Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 157917 August 29, 2012

SPOUSES TEODORO1 and NANETTE PERENA, Petitioners,

vs.
SPOUSES TERESITA PHILIPPINE NICOLAS and L. ZARATE, NATIONAL RAILWAYS, and the COURT
OF APPEALS Respondents.

DECISION

BERSAMIN, J.:

The operator of a. school bus service is a common carrier in the eyes of the law. He is bound to observe
extraordinary diligence in the conduct of his business. He is presumed to be negligent when death occurs to a
passenger. His liability may include indemnity for loss of earning capacity even if the deceased passenger may
only be an unemployed high school student at the time of the accident.

The Case

By petition for review on certiorari, Spouses Teodoro and Nanette Perefia (Perefias) appeal the adverse
decision promulgated on November 13, 2002, by which the Court of Appeals (CA) affirmed with modification
the decision rendered on December 3, 1999 by the Regional Trial Court (RTC), Branch 260, in Parañaque City
that had decreed them jointly and severally liable with Philippine National Railways (PNR), their co-defendant,
to Spouses Nicolas and Teresita Zarate (Zarates) for the death of their 15-year old son, Aaron John L. Zarate
(Aaron), then a high school student of Don Bosco Technical Institute (Don Bosco).

Antecedents

The Pereñas were engaged in the business of transporting students from their respective residences in
Parañaque City to Don Bosco in Pasong Tamo, Makati City, and back. In their business, the Pereñas used a
KIA Ceres Van (van) with Plate No. PYA 896, which had the capacity to transport 14 students at a time, two of
whom would be seated in the front beside the driver, and the others in the rear, with six students on either side.
They employed Clemente Alfaro (Alfaro) as driver of the van.

In June 1996, the Zarates contracted the Pereñas to transport Aaron to and from Don Bosco. On August 22,
1996, as on previous school days, the van picked Aaron up around 6:00 a.m. from the Zarates’ residence.
Aaron took his place on the left side of the van near the rear door. The van, with its air-conditioning unit turned
on and the stereo playing loudly, ultimately carried all the 14 student riders on their way to Don Bosco.
Considering that the students were due at Don Bosco by 7:15 a.m., and that they were already running late
because of the heavy vehicular traffic on the South Superhighway, Alfaro took the van to an alternate route at
about 6:45 a.m. by traversing the narrow path underneath the Magallanes Interchange that was then
commonly used by Makati-bound vehicles as a short cut into Makati. At the time, the narrow path was marked
by piles of construction materials and parked passenger jeepneys, and the railroad crossing in the narrow path
had no railroad warning signs, or watchmen, or other responsible persons manning the crossing. In fact, the
bamboo barandilla was up, leaving the railroad crossing open to traversing motorists.

At about the time the van was to traverse the railroad crossing, PNR Commuter No. 302 (train), operated by
Jhonny Alano (Alano), was in the vicinity of the Magallanes Interchange travelling northbound. As the train
neared the railroad crossing, Alfaro drove the van eastward across the railroad tracks, closely tailing a large
passenger bus. His view of the oncoming train was blocked because he overtook the passenger bus on its left
side. The train blew its horn to warn motorists of its approach. When the train was about 50 meters away from
the passenger bus and the van, Alano applied the ordinary brakes of the train. He applied the emergency
brakes only when he saw that a collision was imminent. The passenger bus successfully crossed the railroad
tracks, but the van driven by Alfaro did not. The train hit the rear end of the van, and the impact threw nine of
the 12 students in the rear, including Aaron, out of the van. Aaron landed in the path of the train, which
dragged his body and severed his head, instantaneously killing him. Alano fled the scene on board the train,
and did not wait for the police investigator to arrive.

Devastated by the early and unexpected death of Aaron, the Zarates commenced this action for damages
against Alfaro, the Pereñas, PNR and Alano. The Pereñas and PNR filed their respective answers, with cross-
claims against each other, but Alfaro could not be served with summons.

At the pre-trial, the parties stipulated on the facts and issues, viz:

A. FACTS:

(1)) That spouses Zarate were the legitimate parents of Aaron John L. Zarate;

(2)) Spouses Zarate engaged the services of spouses Pereña for the adequate and safe transportation
carriage of the former spouses' son from their residence in Parañaque to his school at the Don Bosco
Technical Institute in Makati City;

(3)) During the effectivity of the contract of carriage and in the implementation thereof, Aaron, the minor
son of spouses Zarate died in connection with a vehicular/train collision which occurred while Aaron
was riding the contracted carrier Kia Ceres van of spouses Pereña, then driven and operated by the
latter's employee/authorized driver Clemente Alfaro, which van collided with the train of PNR, at around
6:45 A.M. of August 22, 1996, within the vicinity of the Magallanes Interchange in Makati City, Metro
Manila, Philippines;

(4)) At the time of the vehicular/train collision, the subject site of the vehicular/train collision was a
railroad crossing used by motorists for crossing the railroad tracks;

(5)) During the said time of the vehicular/train collision, there were no appropriate and safety warning
signs and railings at the site commonly used for railroad crossing;

(6)) At the material time, countless number of Makati bound public utility and private vehicles used on a
daily basis the site of the collision as an alternative route and short-cut to Makati;

(7)) The train driver or operator left the scene of the incident on board the commuter train involved
without waiting for the police investigator;

(8)) The site commonly used for railroad crossing by motorists was not in fact intended by the railroad
operator for railroad crossing at the time of the vehicular collision;

(9)) PNR received the demand letter of the spouses Zarate;

(10)) PNR refused to acknowledge any liability for the vehicular/train collision;

(11)) The eventual closure of the railroad crossing alleged by PNR was an internal arrangement
between the former and its project contractor; and

(12)) The site of the vehicular/train collision was within the vicinity or less than 100 meters from the
Magallanes station of PNR.
B. ISSUES

(1) Whether or not defendant-driver of the van is, in the performance of his functions, liable for
negligence constituting the proximate cause of the vehicular collision, which resulted in the death of
plaintiff spouses' son;

(2) Whether or not the defendant spouses Pereña being the employer of defendant Alfaro are liable for
any negligence which may be attributed to defendant Alfaro;

(3) Whether or not defendant Philippine National Railways being the operator of the railroad system is
liable for negligence in failing to provide adequate safety warning signs and railings in the area
commonly used by motorists for railroad crossings, constituting the proximate cause of the vehicular
collision which resulted in the death of the plaintiff spouses' son;

(4) Whether or not defendant spouses Pereña are liable for breach of the contract of carriage with
plaintiff-spouses in failing to provide adequate and safe transportation for the latter's son;

(5) Whether or not defendants spouses are liable for actual, moral damages, exemplary damages, and
attorney's fees;

(6) Whether or not defendants spouses Teodorico and Nanette Pereña observed the diligence of
employers and school bus operators;

(7) Whether or not defendant-spouses are civilly liable for the accidental death of Aaron John Zarate;

(8) Whether or not defendant PNR was grossly negligent in operating the commuter train involved in
the accident, in allowing or tolerating the motoring public to cross, and its failure to install safety devices
or equipment at the site of the accident for the protection of the public;

(9) Whether or not defendant PNR should be made to reimburse defendant spouses for any and
whatever amount the latter may be held answerable or which they may be ordered to pay in favor of
plaintiffs by reason of the action;

(10) Whether or not defendant PNR should pay plaintiffs directly and fully on the amounts claimed by
the latter in their Complaint by reason of its gross negligence;

(11) Whether or not defendant PNR is liable to defendants spouses for actual, moral and exemplary
damages and attorney's fees.2

The Zarates’ claim against the Pereñas was upon breach of the contract of carriage for the safe transport of
Aaron; but that against PNR was based on quasi-delict under Article 2176, Civil Code.

In their defense, the Pereñas adduced evidence to show that they had exercised the diligence of a good father
of the family in the selection and supervision of Alfaro, by making sure that Alfaro had been issued a driver’s
license and had not been involved in any vehicular accident prior to the collision; that their own son had taken
the van daily; and that Teodoro Pereña had sometimes accompanied Alfaro in the van’s trips transporting the
students to school.

