Typhoon Unsang), which exempted a common carrier from
liability. It averred that the MV Doa Marilyn was seaworthy in all respects, and
was in fact cleared by the Philippine Coast Guard for the voyage; and that after the
accident it conducted intensive search and rescue operations and extended
assistance and aid to the victims and their families.

Ruling of the RTC

On July 28, 1995, the RTC dismissed the complaint upon its finding that the
sinking of the vessel was due to force majeure. The RTC concluded that the
officers of the MV Doa Marilyn had acted with the diligence required of a
common carrier; that the sinking of the vessel and the death of its passengers,
including Dr. Curso, could not have been avoided; that there was no basis to
consider the MV Doa Marilyn not seaworthy at the time of the voyage; that the
findings of the Special Board of Marine Inquiry (SBMI) constituted to investigate
the disaster absolved the petitioner, its officers, and crew of any negligence and
administrative liability; and that the respondents failed to prove their claim for
damages.

Ruling of the CA

The respondents appealed to the CA, contending that the RTC erred: (a) in
considering itself barred from entertaining the case by the findings of fact of the
SBMI in SBMI-ADM Case No. 08-88; (b) in not holding that the petitioner was
negligent and did not exercise the required diligence and care in conducting
Dr. Curso to his destination; (c) in not finding that the MV Doa Marilyn was
unseaworthy at the time of its sinking; and (d) in not awarding damages to them.[2]

In its decision dated September 16, 2002,[3] the CA held and disposed:

Based on the events described by the appellees witness, the Court found
inadequate proof to show that Sulpicio Lines, Inc., or its officers and
crew, had exercised the required degree of diligence to acquit
the appellee of liability.

In the first place, the court finds inadequate explanation why the officers
of the M.V. Doa Marilyn had not apprised themselves of the weather
reports on the approach of typhoon Unsang which had the power of a
signal no. 3 cyclone, bearing upon the general direction of the path of the
M.V. Doa Marilyn. If the officers and crew of the Doa Marilyn had
indeed been adequately monitoring the strength and direction of the
typhoon, and had acted promptly and competently to avoid the same,
then such a mishap would not have occurred.
Furthermore, there was no account of the acts and decision of the crew
of the ill-fated ship from 8:00 PM on October 23, 1988 when the Chief
Mate left his post until 4:00 AM the next day when he resumed duty. It
does not appear what occurred during that time, or what weather reports
were received and acted upon by the ship captain. What happened during
such time is important in determining what information about the
typhoon was gathered and how the ship officers reached their decision to
just change course, and not take shelter while a strong typhoon was
approaching.

Furthermore, the Court doubts the fitness of the ship for the voyage,
since at the first sign of bad weather, the ships hydraulic system failed
and had to be repaired mid-voyage, making the vessel a virtual derelict
amidst a raging storm at sea. It is part of the appellees extraordinary
diligence as a common carrier to make sure that its ships can withstand
the forces that bear upon them during a voyage, whether they be the
ordinary stress of the sea during a calm voyage or the rage of a storm.
The fact that the stud bolts in the ships hydraulic system gave way while
the ship was at sea discredits the theory that the appellee exercised due
diligence in maintaining the seaworthy condition of the
M.V. Doa Marilyn. xxx.[4]
xxx
Aside from these, the defendant must compensate the plaintiffs for moral
damages that they suffered as a result of the negligence attending the
loss of the M.V. Doa Marilyn. Plaintiffs, have established that they took
great pains to recover, in vain, the body of their brother, at their own
cost, while suffering great grief due to the loss of a loved one.
Furthermore, Plaintiffs were unable to recover the body of their brother.
Moral damages worth P100,000.00 is proper.

WHEREFORE, premises considered, the appealed decision of the

RTC of Naval, Biliran, Branch 16, rendered in Civil Case No. B-
0851, is hereby SET ASIDE. In lieu thereof, judgment is hereby
rendered, finding the defendant-appelleeSulpicio Lines, Inc, to have
been negligent in transporting the deceased Cenon E. Curso who was
on board the ill-fated M.V. Doa Marilyn, resulting in his untimely
death. Defendant-appellee is hereby ordered to pay the plaintiffs heirs
of Cenon E. Curso the following:

(1) Death indemnity in the amount of P50,000.00;

 (2) Loss of Earning Capacity in the amount of P504,241.20;

(3) Moral Damages in the amount of P100,000.00.

(4) Costs of the suit.[5]

Hence, this appeal, in which the petitioner insists that the CA committed grievous
errors in holding that the respondents were entitled to moral damages as the
brothers and sisters of the late Dr. Curso; that the CA thereby disregarded Article
1764 and Article 2206 of the Civil Code, and the ruling in Receiver for North
Negros Sugar Co., Inc. v. Ybaez,[6] whereby the Supreme Court disallowed the
award of moral damages in favor of the brothers and sisters of a deceased
passenger in an action upon breach of a contract of carriage.[7]
Issues

The petitioner raises the following issues:

ARE THE BROTHERS AND SISTERS OF A DECEASED

PASSENGER IN A CASE OF BREACH OF CONTRACT OF
CARRIAGE ENTITLED TO AN AWARD OF MORAL DAMAGES
AGAINST THE CARRIER?

ASSUMING (THAT) THEY ARE ENTITLED TO CLAIM MORAL

DAMAGES, SHOULD THE AWARD BE GRANTED OR GIVEN TO
THE BROTHER OR SISTER NOTWITHSTANDING (THE) LACK
OF EVIDENCE AS REGARDS HIS OR HER PERSONAL
SUFFERING?

Ruling

The petition is meritorious.

As a general rule, moral damages are not recoverable in actions for damages
predicated on a breach of contract, unless there is fraud or bad faith. [8] As an
exception, moral damages may be awarded in case of breach of contract of carriage
that results in the death of a passenger, [9] in accordance with Article 1764, in
relation to Article 2206 (3), of the Civil Code, which provide:
Article 1764. Damages in cases comprised in this Section shall be
awarded in accordance with Title XVIII of this Book, concerning
Damages. Article 2206 shall also apply to the death of a passenger
caused by the breach of contract by a common carrier.