For its part, PNR tended to show that the proximate cause of the collision had been the reckless crossing of
the van whose driver had not first stopped, looked and listened; and that the narrow path traversed by the van
had not been intended to be a railroad crossing for motorists.

Ruling of the RTC

On December 3, 1999, the RTC rendered its decision, 3 disposing:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendants ordering them to jointly and severally pay the plaintiffs as follows:

(1) (for) the death of Aaron- Php50,000.00;

(2) Actual damages in the amount of Php100,000.00;

(3) For the loss of earning capacity- Php2,109,071.00;

(4) Moral damages in the amount of Php4,000,000.00;

(5) Exemplary damages in the amount of Php1,000,000.00;

(6) Attorney’s fees in the amount of Php200,000.00; and

(7) Cost of suit.

SO ORDERED.

On June 29, 2000, the RTC denied the Pereñas’ motion for reconsideration,4 reiterating that the cooperative
gross negligence of the Pereñas and PNR had caused the collision that led to the death of Aaron; and that the
damages awarded to the Zarates were not excessive, but based on the established circumstances.

The CA’s Ruling

Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).

PNR assigned the following errors, to wit:5

The Court a quo erred in:

1. In finding the defendant-appellant Philippine National Railways jointly and severally liable together
with defendant-appellants spouses Teodorico and Nanette Pereña and defendant-appellant Clemente
Alfaro to pay plaintiffs-appellees for the death of Aaron Zarate and damages.

2. In giving full faith and merit to the oral testimonies of plaintiffs-appellees witnesses despite
overwhelming documentary evidence on record, supporting the case of defendants-appellants
Philippine National Railways.

The Pereñas ascribed the following errors to the RTC, namely:

The trial court erred in finding defendants-appellants jointly and severally liable for actual, moral and exemplary
damages and attorney’s fees with the other defendants.

The trial court erred in dismissing the cross-claim of the appellants Pereñas against the Philippine National
Railways and in not holding the latter and its train driver primarily responsible for the incident.

The trial court erred in awarding excessive damages and attorney’s fees.

The trial court erred in awarding damages in the form of deceased’s loss of earning capacity in the absence of
sufficient basis for such an award.
On November 13, 2002, the CA promulgated its decision, affirming the findings of the RTC, but limited the
moral damages to ₱ 2,500,000.00; and deleted the attorney’s fees because the RTC did not state the factual
and legal bases, to wit:6

WHEREFORE, premises considered, the assailed Decision of the Regional Trial Court, Branch 260 of
Parañaque City is AFFIRMED with the modification that the award of Actual Damages is reduced to ₱
59,502.76; Moral Damages is reduced to ₱ 2,500,000.00; and the award for Attorney’s Fees is Deleted.

SO ORDERED.

The CA upheld the award for the loss of Aaron’s earning capacity, taking cognizance of the ruling in Cariaga v.
Laguna Tayabas Bus Company and Manila Railroad Company,7 wherein the Court gave the heirs of Cariaga a
sum representing the loss of the deceased’s earning capacity despite Cariaga being only a medical student at
the time of the fatal incident. Applying the formula adopted in the American Expectancy Table of Mortality:–

2/3 x (80 - age at the time of death) = life expectancy

the CA determined the life expectancy of Aaron to be 39.3 years upon reckoning his life expectancy from age
of 21 (the age when he would have graduated from college and started working for his own livelihood) instead
of 15 years (his age when he died). Considering that the nature of his work and his salary at the time of
Aaron’s death were unknown, it used the prevailing minimum wage of ₱ 280.00/day to compute Aaron’s gross
annual salary to be ₱ 110,716.65, inclusive of the thirteenth month pay. Multiplying this annual salary by
Aaron’s life expectancy of 39.3 years, his gross income would aggregate to ₱ 4,351,164.30, from which his
estimated expenses in the sum of ₱ 2,189,664.30 was deducted to finally arrive at P 2,161,500.00 as net
income. Due to Aaron’s computed net income turning out to be higher than the amount claimed by the Zarates,
only ₱ 2,109,071.00, the amount expressly prayed for by them, was granted.

On April 4, 2003, the CA denied the Pereñas’ motion for reconsideration.8

Issues

In this appeal, the Pereñas list the following as the errors committed by the CA, to wit:

I. The lower court erred when it upheld the trial court’s decision holding the petitioners jointly and severally
liable to pay damages with Philippine National Railways and dismissing their cross-claim against the latter.

II. The lower court erred in affirming the trial court’s decision awarding damages for loss of earning capacity of
a minor who was only a high school student at the time of his death in the absence of sufficient basis for such
an award.

III. The lower court erred in not reducing further the amount of damages awarded, assuming petitioners are
liable at all.

Ruling

The petition has no merit.

1.
Were the Pereñas and PNR jointly
and severally liable for damages?

The Zarates brought this action for recovery of damages against both the Pereñas and the PNR, basing their
claim against the Pereñas on breach of contract of carriage and against the PNR on quasi-delict.

The RTC found the Pereñas and the PNR negligent. The CA affirmed the findings.
 We concur with the CA.

To start with, the Pereñas’ defense was that they exercised the diligence of a good father of the family in the
selection and supervision of Alfaro, the van driver, by seeing to it that Alfaro had a driver’s license and that he
had not been involved in any vehicular accident prior to the fatal collision with the train; that they even had their
own son travel to and from school on a daily basis; and that Teodoro Pereña himself sometimes accompanied
Alfaro in transporting the passengers to and from school. The RTC gave scant consideration to such defense
by regarding such defense as inappropriate in an action for breach of contract of carriage.

We find no adequate cause to differ from the conclusions of the lower courts that the Pereñas operated as a
common carrier; and that their standard of care was extraordinary diligence, not the ordinary diligence of a
good father of a family.

Although in this jurisdiction the operator of a school bus service has been usually regarded as a private
carrier,9 primarily because he only caters to some specific or privileged individuals, and his operation is neither
open to the indefinite public nor for public use, the exact nature of the operation of a school bus service has not
been finally settled. This is the occasion to lay the matter to rest.

A carrier is a person or corporation who undertakes to transport or convey goods or persons from one place to
another, gratuitously or for hire. The carrier is classified either as a private/special carrier or as a
common/public carrier.10 A private carrier is one who, without making the activity a vocation, or without holding
himself or itself out to the public as ready to act for all who may desire his or its services, undertakes, by
special agreement in a particular instance only, to transport goods or persons from one place to another either
gratuitously or for hire.11 The provisions on ordinary contracts of the Civil Code govern the contract of private
carriage.The diligence required of a private carrier is only ordinary, that is, the diligence of a good father of the
family. In contrast, a common carrier is a person, corporation, firm or association engaged in the business of
carrying or transporting passengers or goods or both, by land, water, or air, for compensation, offering such
services to the public.12 Contracts of common carriage are governed by the provisions on common carriers of
the Civil Code, the Public Service Act,13 and other special laws relating to transportation. A common carrier is
required to observe extraordinary diligence, and is presumed to be at fault or to have acted negligently in case
of the loss of the effects of passengers, or the death or injuries to passengers.14

In relation to common carriers, the Court defined public use in the following terms in United States v. Tan
Piaco,15 viz:

"Public use" is the same as "use by the public". The essential feature of the public use is not confined to
privileged individuals, but is open to the indefinite public. It is this indefinite or unrestricted quality that gives it
its public character. In determining whether a use is public, we must look not only to the character of the
business to be done, but also to the proposed mode of doing it. If the use is merely optional with the owners, or
the public benefit is merely incidental, it is not a public use, authorizing the exercise of the jurisdiction of the
public utility commission. There must be, in general, a right which the law compels the owner to give to the
general public. It is not enough that the general prosperity of the public is promoted. Public use is not
synonymous with public interest. The true criterion by which to judge the character of the use is whether the
public may enjoy it by right or only by permission.

In De Guzman v. Court of Appeals,16 the Court noted that Article 1732 of the Civil Code avoided any distinction
between a person or an enterprise offering transportation on a regular or an isolated basis; and has not
distinguished a carrier offering his services to the general public, that is, the general community or population,
from one offering his services only to a narrow segment of the general population.