Article 2206. The amount of damages for death caused by a crime

or quasi-delict shall be at least three thousand pesos, even though there
may have been mitigating circumstances. In addition:

(1) The defendant shall be liable for the loss of the earning capacity
of the deceased, and the indemnity shall be paid to the heirs of the latter;
such indemnity shall in every case be assessed and awarded by the court,
unless the deceased on account of permanent physical disability not
caused by the defendant, had no earning capacity at the time of his death;

(2) If the deceased was obliged to give support according to the

provisions of article 291, the recipient who is not an heir called to the
decedent's inheritance by the law of testate or intestate succession, may
demand support from the person causing the death, for a period not
exceeding five years, the exact duration to be fixed by the court;

(3) The spouse, legitimate and illegitimate descendants and

ascendants of the deceased may demand moral damages for mental
anguish by reason of the death of the deceased.

The foregoing legal provisions set forth the persons entitled to moral damages. The
omission from Article 2206 (3) of the brothers and sisters of the deceased
passenger reveals the legislative intent to exclude them from the recovery of moral
damages for mental anguish by reason of the death of the
deceased. Inclusio unius est exclusio alterius.[10] The solemn power and duty of the
courts to interpret and apply the law do not include the power to correct the law by
reading into it what is not written therein.[11] Thus, the CA erred in awarding moral
damages to the respondents.

The petitioner has correctly relied on the holding in Receiver for North Negros
Sugar Company, Inc. v. Ybaez,[12] to the effect that in case of death caused
by quasi-delict, the brother of the deceased was not entitled to the award of moral
damages based on Article 2206 of the Civil Code.
Essentially, the purpose of moral damages is indemnity or reparation, that is, to
enable the injured party to obtain the means, diversions, or amusements that will
serve to alleviate the moral suffering he has undergone by reason of the tragic
event. According to Villanueva v. Salvador,[13] the conditions for awarding moral
damages are: (a) there must be an injury, whether physical, mental, or
psychological, clearly substantiated by the claimant; (b) there must be a culpable
act or omission factually established; (c) the wrongful act or omission of the
defendant must be the proximate cause of the injury sustained by the claimant; and
(d) the award of damages is predicated on any of the cases stated in Article 2219 of
the Civil Code.

To be entitled to moral damages, the respondents must have a right based

upon law. It is true that under Article 1003[14] of the Civil Code they succeeded to
the entire estate of the late Dr. Curso in the absence of the latters descendants,
ascendants, illegitimate children, and surviving spouse. However, they were not
included among the persons entitled to recover moral damages, as enumerated in
Article 2219 of the Civil Code, viz:

Article 2219. Moral damages may be recovered in the following

and analogous cases:

(1) A criminal offense resulting in physical injuries;

(2) Quasi-delicts causing physical injuries;

(3) Seduction, abduction, rape or other lascivious acts;

(4) Adultery or concubinage;

(5) Illegal or arbitrary detention or arrest;

(6) Illegal search;

(7) Libel, slander or any other form of defamation;

 (8) Malicious prosecution;

(9) Acts mentioned in article 309;

(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32,
34 and 35.

The parents of the female seduced, abducted, raped or abused

referred to in No. 3 of this article, may also recover moral damages.

The spouse, descendants, ascendants and brothers and sisters may

bring the action mentioned in No. 9 of this article, in the order named.

Article 2219 circumscribes the instances in which moral damages may be

awarded. The provision does not include succession in the collateral line as a
source of the right to recover moral damages. The usage of the phrase analogous
cases in the provision means simply that the situation must be held similar to those
expressly enumerated in the law in question [15] following the ejusdem generis rule.
Hence, Article 1003 of the Civil Codeis not concerned with recovery of moral
damages.

In fine, moral damages may be recovered in an action upon breach of contract of

carriage only when: (a) where death of a passenger results, or (b) it is proved that
the carrier was guilty of fraud and bad faith, even if death does not result.[16] Article
2206 of the Civil Code entitles the descendants, ascendants, illegitimate children,
and surviving spouse of the deceased passenger to demand moral damages for
mental anguish by reason of the death of the deceased.[17]

WHEREFORE, the petition for review on certiorari is granted, and the award
made to the respondents in the decision dated September 16, 2002 of the Court of
Appeals of moral damages amounting to P100,000.00 is deleted and set aside.

SO ORDERED.
G.R. No. 200289 November 25, 2013

WESTWIND SHIPPING CORPORATION, Petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.

x-----------------------x

G.R. No. 200314

ORIENT FREIGHT INTERNATIONAL INC., Petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC. and ASIAN TERMINALS INC., Respondents.

DECISION

PERALTA, J.:

These two consolidated cases challenge, by way of petition for certiorari under Rule 45 of the
1997 Rules of Civil Procedure, September 13, 2011 Decision and January 19, 2012
1

Resolution of the Court of Appeals (CA) in CA-G.R. CV No. 86752, which reversed and set
2

aside the January 27, 2006 Decision of the Manila City Regional Trial Court Branch (RTC) 30.
3

The facts, as established by the records, are as follows:

On August 23, 1993, Kinsho-Mataichi Corporation shipped from the port of Kobe, Japan, 197
metal containers/skids of tin-free steel for delivery to the consignee, San Miguel Corporation
(SMC). The shipment, covered by Bill of Lading No. KBMA-1074, was loaded and received
4

clean on board M/V Golden Harvest Voyage No. 66, a vessel owned and operated by Westwind
Shipping Corporation (Westwind).

SMC insured the cargoes against all risks with UCPB General Insurance Co., Inc. (UCPB) for
US Dollars: One Hundred Eighty-Four Thousand Seven Hundred Ninety-Eight and Ninety-
Seven Centavos (US$184,798.97), which, at the time, was equivalent to Philippine Pesos: Six
Million Two Hundred Nine Thousand Two Hundred Forty-Five and Twenty-Eight Centavos
(₱6,209,245.28).