Nonetheless, the concept of a common carrier embodied in Article 1732 of the Civil Code coincides neatly with
the notion of public service under the Public Service Act, which supplements the law on common carriers found
in the Civil Code. Public service, according to Section 13, paragraph (b) of the Public Service Act, includes:
x x x every person that now or hereafter may own, operate, manage, or control in the Philippines, for hire or
compensation, with general or limited clientèle, whether permanent or occasional, and done for the 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, 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. x x x.17

Given the breadth of the aforequoted characterization of a common carrier, the Court has considered as
common carriers pipeline operators,18 custom brokers and warehousemen,19 and barge operators20 even if they
had limited clientèle.

As all the foregoing indicate, the true test for a common carrier is not the quantity or extent of the business
actually transacted, or the number and character of the conveyances used in the activity, but whether the
undertaking is a part of the activity engaged in by the carrier that he has held out to the general public as his
business or occupation. If the undertaking is a single transaction, not a part of the general business or
occupation engaged in, as advertised and held out to the general public, the individual or the entity rendering
such service is a private, not a common, carrier. The question must be determined by the character of the
business actually carried on by the carrier, not by any secret intention or mental reservation it may entertain or
assert when charged with the duties and obligations that the law imposes. 21

Applying these considerations to the case before us, there is no question that the Pereñas as the operators of
a school bus service were: (a) engaged in transporting passengers generally as a business, not just as a
casual occupation; (b) undertaking to carry passengers over established roads by the method by which the
business was conducted; and (c) transporting students for a fee. Despite catering to a limited clientèle, the
Pereñas operated as a common carrier because they held themselves out as a ready transportation
indiscriminately to the students of a particular school living within or near where they operated the service and
for a fee.

The common carrier’s standard of care and vigilance as to the safety of the passengers is defined by law.
Given the nature of the business and for reasons of public policy, the common carrier is 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." 22 Article 1755 of the Civil Code specifies that the
common carrier should "carry the passengers safely as far as human care and foresight can provide, using the
utmost diligence of very cautious persons, with a due regard for all the circumstances." To successfully fend off
liability in an action upon the death or injury to a passenger, the common carrier must prove his or its
observance of that extraordinary diligence; otherwise, the legal presumption that he or it was at fault or acted
negligently would stand.23 No device, whether by stipulation, posting of notices, statements on tickets, or
otherwise, may dispense with or lessen the responsibility of the common carrier as defined under Article 1755
of the Civil Code. 24

And, secondly, the Pereñas have not presented any compelling defense or reason by which the Court might
now reverse the CA’s findings on their liability. On the contrary, an examination of the records shows that the
evidence fully supported the findings of the CA.

As earlier stated, the Pereñas, acting as a common carrier, were already presumed to be negligent at the time
of the accident because death had occurred to their passenger. 25 The presumption of negligence, being a
presumption of law, laid the burden of evidence on their shoulders to establish that they had not been
negligent.26 It was the law no less that required them to prove their observance of extraordinary diligence in
seeing to the safe and secure carriage of the passengers to their destination. Until they did so in a credible
manner, they stood to be held legally responsible for the death of Aaron and thus to be held liable for all the
natural consequences of such death.
There is no question that the Pereñas did not overturn the presumption of their negligence by credible
evidence. Their defense of having observed the diligence of a good father of a family in the selection and
supervision of their driver was not legally sufficient. According to Article 1759 of the Civil Code, their liability as
a common carrier did not cease upon proof that they exercised all the diligence of a good father of a family in
the selection and supervision of their employee. This was the reason why the RTC treated this defense of the
Pereñas as inappropriate in this action for breach of contract of carriage.

The Pereñas were liable for the death of Aaron despite the fact that their driver might have acted beyond the
scope of his authority or even in violation of the orders of the common carrier. 27 In this connection, the records
showed their driver’s actual negligence. There was a showing, to begin with, that their driver traversed the
railroad tracks at a point at which the PNR did not permit motorists going into the Makati area to cross the
railroad tracks. Although that point had been used by motorists as a shortcut into the Makati area, that fact
alone did not excuse their driver into taking that route. On the other hand, with his familiarity with that shortcut,
their driver was fully aware of the risks to his passengers but he still disregarded the risks. Compounding his
lack of care was that loud music was playing inside the air-conditioned van at the time of the accident. The
loudness most probably reduced his ability to hear the warning horns of the oncoming train to allow him to
correctly appreciate the lurking dangers on the railroad tracks. Also, he sought to overtake a passenger bus on
the left side as both vehicles traversed the railroad tracks. In so doing, he lost his view of the train that was
then coming from the opposite side of the passenger bus, leading him to miscalculate his chances of beating
the bus in their race, and of getting clear of the train. As a result, the bus avoided a collision with the train but
the van got slammed at its rear, causing the fatality. Lastly, he did not slow down or go to a full stop before
traversing the railroad tracks despite knowing that his slackening of speed and going to a full stop were in
observance of the right of way at railroad tracks as defined by the traffic laws and regulations. 28 He thereby
violated a specific traffic regulation on right of way, by virtue of which he was immediately presumed to be
negligent.29

The omissions of care on the part of the van driver constituted negligence, 30 which, according to Layugan v.
Intermediate Appellate Court,31 is "the omission to do something which a reasonable man, guided by those
considerations which ordinarily regulate the conduct of human affairs, would do, or the doing of something
which a prudent and reasonable man would not do, 32 or as Judge Cooley defines it, ‘(t)he failure to observe for
the protection of the interests of another person, that degree of care, precaution, and vigilance which the
circumstances justly demand, whereby such other person suffers injury.’" 33

The test by which to determine the existence of negligence in a particular case has been aptly stated in the
leading case of Picart v. Smith,34 thuswise:

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

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

Pursuant to the Picart v. Smith test of negligence, the Pereñas’ driver was entirely negligent when he traversed
the railroad tracks at a point not allowed for a motorist’s crossing despite being fully aware of the grave harm to
be thereby caused to his passengers; and when he disregarded the foresight of harm to his passengers by
overtaking the bus on the left side as to leave himself blind to the approach of the oncoming train that he knew
was on the opposite side of the bus.

Unrelenting, the Pereñas cite Phil. National Railways v. Intermediate Appellate Court, 35 where the Court held
the PNR solely liable for the damages caused to a passenger bus and its passengers when its train hit the rear
end of the bus that was then traversing the railroad crossing. But the circumstances of that case and this one
share no similarities. In Philippine National Railways v. Intermediate Appellate Court, no evidence of
contributory negligence was adduced against the owner of the bus. Instead, it was the owner of the bus who
proved the exercise of extraordinary diligence by preponderant evidence. Also, the records are replete with the
showing of negligence on the part of both the Pereñas and the PNR. Another distinction is that the passenger
bus in Philippine National Railways v. Intermediate Appellate Court was traversing the dedicated railroad
crossing when it was hit by the train, but the Pereñas’ school van traversed the railroad tracks at a point not
intended for that purpose.

At any rate, the lower courts correctly held both the Pereñas and the PNR "jointly and severally" liable for
damages arising from the death of Aaron. They had been impleaded in the same complaint as defendants
against whom the Zarates had the right to relief, whether jointly, severally, or in the alternative, in respect to or
arising out of the accident, and questions of fact and of law were common as to the Zarates. 36 Although the
basis of the right to relief of the Zarates (i.e., breach of contract of carriage) against the Pereñas was distinct
from the basis of the Zarates’ right to relief against the PNR (i.e., quasi-delict under Article 2176, Civil Code),
they nonetheless could be held jointly and severally liable by virtue of their respective negligence combining to
cause the death of Aaron. As to the PNR, the RTC rightly found the PNR also guilty of negligence despite the
school van of the Pereñas traversing the railroad tracks at a point not dedicated by the PNR as a railroad
crossing for pedestrians and motorists, because the PNR did not ensure the safety of others through the
placing of crossbars, signal lights, warning signs, and other permanent safety barriers to prevent vehicles or
pedestrians from crossing there. The RTC observed that the fact that a crossing guard had been assigned to
man that point from 7 a.m. to 5 p.m. was a good indicium that the PNR was aware of the risks to others as well
as the need to control the vehicular and other traffic there. Verily, the Pereñas and the PNR were joint
tortfeasors.

2.
Was the indemnity for loss of
Aaron’s earning capacity proper?

The RTC awarded indemnity for loss of Aaron’s earning capacity. Although agreeing with the RTC on the
liability, the CA modified the amount. Both lower courts took into consideration that Aaron, while only a high
school student, had been enrolled in one of the reputable schools in the Philippines and that he had been a
normal and able-bodied child prior to his death. The basis for the computation of Aaron’s earning capacity was
not what he would have become or what he would have wanted to be if not for his untimely death, but the
minimum wage in effect at the time of his death. Moreover, the RTC’s computation of Aaron’s life expectancy
rate was not reckoned from his age of 15 years at the time of his death, but on 21 years, his age when he
would have graduated from college.

We find the considerations taken into account by the lower courts to be reasonable and fully warranted.

Yet, the Pereñas submit that the indemnity for loss of earning capacity was speculative and
unfounded.1âwphi1 They cited People v. Teehankee, Jr.,37 where the Court deleted the indemnity for victim
Jussi Leino’s loss of earning capacity as a pilot for being speculative due to his having graduated from high
school at the International School in Manila only two years before the shooting, and was at the time of the
shooting only enrolled in the first semester at the Manila Aero Club to pursue his ambition to become a
professional pilot. That meant, according to the Court, that he was for all intents and purposes only a high
school graduate.

We reject the Pereñas’ submission.

First of all, a careful perusal of the Teehankee, Jr. case shows that the situation there of Jussi Leino was not
akin to that of Aaron here. The CA and the RTC were not speculating that Aaron would be some highly-paid
professional, like a pilot (or, for that matter, an engineer, a physician, or a lawyer). Instead, the computation of
Aaron’s earning capacity was premised on him being a lowly minimum wage earner despite his being then
enrolled at a prestigious high school like Don Bosco in Makati, a fact that would have likely ensured his
success in his later years in life and at work.

And, secondly, the fact that Aaron was then without a history of earnings should not be taken against his
parents and in favor of the defendants whose negligence not only cost Aaron his life and his right to work and
earn money, but also deprived his parents of their right to his presence and his services as well. Our law itself
states that the loss of the earning capacity of the deceased shall be the liability of the guilty party in favor of the
heirs of the deceased, and 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."38 Accordingly, we emphatically hold in favor of the indemnification for Aaron’s loss of earning
capacity despite him having been unemployed, because compensation of this nature is awarded not for loss of
time or earnings but for loss of the deceased’s power or ability to earn money. 39

This favorable treatment of the Zarates’ claim is not unprecedented. In Cariaga v. Laguna Tayabas Bus
Company and Manila Railroad Company,40 fourth-year medical student Edgardo Carriaga’s earning capacity,
although he survived the accident but his injuries rendered him permanently incapacitated, was computed to
be that of the physician that he dreamed to become. The Court considered his scholastic record sufficient to
justify the assumption that he could have finished the medical course and would have passed the medical
board examinations in due time, and that he could have possibly earned a modest income as a medical
practitioner. Also, in People v. Sanchez,41 the Court opined that murder and rape victim Eileen Sarmienta and
murder victim Allan Gomez could have easily landed good-paying jobs had they graduated in due time, and
that their jobs would probably pay them high monthly salaries from ₱ 10,000.00 to ₱ 15,000.00 upon their
graduation. Their earning capacities were computed at rates higher than the minimum wage at the time of their
deaths due to their being already senior agriculture students of the University of the Philippines in Los Baños,
the country’s leading educational institution in agriculture.

3.
Were the amounts of damages excessive?

The Pereñas plead for the reduction of the moral and exemplary damages awarded to the Zarates in the
respective amounts of ₱ 2,500,000.00 and ₱ 1,000,000.00 on the ground that such amounts were excessive.

The plea is unwarranted. The moral damages of ₱ 2,500,000.00 were really just and reasonable under the
established circumstances of this case because they were intended by the law to assuage the Zarates’ deep
mental anguish over their son’s unexpected and violent death, and their moral shock over the senseless
accident. That amount would not be too much, considering that it would help the Zarates obtain the means,
diversions or amusements that would alleviate their suffering for the loss of their child. At any rate, reducing the
amount as excessive might prove to be an injustice, given the passage of a long time from when their mental
anguish was inflicted on them on August 22, 1996.

Anent the ₱ 1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only to render
effective the desired example for the public good. As a common carrier, the Pereñas needed to be vigorously
reminded to observe their duty to exercise extraordinary diligence to prevent a similarly senseless accident
from happening again. Only by an award of exemplary damages in that amount would suffice to instill in them
and others similarly situated like them the ever-present need for greater and constant vigilance in the conduct
of a business imbued with public interest.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 170071 March 9, 2011

HEIRS OF JOSE MARCIAL K. OCHOA namely: RUBY B. OCHOA, MICAELA B. OCHOA and JOMAR B.
OCHOA, Petitioners,
vs.
G & S TRANSPORT CORPORATION, Respondent.

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

G.R. No. 170125

G & S TRANSPORT CORPORATION, Petitioner,

vs.
HEIRS OF JOSE MARCIAL K. OCHOA namely: RUBY B. OCHOA, MICAELA B. OCHOA and JOMAR B.
OCHOA, Respondents.

DECISION

DEL CASTILLO, J.:

An accident which claimed the life of a passenger is the root of these two petitions - one brought before us by
the common carrier and the other by the heirs of the deceased.

These consolidated Petitions for Review on Certiorari assail the Court of Appeals’ (CA) Decision1 dated June
29, 2005 in CA-G.R. CV No. 75602 which affirmed with modification the December 21, 2001 Decision and
March 5, 2002 Order of the trial court. Likewise assailed is the Resolution 2 dated October 12, 2005 denying the
parties’ respective Motions for Reconsideration thereto.

Factual Antecedents

Jose Marcial K. Ochoa (Jose Marcial) died on the night of March 10, 1995 while on board an Avis taxicab
owned and operated by G & S Transport Corporation (G & S), a common carrier. As narrated by the trial court,
the circumstances attending Jose Marcial’s death are as follows:

It appears that sometime in the evening of March 10, 1995, at the Manila Domestic Airport, the late Jose
Marcial K. Ochoa boarded and rode a taxicab with Plate No. PKR-534, a passenger vehicle for hire owned and
operated by defendant corporation under the business name "Avis Coupon Taxi" (Avis) and driven by its
employee and authorized driver Bibiano Padilla, Jr. on his way home to Teacher’s Village, Diliman, Quezon
City.

At about 11:00 p.m., the taxicab was cruising along Epifanio delos Santos Avenue [EDSA], in front of Camp
Aguinaldo in Quezon City at high speed. While going up the Boni Serrano (Santolan) fly-over, it overtook
another cab driven by Pablo Clave and tried to pass another vehicle, a ten-wheeler cargo truck. Because of the
narrow space between the left side railing of the fly-over and the ten-wheeler truck, the Avis cab was unable to
pass and because of its speed, its driver (Padilla) was unable to control it. To avoid colliding with the truck,
Padilla turned the wheel to the left causing his taxicab to ram the railing throwing itself off the fly-over and fell
on the middle surface of EDSA below. The forceful drop of the vehicle on the floor of the road broke and split it
into two parts. Both driver Padilla and passenger Jose Marcial K. Ochoa were injured and rushed to the
hospital. At the East Avenue Medical Center, Ochoa was not as lucky as Padilla who was alive. He was
declared dead on arrival from the accident. The death certificate issued by the Office of the Civil Registrar of
Quezon City cited the cause of his death as vehicular accident. 3

On May 13, 1999, Jose Marcial’s wife, Ruby Bueno Ochoa, and his two minor children, Micaela B. Ochoa and
Jomar B. Ochoa (the heirs), through counsel, sent G & S a letter 4 demanding that the latter indemnify them for
Jose Marcial’s death, his loss of earning capacity, and funeral expenses in the total amount of ₱15,000,000.00.
As G & S failed to heed the same, the heirs filed a Complaint5 for Damages before the Regional Trial Court
(RTC) of Pasig City which was raffled to Branch 164 of said court.