The shipment arrived in Manila, Philippines on August 31, 1993 and was discharged in the
custody of the arrastre operator, Asian Terminals, Inc. (ATI), formerly Marina Port Services,
Inc. During the unloading operation, however, six containers/skids worth Philippine Pesos: One
5

Hundred Seventeen Thousand Ninety-Three and Twelve Centavos (₱117,093.12) sustained

dents and punctures from the forklift used by the stevedores of Ocean Terminal Services, Inc.
(OTSI) in centering and shuttling the containers/skids. As a consequence, the local ship agent of
the vessel, Baliwag Shipping Agency, Inc., issued two Bad Order Cargo Receipt dated
September 1, 1993.
On September 7, 1993, Orient Freight International, Inc. (OFII), the customs broker of SMC,
withdrew from ATI the 197 containers/skids, including the six in damaged condition, and
delivered the same at SMC’s warehouse in Calamba, Laguna through J.B. Limcaoco Trucking
(JBL). It was discovered upon discharge that additional nine containers/skids valued at
Philippine Pesos: One Hundred Seventy-Five Thousand Six Hundred Thirty-Nine and Sixty-
Eight Centavos (₱175,639.68) were also damaged due to the forklift operations; thus, making
the total number of 15 containers/skids in bad order.

Almost a year after, on August 15, 1994, SMC filed a claim against UCPB, Westwind, ATI, and
OFII to recover the amount corresponding to the damaged 15 containers/skids. When UCPB
paid the total sum of Philippine Pesos: Two Hundred Ninety-Two Thousand Seven Hundred
Thirty-Two and Eighty Centavos (₱292,732.80), SMC signed the subrogation receipt.
Thereafter, in the exercise of its right of subrogation, UCPB instituted on August 30, 1994 a
complaint for damages against Westwind, ATI, and OFII. 6

After trial, the RTC dismissed UCPB’s complaint and the counterclaims of Westwind, ATI, and
OFII. It ruled that the right, if any, against ATI already prescribed based on the stipulation in the
16 Cargo Gate Passes issued, as well as the doctrine laid down in International Container
Terminal Services, Inc. v. Prudential Guarantee & Assurance Co. Inc. that a claim for
7

reimbursement for damaged goods must be filed within 15 days from the date of consignee’s
knowledge. With respect to Westwind, even if the action against it is not yet barred by
prescription, conformably with Section 3 (6) of the Carriage of Goods by Sea Act (COGSA) and
Our rulings in E.E. Elser, Inc., et al. v. Court of Appeals, et al. and Belgian Overseas Chartering
8

and Shipping N.V. v. Phil. First Insurance Co., Inc., the court a quo still opined that Westwind is
9

not liable, since the discharging of the cargoes were done by ATI personnel using forklifts and
that there was no allegation that it (Westwind) had a hand in the conduct of the stevedoring
operations. Finally, the trial court likewise absolved OFII from any liability, reasoning that it never
undertook the operation of the forklifts which caused the dents and punctures, and that it merely
facilitated the release and delivery of the shipment as the customs broker and representative of
SMC.

On appeal by UCPB, the CA reversed and set aside the trial court. The fallo of its September
13, 2011 Decision directed:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The Decision
dated January 27, 2006 rendered by the court a quo is REVERSED AND SET ASIDE. Appellee
Westwind Shipping Corporation is hereby ordered to pay to the appellant UCPB General
Insurance Co., Inc., the amount of One Hundred Seventeen Thousand and Ninety-Three Pesos
and Twelve Centavos (Php117,093.12), while Orient Freight International, Inc. is hereby ordered
to pay to UCPB the sum of One Hundred Seventy-Five Thousand Six Hundred Thirty-Nine
Pesos and Sixty-Eight Centavos (Php175,639.68). Both sums shall bear interest at the rate of
six (6%) percent per annum, from the filing of the complaint on August 30, 1994 until the
judgment becomes final and executory. Thereafter, an interest rate of twelve (12%) percent per
annum shall be imposed from the time this decision becomes final and executory until full
payment of said amounts.

SO ORDERED. 10

While the CA sustained the RTC judgment that the claim against ATI already prescribed, it
rendered a contrary view as regards the liability of Westwind and OFII. For the appellate court,
Westwind, not ATI, is responsible for the six damaged containers/skids at the time of its
unloading. In its rationale, which substantially followed Philippines First Insurance Co., Inc. v.
Wallem Phils. Shipping, Inc., it concluded that the common carrier, not the arrastre operator, is
11

responsible during the unloading of the cargoes from the vessel and that it is not relieved from
liability and is still bound to exercise extraordinary diligence at the time in order to see to it that
the cargoes under its possession remain in good order and condition. The CA also considered
that OFII is liable for the additional nine damaged containers/skids, agreeing with UCPB’s
contention that OFII is a common carrier bound to observe extraordinary diligence and is
presumed to be at fault or have acted negligently for such damage. Noting the testimony of
OFII’s own witness that the delivery of the shipment to the consignee is part of OFII’s job as a
cargo forwarder, the appellate court ruled that Article 1732 of the New Civil Code (NCC) does
not distinguish between one whose principal business activity is the carrying of persons or
goods or both and one who does so as an ancillary activity. The appellate court further ruled that
OFII cannot excuse itself from liability by insisting that JBL undertook the delivery of the cargoes
to SMC’s warehouse. It opined that the delivery receipts signed by the inspector of SMC
showed that the containers/skids were received from OFII, not JBL. At the most, the CA said,
JBL was engaged by OFII to supply the trucks necessary to deliver the shipment, under its
supervision, to SMC.

Only Westwind and OFII filed their respective motions for reconsideration, which the CA denied;
hence, they elevated the case before Us via petitions docketed as G.R. Nos. 200289 and
200314, respectively.

Westwind argues that it no longer had actual or constructive custody of the containers/skids at
the time they were damaged by ATI’s forklift operator during the unloading operations. In
accordance with the stipulation of the bill of lading, which allegedly conforms to Article 1736 of
the NCC, it contends that its responsibility already ceased from the moment the cargoes were
delivered to ATI, which is reckoned from the moment the goods were taken into the latter’s
custody. Westwind adds that ATI, which is a completely independent entity that had the right to
receive the goods as exclusive operator of stevedoring and arrastre functions in South Harbor,
Manila, had full control over its employees and stevedores as well as the manner and procedure
of the discharging operations.

As for OFII, it maintains that it is not a common carrier, but only a customs broker whose
participation is limited to facilitating withdrawal of the shipment in the custody of ATI by
overseeing and documenting the turnover and counterchecking if the quantity of the shipments
were in tally with the shipping documents at hand, but without participating in the physical
withdrawal and loading of the shipments into the delivery trucks of JBL. Assuming that it is a
common carrier, OFII insists that there is no need to rely on the presumption of the law – that,
as a common carrier, it is presumed to have been at fault or have acted negligently in case of
damaged goods – considering the undisputed fact that the damages to the containers/skids
were caused by the forklift blades, and that there is no evidence presented to show that OFII
and Westwind were the owners/operators of the forklifts. It asserts that the loading to the trucks
were made by way of forklifts owned and operated by ATI and the unloading from the trucks at
the SMC warehouse was done by way of forklifts owned and operated by SMC employees.
Lastly, OFII avers that neither the undertaking to deliver nor the acknowledgment by the
consignee of the fact of delivery makes a person or entity a common carrier, since delivery
alone is not the controlling factor in order to be considered as such.

Both petitions lack merit.

The case of Philippines First Insurance Co., Inc. v. Wallem Phils. Shipping, Inc. applies, as it
12

settled the query on which between a common carrier and an arrastre operator should be
responsible for damage or loss incurred by the shipment during its unloading. We elucidated at
length:

Common carriers, from the nature of their business and for reasons of public policy, are bound
to observe extraordinary diligence in the vigilance over the goods transported by them. Subject
to certain exceptions enumerated under Article 1734 of the Civil Code, common carriers are
responsible for the loss, destruction, or deterioration of the goods. The 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.

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 loading, until he delivers it on the shore or on the discharging wharf at the port of
unloading, unless agreed otherwise. In Standard Oil Co. of New York v. Lopez Castelo, the
Court interpreted the ship captain’s liability as ultimately that of the shipowner by regarding the
captain as the representative of the shipowner.

Lastly, Section 2 of the COGSA provides that under every contract of carriage of goods by sea,
the carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge
of such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and
immunities set forth in the Act. Section 3 (2) thereof then states that among the carriers’
responsibilities are to properly and carefully load, handle, stow, carry, keep, care for, and
discharge the goods carried.

xxxx

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.
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.

Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or
employees should observe the standards and measures necessary to prevent losses and
damage to shipments under its custody.

In Fireman’s Fund Insurance Co. v. Metro Port Service, Inc., the Court explained the relationship
and responsibility of an arrastre operator to a consignee of a cargo, to quote:

The legal relationship between the consignee and the arrastre operator is akin to that of a
depositor and warehouseman. The relationship between the consignee and the common carrier
is similar to that of the consignee and the arrastre operator. Since it is the duty of the
ARRASTRE to take good care of the goods that are in its custody and to deliver them in good
condition to the consignee, such responsibility also devolves upon the CARRIER. Both the
ARRASTRE and the CARRIER are therefore charged with and obligated to deliver the goods in
good condition to the consignee. (Emphasis supplied) (Citations omitted)
The liability of the arrastre operator was reiterated in Eastern Shipping Lines, Inc. v. Court of
Appeals with the clarification that the arrastre operator and the carrier are not always and
necessarily solidarily liable as the facts of a case may vary the rule.

Thus, in this case, the appellate court is correct insofar as it ruled that an arrastre operator and
a carrier may not be held solidarily liable at all times. But the precise question is which entity
had custody 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.

In a case decided by a U.S. Circuit Court, Nichimen Company v. M/V Farland, it was ruled that
like the duty of seaworthiness, the duty of care of the cargo is non-delegable, and the carrier is
accordingly responsible for the acts of the master, the crew, the stevedore, and his other agents.
It has also been held that it is ordinarily the duty of the master of a vessel to unload the cargo
and place it in readiness for delivery to the consignee, and there is an implied obligation that this
shall be accomplished with sound machinery, competent hands, and in such manner that no
unnecessary injury shall be done thereto. 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.

xxxx

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain
under the custody of the carrier x x x. 13

In Regional Container Lines (RCL) of Singapore v. The Netherlands Insurance Co. (Philippines),
Inc. and Asian Terminals, Inc. v. Philam Insurance Co., Inc., the Court echoed the doctrine that
14 15

cargoes, while being unloaded, generally remain under the custody of the carrier. We cannot
agree with Westwind’s disputation that "the carrier in Wallem clearly exercised supervision
during the discharge of the shipment and that is why it was faulted and held liable for the
damage incurred by the shipment during such time." What Westwind failed to realize is that the
extraordinary responsibility of the common carrier lasts until the time the goods are actually or
constructively delivered by the carrier to the consignee or to the person who has a right to
receive them. There is actual delivery in contracts for the transport of goods when possession
has been turned over to the consignee or to his duly authorized agent and a reasonable time is
given him to remove the goods. In this case, since the discharging of the containers/skids,
16

which were covered by only one bill of lading, had not yet been completed at the time the
damage occurred, there is no reason to imply that there was already delivery, actual or
constructive, of the cargoes to ATI. Indeed, the earlier case of Delsan Transport Lines, Inc. v.
American Home Assurance Corp. serves as a useful guide, thus:
17

Delsan’s argument that it should not be held liable for the loss of diesel oil due to backflow
because the same had already been actually and legally delivered to Caltex at the time it
entered the shore tank holds no water. It had been settled that the subject cargo was still in the
custody of Delsan because the discharging thereof has not yet been finished when the backflow
occurred. Since the discharging of the cargo into the depot has not yet been completed at the
time of the spillage when the backflow occurred, there is no reason to imply that there was
actual delivery of the cargo to the consignee. Delsan is straining the issue by insisting that when
the diesel oil entered into the tank of Caltex on shore, there was legally, at that moment, a
complete delivery thereof to Caltex. To be sure, the extraordinary responsibility of 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 a person who has the right to receive them. The
discharging of oil products to Caltex Bulk Depot has not yet been finished, Delsan still has the
duty to guard and to preserve the cargo. The carrier still has in it the responsibility to guard and
preserve the goods, a duty incident to its having the goods transported.