The heirs alleged that G & S, as a common carrier, is under legal obligation to observe and exercise
extraordinary diligence in transporting its passengers to their destination safely and securely. However, G & S
failed to observe and exercise this extraordinary diligence because its employee failed to transport Jose
Marcial to his destination safely. They averred that G & S is liable to them for having breached the contract of
common carriage. As an alternative cause of action, they asserted that G & S is likewise liable for damages
based on quasi-delict pursuant to Article 21806 in relation to Article 21767 of the Civil Code. The heirs thus
prayed for G & S to pay them actual damages, moral damages, exemplary damages, and attorney’s fees and
expenses of litigation.

In its Answer With Compulsory Counterclaims,8 G & S claimed that Jose Marcial boarded an Avis taxicab
driven by its employee, Bibiano Padilla (Padilla), at the Domestic Airport to bring him to Teacher’s Village in
Quezon City. While passing the Santolan fly-over, however, the Avis taxicab was bumped by an on-rushing
delivery van at the right portion causing the taxicab to veer to the left, ram through the left side of the railings of
the fly-over and fall to the center of the island below. The taxicab was split into two and Jose Marcial was
thrown 10 meters away. G & S posited that the proximate cause of Jose Marcial’s death is a

fortuitous event and/or the fault or negligence of the driver of the delivery van that hit the taxicab. It likewise
claimed that it exercised the diligence required of a good father of a family in the selection and supervision of
its employees including Padilla. By way of compulsory counterclaim, G & S sought to recover from the heirs
the amount of ₱300,000.00 as attorney’s fees and costs of suit.

Ruling of the Regional Trial Court

On December 27, 2001, the trial court rendered a Decision 9 finding the vehicular mishap not caused by a
fortuitous event but by the negligence of Padilla. It likewise found the evidence adduced by G & S to show that
it exercised the diligence of a good father of a family in the selection and supervision of its employees as
insufficient. Hence, the trial court declared G & S civilly liable to the heirs. However, for lack of receipts or any
proof of funeral expenses and other actual damages, the trial court denied the heirs’ claim for actual damages.
It also denied them moral and exemplary damages for lack of legal basis. The dispositive portion of said
Decision reads:

WHEREFORE, defendant is hereby adjudged guilty of breach of contract of carriage and is ordered to pay
plaintiffs the following amounts:

1. ₱50,000.00 as civil indemnity for the death of deceased Jose Marcial K. Ochoa;

2. ₱6,537,244.96 for the loss of earning capacity of the deceased;

3. ₱100,00.00 for attorney’s fees;

4. And the cost of litigation.

SO ORDERED.10

G & S filed a Notice of Appeal11 while the heirs filed a Motion for Partial Reconsideration.12 The heirs averred
that they are entitled to moral damages pursuant to Article 1764 13 in relation to Article 2206(3)14 of the Civil
Code. They also cited applicable jurisprudence providing that moral damages are recoverable in a damage suit
predicated upon a breach of contract of carriage where the mishap results in the death of the passenger. With
respect to their claim for exemplary damages, the heirs relied upon Article 2232 of the Civil Code which
provides that in contracts and quasi-contracts, the court may award exemplary damages if the defendant acted
in a wanton, fraudulent, reckless, oppressive or malevolent manner. And, since Padilla was declared by the
trial court to have been grossly negligent in driving the taxicab, the heirs claimed that they are likewise entitled
to exemplary damages.

After G & S filed its Opposition (To Plaintiffs’ Motion for Partial Reconsideration), 15 the trial court issued an
Order16 on March 5, 2002. It found merit in the heirs’ Motion for Partial Reconsideration and thus declared
them entitled to moral and exemplary damages, viz:

WHEREFORE, the decision dated December 27, 2001 is hereby modified so as to order defendant
Corporation to pay plaintiffs the amount of P300,000.00 as moral damages and P50,000.00 as exemplary
damages. The dispositive portion of said decision is hereby amended to read as follows:

‘WHEREFORE, defendant is hereby adjudged guilty of breach of contract of carriage and is ordered to pay
plaintiffs the following amounts:

1. ₱50,000.00 as civil indemnity for the death of the deceased Jose Marcial K. Ochoa;

2. ₱6,537,244.96 for the loss of earning capacity of the deceased.

3. ₱300,000.00 as moral damages;

4. ₱50,000.00 as exemplary damages;

5. ₱100,000.00 for attorney’s fees;

6. And the costs of litigation.’

SO ORDERED.17

Because of this, G & S filed another Notice of Appeal 18 and same was given due course by the trial court in an
Order19 dated April 23, 2002.

Ruling of the Court of Appeals

Before the CA, G & S continued to insist that it exercised the diligence of a good father of the family in the
selection and supervision of its employees. It averred that it has been carrying out not only seminars for its
drivers even before they were made to work, but also periodic evaluations for their performance. Aside from
these, it has also been conducting monthly check-up of its automobiles and has regularly issued rules
regarding the conduct of its drivers. G & S claimed that it was able to establish a good name in the industry
and maintain a clientele.

In an effort to build up Padilla’s character as an experienced and careful driver, G & S averred that: (1) before
G & S employed Padilla, he was a delivery truck driver of Inter Island Gas Service for 11 years; (2) Padilla has
been an employee of G & S from 1989 to 1996 and during said period, there was no recorded incident of his
being a negligent driver; (3) despite his qualifications, G & S still required Padilla to submit an NBI clearance,
driver’s license and police clearance; (4) Padilla’s being a good driver-employee was manifest in his years of
service with G & S, as in fact, he has received congratulatory messages from the latter as shown by the inter-
office memos dated August 23, 1990 and February 1, 1993; and that (5) Padilla attended a seminar at the
Pope Pius Center sometime in December 1999 as part of the NAIA Taxi Operation Program.
G & S also argued that the proximate cause of Jose Marcial’s death is a fortuitous event and/or the fault or
negligence of another and not of its employee. According to G & S, the collision was totally unforeseen since
Padilla had every right to expect that the delivery van would just overtake him and not hit the right side of the
taxicab. Therefore, what transpired was beyond Padilla’s control. There was no negligence on his part but on
the part of the driver of the delivery van. For this reason, G & S opined that it was not liable to the heirs.

On the other hand, the heirs maintained that Padilla was grossly negligent in driving the Avis taxicab on the
night of March 10, 1995. They claimed that Padilla, while running at a very high speed, acted negligently when
he tried to overtake a ten-wheeler truck at the foot of the fly-over. This forced him to swerve to the left and as a
consequence, the Avis taxicab hit the center of the railing and was split into two upon hitting the ground. The
manner by which Padilla drove the taxicab clearly showed that he acted without regard to the safety of his
passenger.

The heirs also averred that in order for a fortuitous event to exempt one from liability, it is necessary that he
has committed no negligence or conduct that may have occasioned the loss. Thus, to be exempt from liability
for the death of Jose Marcial on this ground, G & S must clearly show that the proximate cause of the casualty
was entirely independent of human will and that it was impossible to avoid. And since in the case at bar it was
Padilla’s inexcusable poor judgment, utter lack of foresight and extreme negligence which were the immediate
and proximate causes of the accident, same cannot be considered to be due to a fortuitous event. This is
bolstered by the fact that the court trying the case for criminal negligence arising from the same incident
convicted Padilla for said charge.20

At any rate, the heirs contended that regardless of whether G & S observed due diligence in the selection of its
employees, it should nonetheless be held liable for the death of Jose Marcial pursuant to Article 1759 of the
Civil Code which provides:

ART. 1759 – 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.

This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good
father of a family in the selection and supervision of their employees.

In sum, the heirs prayed that the appeal be dismissed for lack of merit and the assailed Decision and Order of
the trial court be affirmed in toto.

In a Decision21 dated June 29, 2005, the CA ruled in favor of the heirs. The appellate court gave weight to their
argument that in order for a fortuitous event to exempt one from liability, it is necessary that he committed no
negligence or misconduct that may have occasioned the loss. In this case, the CA noted that Padilla failed to
employ reasonable foresight, diligence and care needed to exempt G & S from liability for Jose Marcial’s
death. Said court also quoted pertinent portions of the MTC decision convicting Padilla of reckless imprudence
resulting in homicide to negate G & S’ claim that the proximate cause of the accident was the fault of the driver
of the delivery van who allegedly hit the right side of the taxicab. And just like the trial court, the CA found
insufficient the evidence adduced by G & S to support its claim that it exercised due diligence in the selection
and supervision of its employees.

With respect to the award of ₱6,537,244.96 for Jose Marcial’s loss of earning capacity, the CA declared the
same unwarranted. It found the Certification22 issued by Jose Marcial’s employer, the United States Agency for
International Development (USAID) through its Chief of Human Resources Division Jonas Cruz (Cruz), as self-
serving, unreliable, and biased. While said certification states that Jose Marcial was earning an annual salary
of ₱450,844.49 at the time of his untimely demise, the CA noted that same is unsupported by competent
evidence such as income tax returns or receipts. This is in view of the ruling in People v. Ereño23 where it was
held that "there must be unbiased proof of the deceased’s average income." Anent moral damages, the CA
found the award of ₱300,000.00 excessive and thus reduced the same to ₱200,000.00 as to make it
proportionate to the award of exemplary damages which is ₱50,000.00. The dispositive portion of said
Decision reads:
WHEREFORE, the assailed Decision dated December 27, 2001 and Order dated March 5, 2002 are
AFFIRMED with the following MODIFICATION: appellant is ordered to pay appellees the sum of ₱50,000.00
as civil indemnity for the death of the deceased Jose Marcial K. Ochoa, ₱200,000.00 as moral damages,
₱50,000.00 as exemplary damages, ₱100,000.00 for attorney’s fees and the costs of litigation. The trial court’s
award of ₱6,537,244.96 for the loss of earning capacity of the deceased is DELETED for lack of basis.

SO ORDERED.

Both parties moved for reconsideration24 but the CA denied their respective motions for reconsideration in a
Resolution25 dated October 12, 2005.

Hence, G & S and the heirs filed their respective Petitions for Review on Certiorari before this Court. The heirs’
petition was docketed as G.R. No. 170071 and that of G & S as G.R. No. 170125. These petitions were later
consolidated pursuant to this Court’s Resolution of November 21, 2005. 26

G.R. No. 170125

G & S anchors its petition on the following grounds:

I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT THE PROXIMATE
CAUSE OF DEATH OF MR. JOSE MARCIAL K. OCHOA WAS A FORTUITOUS EVENT AND/OR WAS DUE
TO THE FAULT OR NEGLIGENCE OF ANOTHER AND SHOULD THUS EXEMPT THE PETITIONER FROM
LIABILITY.

II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT TAKING NOTE OF THE FACT
THAT THE PETITIONER’S EMPLOYEE HAD BEEN ACQUITTED OF THE CRIME OF RECKLESS
IMPRUDENCE RESULTING (IN) HOMICIDE.

III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE TESTIMONY OF A
WITNESS WHO SURFACED MONTHS AFTER THE INCIDENT WHILE DISREGARDING THAT OF AN
EYEWITNESS WHO WAS PRESENT AT THE TIME AND PLACE OF THE ACCIDENT.

IV. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT RULING THAT THE PETITIONER
EXERCISED THE DILIGENCE OF A GOOD FATHER OF A FAMILY IN THE SELECTION AND
SUPERVISION OF ITS EMPLOYEES PARTICULARLY MR. BIBIANO PADILLA.27

G & S reiterates its arguments that the proximate cause of the accident is a fortuitous event and/or the
negligence of the driver of the delivery van which bumped the right portion of its taxicab and, that it exercised
the diligence of a good father of a family in the selection and supervision of its employees. It faults the CA
when it overlooked the fact that the MTC Decision convicting Padilla of reckless imprudence has already been
reversed on appeal by the RTC with Padilla having been accordingly acquitted of the crime charged. Moreover,
it claims that the appellate court erred in according respect to the testimony of the lone prosecution witness,
Pablo Clave (Clave), when it concluded that Padilla was driving negligently at the time of the accident. It
asserts that Clave is not a credible witness and so is his testimony. Thus, G & S prays that the assailed CA
Decision and Resolution be reversed and set aside.

On the other hand, the heirs posit that the determination of the issues raised by G & S necessarily entails a re-
examination of the factual findings which this Court cannot do in this petition for review on certiorari. At any
rate, they maintain that the trial court itself is convinced of Clave’s credibility. They stress the settled rule that
the evaluation of the credibility of witnesses is a matter that particularly falls within the authority of the trial court
because it had the opportunity to observe the demeanor of the witnesses on the stand.

The heirs assert that fortuitous event was not the proximate cause of the mishap. They point out that as
correctly found by the trial court, Padilla was running at an extremely high speed. This was why the impact was
so strong when the taxicab rammed the fly-over railings and was split into two when it hit the ground. Also,
while it is true that the MTC Decision in the criminal case for reckless imprudence has been reversed by the
RTC, this does not excuse G & S from its liability to the heirs because its liability arises from its breach of
contract of carriage and from its negligence in the selection and supervision of its employees. Also, since the
acquittal of Padilla is based on reasonable doubt, same does not in any way rule out his negligence as this
may merely mean that the prosecution failed to meet the requisite quantum of evidence to sustain his
conviction. Therefore, G & S cannot bank on said acquittal to disprove its liability.

G.R. No. 170071

The heirs, on the other hand, advance the following grounds in support of their petition:

THE COURT OF APPEALS MANIFESTLY AND GRAVELY ERRED IN COMPLETELY DELETING THE TRIAL
COURT’S AWARD FOR THE LOSS OF EARNING CAPACITY OF THE DECEASED.

THE COURT OF APPEALS MANIFESTLY AND GRAVELY ERRED IN REDUCING THE TRIAL COURT’S
AWARD FOR MORAL DAMAGES.28

The focal point of the heirs’ petition is the CA’s deletion of the award of ₱6,537,244.96 for Jose Marcial’s loss
of earning capacity as well as the reduction of the award of moral damages from ₱300,000.00 to ₱200,000.00.

The heirs aver that the appellate court gravely erred in relying upon Ereño as said case is not on all fours with
the present case. They contend that in Ereño, this Court disallowed the award for loss of income because the
only proof presented was a handwritten statement of the victim’s spouse stating the daily income of the
deceased as a self-employed fish vendor. The heirs argue that the reason why this Court declared said
handwritten statement as self-serving is because the one who prepared it, the deceased’s wife, was also the
one who would directly and personally benefit from such an award.29 This cannot be said in the case at bar
since the same bias and personal interest cannot be attributed to Jose Marcial’s employer, the USAID. Unlike
in Ereño, USAID here does not stand to be benefited by an award for Jose Marcial’s loss of earning capacity.
Clearly, the Certification issued by it is far from being self-serving. At any rate, the heirs contend
that Ereño has already been superseded by Pleyto v. Lomboy30 where this Court held that in awarding
damages for loss of earning capacity, "mere testimonial evidence suffices to establish a basis for which the
court can make a fair and reasonable estimate of the loss of earning capacity". In addition, the heirs point out
that the authenticity and accuracy of said Certification was neither questioned by G & S nor discredited by any
controverting evidence. In fact, its admission by the trial court was not even assigned by G & S as an error in
their appeal before the CA.

As to the reduction of moral damages, the heirs claim that since the CA agreed with the factual circumstances
of the case as found by the trial court, there is therefore no reason for it to alter the award of damages arising
from such factual circumstances. They aver that the CA may only modify the damages awarded by the trial
court when it is excessive and scandalous as held in Meneses v. Court of Appeals.31 Here, they claim that the
award of moral damages in the amount of ₱300,000.00 cannot be considered as excessive and unreasonable
but only commensurate to the sufferings caused by the incident to a wife who became a young widow at the
age of 33 and to two minor children who lost a father. Moreover, the heirs aver that the CA should not have
reduced the award of moral damages just to make said amount proportionate to the exemplary damages
awarded. This is because there is no such rule which dictates that the amount of moral damages should be
proportionate to that of the exemplary damages. The heirs pray that the assailed CA Decision and Resolution
be reversed and set aside insofar as they deleted the award for loss of earning capacity and reduced the
award for moral damages.