To recapitulate, common carriers, from the nature of their business and for reasons of public
policy, are bound to observe extraordinary diligence in vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case.
The mere proof of delivery of goods in good order to the carrier, and their arrival in the place of
destination in bad order, make out a prima facie case against the carrier, so that if no
explanation is given as to how the injury occurred, the carrier must be held responsible. It is
incumbent upon the carrier to prove that the loss was due to accident or some other
circumstances inconsistent with its liability. 18

The contention of OFII is likewise untenable. A customs broker has been regarded as a
common carrier because transportation of goods is an integral part of its business. In Schmitz
19

Transport & Brokerage Corporation v. Transport Venture, Inc., the Court already reiterated: It is
20

settled that under a given set of facts, a customs broker may be regarded as a common
carrier. Thus, this Court, in A.F. Sanchez Brokerage, Inc. v. The Honorable Court of Appeals
1âwphi1

held:

The appellate court did not err in finding petitioner, a customs broker, to be also a common
carrier, as defined under Article 1732 of the Civil Code, to wit, Art. 1732. Common carriers are
persons, corporations, firms or associations engaged in the business of carrying or transporting
passengers or goods or both, by land, water, or air, for compensation, offering their services to
the public.

xxxx

Article 1732 does not distinguish between one whose principal business activity is the carrying
of goods and one who does such carrying only as an ancillary activity. The contention, therefore,
of petitioner that it is not a common carrier but a customs broker whose principal function is to
prepare the correct customs declaration and proper shipping documents as required by law is
bereft of merit. It suffices that petitioner undertakes to deliver the goods for pecuniary
consideration.

And in Calvo v. UCPB General Insurance Co. Inc., this Court held that as the transportation of
goods is an integral part of a customs broker, the customs broker is also a common carrier. For
to declare otherwise "would be to deprive those with whom [it] contracts the protection which the
law affords them notwithstanding the fact that the obligation to carry goods for [its] customers, is
part and parcel of petitioner’s business."21
That OFII is a common carrier is buttressed by the testimony of its own witness, Mr. Loveric
Panganiban Cueto, that part of the services it offers to clients is cargo forwarding, which
includes the delivery of the shipment to the consignee. Thus, for undertaking the transport of
22

cargoes from ATI to SMC’s warehouse in Calamba, Laguna, OFII is considered a common
carrier. As long as a person or corporation holds itself to the public for the purpose of
transporting goods as a business, it is already considered a common carrier regardless of
whether it owns the vehicle to be used or has to actually hire one.

As a common carrier, OFII is mandated to observe, under Article 1733 of the Civil
Code, extraordinary diligence in the vigilance over the goods it transports according to the
23 24

peculiar circumstances of each case. In the event that the goods are lost, destroyed or
deteriorated, it is presumed to have been at fault or to have acted negligently unless it proves
that it observed extraordinary diligence. In the case at bar it was established that except for the
25

six containers/skids already damaged OFII received the cargoes from ATI in good order and
condition; and that upon its delivery to SMC additional nine containers/skids were found to be in
bad order as noted in the Delivery Receipts issued by OFII and as indicated in the Report of
Cares Marine Cargo Surveyors. Instead of merely excusing itself from liability by putting the
blame to ATI and SMC it is incumbent upon OFII to prove that it actively took care of the goods
by exercising extraordinary diligence in the carriage thereof. It failed to do so. Hence its
presumed negligence under Article 1735 of the Civil Code remains unrebutted.

WHEREFORE, premises considered the petitions of Westwind and OFII in G.R. Nos. 200289
and 200314 respectively are DENIED. The September 13 2011 Decision and January 19 2012
Resolution of the Court of Appeals in CA-G.R. CV No. 86752 which reversed and set aside the
January 27 2006 Decision of the Manila City Regional Trial Court Branch 30 are AFFIRMED.

SO ORDERED.

AIR FRANCE, G.R. No. 165266

Petitioner,
Present:

CARPIO MORALES, J.,

Chairperson,
- versus - BERSAMIN,
MENDOZA,*
VILLARAMA, JR., and
SERENO, JJ.

BONIFACIO H. GILLEGO, Promulgated:

substituted by his surviving heirs
represented by Dolores P. Gillego, December 15, 2010
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR., J.:

For review is the Decision[1] dated June 30, 2004 of the Court of Appeals (CA) in
CA-G.R. CV No. 56587 which affirmed the Decision [2] dated January 3, 1996 of
the Regional Trial Court (RTC) of Makati City, Branch 137 in Civil Case No. 93-
2328.

The facts follow:

Sometime in April 1993, respondent Bonifacio H. Gillego, [3] then incumbent

Congressman of the Second District of Sorsogon and Chairman of the House of
Representatives Committee on Civil, Political and Human Rights, was invited to
participate as one of the keynote speakers at the 89th Inter-Parliamentary
Conference Symposium on Parliament Guardian of Human Rights to be held in
Budapest, Hungary and Tokyo, Japan from May 19 to 22, 1993. The Philippines is
a member of the Inter-Parliamentary Union which organized the event.[4]

On May 16, 1993, respondent left Manila on board petitioner Air Frances aircraft
bound for Paris, France. He arrived in Paris early morning of May 17, 1993 (5:00
a.m.). While waiting at the De Gaulle International Airport for his connecting flight
to Budapest scheduled at 3:15 p.m. that same day, respondent learned that
petitioner had another aircraft bound for Budapest with an earlier departure time
(10:00 a.m.) than his scheduled flight. He then went to petitioners counter at the
airport and made arrangements for the change in his booking. He was given a
corresponding ticket and boarding pass for Flight No. 2024 and also a new
baggage claim stub for his checked-in luggage.[5]

However, upon arriving in Budapest, respondent was unable to locate his

luggage at the claiming section. He sought assistance from petitioners counter at
the airport where petitioners representative verified from their computer that he
had indeed a checked-in luggage. He was advised to just wait for his luggage at his
hotel and that petitioners representatives would take charge of delivering the same
to him that same day. But said luggage was never delivered by petitioners
representatives despite follow-up inquiries by respondent.

Upon his return to the Philippines, respondents lawyer immediately wrote

petitioners Station Manager complaining about the lost luggage and the resulting
damages he suffered while in Budapest. Respondent claimed that his single
luggage contained his personal effects such as clothes, toiletries, medicines for his
hypertension, and the speeches he had prepared, including the notes and reference
materials he needed for the conference. He was thus left with only his travel
documents, pocket money and the clothes he was wearing. Because petitioners
representatives in Budapest failed to deliver his luggage despite their assurances
and his repeated follow-ups, respondent was forced to shop for personal items
including new clothes and his medicines. Aside from these unnecessary
expenditures of about $1,000, respondent had to prepare another speech, in which
he had difficulty due to lack of data and information. Respondent thus demanded
the sum of P1,000,000.00 from the petitioner as compensation for his loss,
inconvenience and moral damages.[6] Petitioner, however, continued to ignore
respondents repeated follow-ups regarding his lost luggage.

On July 13, 1993, respondent filed a complaint[7] for damages against the
petitioner alleging that by reason of its negligence and breach of obligation to
transport and deliver his luggage, respondent suffered inconvenience, serious
anxiety, physical suffering and sleepless nights. It was further alleged that due to
the physical, mental and emotional strain resulting from the loss of his luggage,
aggravated by the fact that he failed to take his regular medication, respondent had
to be taken to a medical clinic in Tokyo, Japan for emergency treatment.
Respondent asserted that as a common carrier which advertises and offers its
services to the public, petitioner is under obligation to observe extraordinary
diligence in the vigilance over checked-in luggage and to see to it that respondents
luggage entrusted to petitioners custody would accompany him on his flight and/or
could be claimed by him upon arrival at his point of destination or delivered to him
without delay. Petitioner should therefore be held liable for actual damages
($2,000.00 or P40,000.00), moral damages (P1,000,000.00), exemplary damages
(P500,000.00), attorneys fees (P50,000.00) and costs of suit.

Petitioner filed its answer[8] admitting that respondent was issued tickets for
the flights mentioned, his subsequent request to be transferred to another flight
while at the Paris airport and the loss of his checked-in luggage upon arrival
at Budapest, which luggage has not been retrieved to date and the respondents
repeated follow-ups ignored. However, as to the rest of respondents allegations,
petitioner said it has no knowledge and information sufficient to form a belief as to
their truth. As special and affirmative defense, petitioner contended that its liability
for lost checked-in baggage is governed by the Warsaw Convention for the
Unification of Certain Rules Relating to International Carriage. Under the said
treaty, petitioners liability for lost or delayed registered baggage of respondent is
limited to 250 francs per kilogram or US$20.00, which constitutes liquidated
damages and hence respondent is not entitled to any further damage.

Petitioner averred that it has taken all necessary measures to avoid loss of
respondents baggage, the contents of which respondent did not declare, and that it
has no intent to cause such loss, much less knew that such loss could occur. The
loss of respondents luggage is due to or occasioned by force majeure or fortuitous
event or other causes beyond the carriers control. Diligent, sincere and timely
efforts were exerted by petitioner to locate respondents missing luggage and
attended to his problem with utmost courtesy, concern and dispatch. Petitioner
further asserted that it exercised due diligence in the selection and supervision of
its employees and acted in good faith in denying respondents demand for
damages. The claims for actual, moral and exemplary damages and attorneys fees
therefore have no basis in fact and in law, and are, moreover speculative and
unconscionable.

In his Reply,[9] respondent maintained that the loss of his luggage cannot be
attributed to anything other than petitioners simple negligence and its failure to
perform the diligence required of a common carrier.

On January 3, 1996, the trial court rendered its decision in favor of

respondent and against the petitioner, as follows:
WHEREFORE, premises considered, judgment is rendered ordering
defendant to pay plaintiff:

1. The sum of P1,000,000.00 as moral damages;

2. The sum of P500,000.00 as exemplary damages;

3. The sum of P50,000.00 as attorneys fees; and

4. The costs.

SO ORDERED.[10]
 The trial court found there was gross negligence on the part of petitioner
which failed to retrieve respondents checked-in luggage up to the time of the filing
of the complaint and as admitted in its answer, ignored respondents repeated
follow-ups. It likewise found petitioner guilty of willful misconduct as it
persistently disregarded the rights of respondent who was no ordinary individual
but a high government official. As to the applicability of the limited liability for
lost baggage under the Warsaw Convention, the trial court rejected the argument of
petitioner citing the case of Alitalia v. Intermediate Appellate Court.[11]

Petitioner appealed to the CA, which affirmed the trial courts decision. The CA
noted that in the memorandum submitted by petitioner before the trial court it was
mentioned that respondents luggage was eventually found and delivered to him,
which was not denied by respondent and thus resulted in the withdrawal of the
claim for actual damages. As to the trial courts finding of gross negligence, bad
faith and willful misconduct which justified the award of moral and exemplary
damages, the CA sustained the same, stating thus:
It bears stressing that defendant-appellant committed a breach of contract
by its failure to deliver the luggage of plaintiff-appellee on time despite demand
from plaintiff-appellee. The unreasonable delay in the delivery of the luggage
has not been satisfactorily explained by defendant-appellant, either in its
memorandum or in its appellants brief. Instead of justifying the delay,
defendant-appellant took refuge under the provisions of the Warsaw Convention
to escape liability. Neither was there any showing of apology on the part of
defendant-appellant as to the delay. Furthermore, the unapologetic defendant-
appellant even faulted plaintiff-appellee for not leaving a local address
in Budapest in order for the defendant-appellant to contact him (plaintiff-
appellee) in the event the luggage is found. This actuation of defendant-
appellant is a clear showing of willful misconduct and a deliberate design to
avoid liability. It amounts to bad faith. As elucidated by Chief Justice Hilario
Davide, Jr., [b]ad faith does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious doing of a
wrong, a breach of a known duty through some motive or interest or ill will that
partakes of the nature of fraud.[12] (Emphasis supplied.)

Its motion for reconsideration having been denied, petitioner filed the present Rule
45 petition raising the following grounds:
I.