For its part, G & S avers that the Certification issued by USAID is self-serving because the USAID officer who
issued it has not been put on the witness stand to validate the contents thereof. Moreover, said Certification
was not supported by competent evidence such as income tax returns and receipts. G & S likewise finds the
reduction of the award of moral damages appropriate in view of the settled rule that moral damages are not
meant to enrich the complainant at the expense of the defendant. Hence, it prays that the petition be dismissed
for lack of merit.
Our Ruling

We shall first tackle the issues raised by G & S in its petition.

The first, third and fourth issues raised by G & S involve questions of fact

We have reviewed said issues and we find that the determination of the first, third and fourth issues raised
entails re-examination of the evidence presented because they all involve questions of fact. In Microsoft
Corporation v. Maxicorp, Inc.,32 we held that:

Once it is clear that the issue invites a review of the evidence presented, the question posed is one of fact. If
the query requires a re-evaluation of the credibility of witnesses, or the existence or relevance of surrounding
circumstances and their relation to each other, the issue in that query is factual. Our ruling in Paterno v.
Paterno is illustrative on this point:

Such questions as whether certain items of evidence should be accorded probative value or weight, or rejected
as feeble or spurious, or whether or not the proof on one side or the other are clear and convincing and
adequate to establish a proposition in issue, are without doubt questions of fact. Whether or not the body of
proofs presented by a party, weighed and analyzed in relation to contrary evidence submitted by adverse
party, may be said to be strong, clear and convincing; whether or not certain documents presented by one side
should be accorded full faith and credit in the face of protests as to their spurious character by the other side;
whether or not inconsistencies in the body of proofs of a party are of such a gravity as to justify refusing to give
said proofs weight – all these are issues of fact. (Citations omitted)

In this case, the said three issues boil down to the determination of the following questions: What is the
proximate cause of the death of Jose Marcial? Is the testimony of prosecution witness Clave credible? Did G &
S exercise the diligence of a good father of a family in the selection and supervision of its employees? Suffice it
to say that these are all questions of fact which require this Court to inquire into the probative value of the
evidence presented before the trial court. As we have consistently held, "[t]his Court is not a trier of facts. It is
not a function of this court to analyze or weigh evidence. When we give due course to such situations, it is
solely by way of exception. Such exceptions apply only in the presence of extremely meritorious
circumstances."33 Here, we note that although G & S enumerated in its Consolidated Memorandum 34 the
exceptions35 to the rule that a petition for review on certiorari should only raise questions of law, it nevertheless
did not point out under what exception its case falls. And, upon review of the records of the case, we are
convinced that it does not fall under any. Hence, we cannot proceed to resolve said issues and disturb the
findings and conclusions of the CA with respect thereto. As we declared in Diokno v. Cacdac:36

It is aphoristic that a re-examination of factual findings cannot be done through a petition for review
on certiorari under Rule 45 of the Rules of Court because as earlier stated, this Court is not a trier of facts; it
reviews only questions of law. The Supreme Court is not duty-bound to analyze and weigh again the evidence
considered in the proceedings below. This is already outside the province of the instant Petition
for Certiorari. [Citations omitted.]

There is a contract of carriage between G & S and Jose Marcial

What is clear from the records is that there existed a contract of carriage between G & S, as the owner and
operator of the Avis taxicab, and Jose Marcial, as the passenger of said vehicle. As a common carrier, G & S
"is bound to carry [Jose Marcial] 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." 37 However, Jose Marcial was not
able to reach his destination safely as he died during the course of the travel. "In a contract of carriage, it is
presumed that the common carrier is at fault or is negligent when a passenger dies or is injured. 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."38 Unfortunately, G & S miserably failed to overcome this presumption. Both the trial court and the
CA found that the accident which led to Jose Marcial’s death was due to the reckless driving and gross
negligence of G & S’ driver, Padilla, thereby holding G & S liable to the heirs of Jose Marcial for breach of
contract of carriage.

The acquittal of Padilla in the criminal case is immaterial to the instant case for breach of contract

This thus now leaves us with the remaining issue raised by G & S, that is, whether the CA gravely erred in not
taking note of the fact that Padilla has already been acquitted of the crime of reckless imprudence resulting in
homicide, a charge which arose from the same incident subject of this case.

Article 31 of the Civil Code provides, viz: When the civil action is based on an obligation not arising from the
act or omission complained of as a felony, such civil action may proceed independently of the criminal
proceedings and regardless of the result of the latter.

Thus, in Cancio, Jr. v. Isip,39 we declared:

In the instant case, it must be stressed that the action filed by petitioner is an independent civil action, which
remains separate and distinct from any criminal prosecution based on the same act. Not being deemed
instituted in the criminal action based on culpa criminal, a ruling on the culpability of the offender will have
no bearing on said independent civil action based on an entirely different cause of action, i.e., culpa
contractual." (Emphasis supplied; Citations omitted.)

In this case, the action filed by the heirs is primarily for the recovery of damages arising from breach of contract
of carriage allegedly committed by G & S. Clearly, it is an independent civil action arising from contract which is
separate and distinct from the criminal action for reckless imprudence resulting in homicide filed by the heirs
against Padilla by reason of the same incident. Hence, regardless of Padilla’s acquittal or conviction in said
criminal case, same has no bearing in the resolution of the present case. There was therefore no error on the
part of the CA when it resolved this case without regard to the fact that Padilla has already been acquitted by
the RTC in the criminal case. Moreover, while the CA quoted some portions of the MTC Decision in said
criminal case, we however find that those quoted portions were only meant to belie G & S’ claim that the
proximate cause of the accident was the negligence of the driver of the delivery van which allegedly hit the
Avis taxicab. Even without those quoted portions, the appellate court’s ultimate finding that it was Padilla’s
negligence which was the proximate cause of the mishap would still be the same. This is because the CA has,
in fact, already made this declaration in the earlier part of its assailed Decision. The fact that the MTC Decision
from which the subject quoted portions were lifted has already been reversed by the RTC is therefore
immaterial.

In view of the foregoing, we deny G & S’ petition for lack of merit.

The denial by the CA of the heirs’ claim for lost earnings is unwarranted

Going now to the petition filed by the heirs, we note at the outset that the issues of whether the CA erred in
deleting the award for loss of earning capacity and in reducing the award for moral damages made by the trial
court likewise raise questions of fact as they "involve an examination of the probative value of the evidence
presented by the parties".40 However, we find that the heirs’ case falls under one of the exceptions because
the findings of the CA conflict with the findings of the RTC.41 Since the heirs properly raised the conflicting
findings of the lower courts, it is proper for this Court to resolve such contradiction.42

In Ereño, we denied the claim for loss of income because the handwritten estimate of the deceased’s daily
income as a self-employed vendor was not supported by competent evidence like income tax returns or
receipts. This was in view of the rule that compensation for lost income is in the nature of damages and as
such requires due proof of damages suffered. We reiterated this rule in People v. Yrat43 where we likewise
denied the same claim because the only evidence presented to show that the deceased was earning
₱50,000.00 a month was the testimony of the wife. There we stated that for lost income due to death, there
must be unbiased proof of the deceased’s average income. Self-serving, hence, unreliable statement is not
enough. In People v. Caraig,44 we declared that "documentary evidence should be presented to substantiate
the claim for damages for loss of earning capacity. By way of exception, damages therefor may be awarded
despite the absence of documentary evidence, provided that there is testimony that the victim was either
(1) self-employed earning less than the minimum wage under current labor laws, and judicial notice may be
taken of the fact that in the victim’s line of work no documentary evidence is available; or (2) employed as a
daily-wage worker earning less than the minimum wage under current labor laws". However, we subsequently
ruled in Pleyto v. Lomboy45 that "failure to present documentary evidence to support a claim for loss of earning
capacity of the deceased need not be fatal to its cause. Testimonial evidence suffices to establish a basis for
which the court can make a fair and reasonable estimate of the loss of earning capacity". Hence, we held as
sufficient to establish a basis for an estimate of damages for loss of earning capacity the testimony of the
victim’s widow that her husband was earning a monthly income of ₱8,000.00. Later, in Victory Liner, Inc. v.
Gammad,46 after finding that the deceased’s earnings does not fall within the exceptions laid down
in Caraig, we deleted the award for compensatory damages for loss of earning capacity as same was awarded
by the lower courts only on the basis of the husband’s testimony that the deceased was 39 years of age and a
Section Chief of the Bureau of Internal Revenue with a salary of ₱83,088.00 per annum at the time of her
death. This same rule was also applied in the 2008 case of Licyayo v. People.47