THE AMOUNTS AWARDED TO RESPONDENT AS MORAL AND

EXEMPLARY DAMAGES ARE EXCESSIVE, UNCONSCIONABLE AND
UNREASONABLE.
 II.

THERE IS NO LEGAL AND FACTUAL BASIS TO THE FINDINGS OF THE

TRIAL COURT AND THE COURT OF APPEALS THAT PETITIONERS
ACTIONS WERE ATTENDED BY GROSS NEGLIGENCE, BAD FAITH AND
WILLFUL MISCONDUCT AND THAT IT ACTED IN A WANTON,
FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT MANNER,
TO JUSTIFY THE AWARD OF MORAL AND EXEMPLARY DAMAGES.[13]

Petitioner assails the trial and appellate courts for awarding extravagant sums to
respondent that already tend to punish the petitioner and enrich the respondent,
which is not the function at all of moral damages. Upon the facts established, the
damages awarded are definitely not proportionate or commensurate to the wrong or
injury supposedly inflicted. Without belittling the problems respondent
experienced in Budapest after losing his luggage, petitioner points out that despite
the unfortunate incident, respondent was able to reconstruct the speeches, notes
and study guides he had earlier prepared for the conference in Budapest and Tokyo,
and to attend, speak and participate therein as scheduled. Since he prepared the
research and wrote his speech, considering his acknowledged and long-standing
expertise in the field of human rights in the Philippines, respondent should have
had no difficulty delivering his speech even without his notes. In addition, there is
no evidence that members of the Inter-Parliamentary Union made derogatory
statements or even knew that he was unprepared for the conference. Bearing in
mind that the actual damages sought by respondent was only $2,000.00, then
clearly the trial court went way beyond that amount in determining the appropriate
damages, inspite of the fact that the respondent eventually got back his baggage.[14]

Comparing the situation in this case to other cases awarding similar damages
to the aggrieved passenger as a result of breaches of contract by international
carriers, petitioner argues that even assuming that respondent was entitled to moral
and exemplary damages, the sums adjudged should be modified or reduced. It is
stressed that petitioner or its agents were never rude or discourteous toward
respondent; he was not subjected to humiliating treatment or comments as in the
case of Lopez, et al. v. Pan American World Airways, [15] Ortigas, Jr. v. Lufthansa
German Airlines[16] and Zulueta v. Pan American World Airways, Inc. [17]. The mere
fact that respondent was a Congressman should not result in an automatic increase
in the moral and exemplary damages recoverable. As held in Kierulf v. Court of
Appeals[18] the social and financial standing of a claimant may be considered only
if he or she was subjected to contemptuous conduct despite the offenders
knowledge of his or her social and financial standing.[19]
 In any event, petitioner invokes the application of the exception to the rule
that only questions of law may be entertained by this Court in a petition for review
under Rule 45 as to allow a factual review of the case.First, petitioner contends that
it has always maintained that the admission in its answer was only made out of
inadvertence, considering that it was inconsistent with the special and affirmative
defenses set forth in the same pleading. The trial court incorrectly concluded that
petitioner had not prepared a Property Irregularity Report (PIR) but fabricated one
only as an afterthought. A PIR can only be initiated upon the instance of a
passenger whose baggage had been lost, and in this case it was prepared by the
station where the loss was reported. The PIR in this case was automatically and
chronologically recorded in petitioners computerized system. Respondent himself
admitted in his testimony that he gave his Philippine address and telephone number
to the lady in charge of petitioners complaint desk in Budapest. It was not
necessary to furnish a passenger with a copy of the PIR since its purpose is for the
airline to trace a lost baggage. What respondent ought to have done was to make a
xerox copy thereof for himself.[20]

Petitioner reiterates that there was no bad faith or negligence on its part and
the burden is on the respondent to prove by clear and convincing evidence that it
acted in bad faith. Respondent in his testimony miserably failed to prove that bad
faith, fraud or ill will motivated or caused the delay of his baggage. This Court will
surely agree that mere failure of a carrier to deliver a passengers baggage at the
agreed place and time did not ipso facto amount to willful misconduct as to make it
liable for moral and exemplary damages. Petitioner adduced evidence showing that
it exerted diligent, sincere and timely efforts to locate the missing baggage,
eventually leading to its recovery. It attended to respondents problem with utmost
courtesy, concern and dispatch. Respondent, moreover, never alleged that
petitioners employees were at anytime rude, mistreated him or in anyway showed
improper behavior.[21]

The petition is partly meritorious.

A business intended to serve the travelling public primarily, a contract of

carriage is imbued with public interest.[22] The law governing common carriers
consequently imposes an exacting standard. Article 1735 of the Civil
Code provides that in case of lost or damaged goods, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required by Article 1733. Thus, in an
action based on a breach of contract of carriage, the aggrieved party does not have
to prove that the common carrier was at fault or was negligent. All that he has to
prove is the existence of the contract and the fact of its non-performance by the
carrier.[23]

That respondents checked-in luggage was not found upon arrival at his
destination and was not returned to him until about two years later [24] is not
disputed. The action filed by the respondent is founded on such breach of the
contract of carriage with petitioner who offered no satisfactory explanation for the
unreasonable delay in the delivery of respondents baggage. The presumption of
negligence was not overcome by the petitioner and hence its liability for the delay
was sufficiently established. However, upon receipt of the said luggage during the
pendency of the case in the trial court, respondent did not anymore press on his
claim for actual or compensatory damages and neither did he adduce evidence of
the actual amount of loss and damage incurred by such delayed delivery of his
luggage. Consequently, the trial court proceeded to determine only the propriety of
his claim for moral and exemplary damages, and attorneys fees.

In awarding moral damages for breach of contract of carriage, the breach

must be wanton and deliberately injurious or the one responsible acted fraudulently
or with malice or bad faith.[25] Not every case of mental anguish, fright or serious
anxiety calls for the award of moral damages.[26] Where in breaching the contract of
carriage the airline is not shown to have acted fraudulently or in bad faith, liability
for damages is limited to the natural and probable consequences of the breach of
the obligation which the parties had foreseen or could have reasonably foreseen. In
such a case the liability does not include moral and exemplary damages.[27]

Bad faith should be established by clear and convincing evidence. The

settled rule is that the law always presumes good faith such that any person who
seeks to be awarded damages due to the acts of another has the burden of proving
that the latter acted in bad faith or with ill motive.[28]

In the case of Tan v. Northwest Airlines, Inc.,[29] we sustained the CAs

deletion of moral and exemplary damages awarded to a passenger whose baggage
were loaded to another plane with the same expected date and time of arrival but
nevertheless not delivered to her on time. We found that respondent carrier was not
motivated by malice or bad faith in doing so due to weight and balance restrictions
as a safety measure. In another case involving the off-loading of private
respondents baggage to another destination, taken together with petitioner airlines
neglect in providing the necessary accommodations and assistance to its stranded
passengers, aggravated by the discourteous acts of its employees, we upheld the
CA in sustaining the trial courts decision awarding moral and exemplary damages
and attorneys fees. We pointed out that it is PALs duty to provide assistance to
private respondents and to any other passenger similarly inconvenienced due to
delay in the completion of the transport and the receipt of their baggage.[30]

After a careful review, we find that petitioner is liable for moral damages.

Petitioners station manager, Ma. Lourdes Reyes, testified that upon receiving
the letter-complaint of respondents counsel, she immediately began working on the
PIR from their computerized data. Based on her testimony, a PIR is issued at the
airline station upon complaint by a passenger concerning missing baggage. From
the information obtained in the computer-printout, it appears that a PIR [31] was
initiated at petitioners Budapest counter. A search telex for the missing luggage
was sent out on the following dates: May 17, May 21 and May 23, 1993. As shown
in the PIR printout, the information respondent supposedly furnished to petitioner
was only his Philippine address and telephone number, and not the address and
contact number of the hotel where he was billeted at Budapest. According to the
witness, PIR usually is printed in two originals, one is kept by the station manager
and the other copy given to the passenger. The witness further claimed that there
was no record or entry in the PIR of any follow-up call made by the respondent
while in Budapest.[32] Respondent, on the other hand, claimed that he was not given
a copy of this PIR and that his repeated telephone calls to inquire about his lost
luggage were ignored.

We hold that the trial and appellate courts did not err in finding that
petitioner acted in bad faith in repeatedly ignoring respondents follow-up
calls. The alleged entries in the PIR deserve scant consideration, as these have not
been properly identified or authenticated by the airline station representative
in Budapest who initiated and inputed the said entries. Furthermore, this Court
cannot accept the convenient excuse given by petitioner that respondent should be
faulted in allegedly not giving his hotel address and telephone number. It is
difficult to believe that respondent, who had just lost his single luggage containing
all his necessities for his stay in a foreign land and his reference materials for a
speaking engagement, would not give an information so vital such as his hotel
address and contact number to the airline counter where he had promptly and
frantically filed his complaint. And even assuming arguendo that his Philippine
address and contact number were the only details respondent had provided for the
PIR, still there was no explanation as to why petitioner never communicated with
respondents concerning his lost baggage long after respondent had already returned
to the Philippines. While the missing luggage was eventually recovered, it was
returned to respondent only after the trial of this case.

Furthermore, the alleged copy of the PIR confirmed that the only action
taken by the petitioner to locate respondents luggage were telex searches allegedly
made on May 17, 21 and 23, 1993. There was not even any attempt to explain the
reason for the loss of respondents luggage. Clearly, petitioner did not give the
attention and care due to its passenger whose baggage was not transported and
delivered to him at his travel destination and scheduled time. Inattention to and
lack of care for the interest of its passengers who are entitled to its utmost
consideration, particularly as to their convenience, amount to bad faith which
entitles the passenger to an award of moral damages. [33] What the law considers as
bad faith which may furnish the ground for an award of moral damages would be
bad faith in securing the contract and in the execution thereof, as well as in the
enforcement of its terms, or any other kind of deceit.[34]

While respondent failed to cite any act of discourtesy, discrimination or

rudeness by petitioners employees, this did not make his loss and moral suffering
insignificant and less deserving of compensation. In repeatedly ignoring
respondents inquiries, petitioners employees exhibited an indifferent attitude
without due regard for the inconvenience and anxiety he experienced after
realizing that his luggage was missing. Petitioner was thus guilty of bad faith in
breaching its contract of carriage with the respondent, which entitles the latter to
the award of moral damages.

However, we agree with petitioner that the sum of P1,000,000.00 awarded

by the trial court is excessive and not proportionate to the loss or suffering inflicted
on the passenger under the circumstances. As in Trans World Airlines v. Court of
Appeals[35] where this Court after considering the social standing of the aggrieved
passenger who is a lawyer and director of several companies, the amount
of P500,000.00 awarded by the trial court as moral damages was still reduced
to P300,000.00, the moral damages granted to herein respondent should likewise
be adjusted.

The purpose of awarding moral damages is to enable the injured party to

obtain means, diversion or amusement that will serve to alleviate the moral
suffering he has undergone by reason of defendant's culpable action. On the other
hand, the aim of awarding exemplary damages is to deter serious wrongdoings.
[36]
Article 2216 of the Civil Code provides that assessment of damages is left to the
discretion of the court according to the circumstances of each case. This discretion
is limited by the principle that the amount awarded should not be palpably
excessive as to indicate that it was the result of prejudice or corruption on the part
of the trial court.Simply put, the amount of damages must be fair, reasonable and
proportionate to the injury suffered.[37]

Where as in this case the air carrier failed to act timely on the passengers
predicament caused by its employees mistake and more than ordinary inadvertence
or inattention, and the passenger failed to show any act of arrogance, discourtesy or
rudeness committed by the air carriers employees, the amounts
of P200,000.00, P50,000.00 and P30,000.00 as moral damages, exemplary
damages and attorneys fees would be sufficient and justified.[38]

WHEREFORE, the petition is DENIED. The Decision dated June 30,

2004 of the Court of Appeals in CA-G.R. CV No. 56587 is
hereby AFFIRMED with MODIFICATION in that the award of moral damages,
exemplary damages and attorneys fees are hereby reduced
to P200,000.00, P50,000.00 and P30,000.00, respectively.

With costs against the petitioner.

SO ORDERED.