In all of the cases mentioned except for Ereño, the sole basis for the claim for loss of earning capacity were the
testimonies of the claimants. This is not the case here. Just like in Ereño where the testimony of the mother of
the deceased was accompanied by a handwritten estimate of her daughter’s alleged income as a fish vendor,
the testimony of Jose Marcial’s wife that he was earning around ₱450,000.00 a year was corroborated by a
Certification issued by the USAID. However in Ereño, we declared as self-serving the handwritten estimate
submitted by the mother hence we denied the claim for such award. Based on said ruling, the CA in this case
deleted the award for lost income after it found the USAID Certification to be self-serving and unreliable.

We disagree. The CA sweepingly concluded that the USAID Certification is self-serving and unreliable without
elaborating on how it was able to arrive at such a conclusion. A research on USAID reveals that it is the
"principal [United States] agency to extend assistance to countries recovering from disaster, trying to escape
poverty, and engaging in democratic reforms."48 It is an "independent federal government agency that receives
over-all foreign policy guidance from the Secretary of the State [of the United States]." 49 Given this
background, it is highly improbable that such an agency will issue a certification containing unreliable
information regarding an employee’s income. Besides, there exists a presumption that official duty has been
regularly performed.50 Absent any showing to the contrary, it is presumed that Cruz, as Chief of Human
Resources Division of USAID, has regularly performed his duty relative to the issuance of said certification and
therefore, the correctness of its contents can be relied upon. This presumption remains especially so where the
authenticity, due execution and correctness of said certification have not been put in issue either before the
trial court or the CA. As to its being self-serving, our discussion on "self-serving evidence" in Heirs of Pedro
Clemeña y Zurbano v. Heirs of Irene B. Bien 51 is enlightening, viz:

‘Self-serving evidence,’ perhaps owing to its descriptive formulation, is a concept much misunderstood. Not
infrequently, the term is employed as a weapon to devalue and discredit a party's testimony favorable to his
cause. That, it seems, is the sense in which petitioners are using it now. This is a grave error. "Self-serving
evidence" is not to be taken literally to mean any evidence that serves its proponent's interest. The term, if
used with any legal sense, refers only to acts or declarations made by a party in his own interest at
some place and time out of court x x x. (Citations omitted; emphasis supplied.)

Verily, the USAID certification cannot be said to be self-serving because it does not refer to an act or
declaration made out of court by the heirs themselves as parties to this case.1awphi1

Clearly, the CA erred in deleting the award for lost income on the ground that the USAID Certification
supporting such claim is self-serving and unreliable. On the contrary, we find said certification sufficient basis
for the court to make a fair and reasonable estimate of Jose Marcial’s loss of earning capacity just like
in Tamayo v. Señora52 where we based the victim’s gross annual income on his pay slip from the Philippine
National Police. Hence, we uphold the trial court’s award for Jose Marcial’s loss of earning capacity.

While the trial court applied the formula generally used by the courts to determine net earning capacity which
is, to wit:
 Net Earning Capacity = life expectancy* x (gross annual income - reasonable living expenses),53

*Life expectancy = 2/3 (80 – age of the deceased)

we, however, find incorrect the amount of ₱6,537, 244.96 arrived at. The award should be ₱6,611,634.59 as
borne out by the following computation:

2 (80-3654)
Net earning capacity = x 450,844.4955-50%56
3

88
= x 225,422.25
3

= 29.33 x 225,422.25

= ₱6, 611,634.59

The award of moral damages should be modified

While we deemed it proper to modify the amount of moral damages awarded by the trial court as discussed
below, we nevertheless agree with the heirs that the CA should not have pegged said award in proportion to
the award of exemplary damages. Moral and exemplary damages are based on different jural
foundations.57 They are different in nature and require separate determination. 58 The amount of one cannot be
made to depend on the other.

In Victory Liner Inc. v. Gammad59 we awarded ₱100,000.00 by way of moral damages to the husband and
three children of the deceased, a 39-year old Section Chief of the Bureau of Internal Revenue, to compensate
said heirs for the grief caused by her death. This is pursuant to the provisions of Articles 1764 and 2206(3)
which provide:

Art. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this
Book, concerning Damages. Articles 2206 shall also apply to the death of a passenger caused by the breach
of contract by a common carrier.

Art. 2206. x x x

(3) The spouse, legitimate and illegitimate descendants and the ascendants of the deceased may demand
moral damages for mental anguish by reason of the death of the deceased.

Here, there is no question that the heirs are likewise entitled to moral damages pursuant to the above
provisions, considering the mental anguish suffered by them by reason of Jose Marcial’s untimely death, as
can be deduced from the following testimony of his wife Ruby:

Atty. Suarez:

Q: How would you describe Jose Marcial Ochoa?

(Ruby) A: My husband was a very loving husband, faithful husband, a very [good] provider[.] I
depended on him so much financially [and] emotionally[.] He was practically my life then.

Q: How is he as a father?
 A: A very good father, he is very committed to Micaela[. H]e has always time for her[. H]e is a family
man, so it’s really a great [loss] to me and to Micaela.

Q: What was your reaction upon learning of your husband’s death?

A: Immediately after I learned of his death, I tried very hard to keep a clear mind for my little girl, she
was 3 ½ and she could not grasp what death is, so I found [it] so hard to explain to her [at] that time
what happened [e]specially [because] she just talked to her father from the airport telling her that he is
coming home, tapos hindi na pala.

Q: How did it affect you?

A: It was a painful struggle everyday just to get up and move on when someone who [you] really really
love and [who] is important to you … it is very hard to move on and [it is even] harder to move on
[when] I found out that I was pregnant with my second child, parang tinabunan ka [ng] lahat eh[. I]t’s
[too] hard to find happiness, you’re pregnant, when you know wala naman talagang father yung bata
later on x x x

Q: How did this affect your family?

A: Yung effect kay Micaela, she [used] to be a gregarious child, yung happy ganyan, but nung wala na
yong father niya that time, [during] graduation ng nursery that time naging very very [quiet] siya, so a lot
of emotional support from my own family was given to her at the time para makacope-up siya sa loss
kasi she is very close to the father.

Q: Financially, how did it affect you?

A: I had to make do of what was left by my husband, I couldn’t also work so much at the time because I
was….and hirap eh, I cannot find enthusiasm in what I do, tapos pregnant pa ako, and hirap talaga.

Q: How else did it affect you?

A: We had to move houses like we used to live in Quezon City at (the) time of his death, tapos kinuha
kami ni Gorjie my brother-in-law sa compound nila para hindi… [to] support us emotionally (at that time)
kasi nga I was pregnant and then I also decided to move (to make it easy for me) to adjust yung
lifestyle ng mga bata, because I cannot cope [here] financially on my own[. N]ahihirapan na ako dito
because the living expenses here are quite high compared sa probinsiya so I decided to move.

Q: If you would assign that pain and suffering that you suffered as a result of the death of your
husband, what will be the monetary consideration?

A: I struggled with that kasi….I can honestly say no amount of money can ever repay the [loss] that my
children suffered, future nila yan eh, and my son was not given a chance to get to know his father, so I
cannot imagine kung ano yung sinasabi n’yong amount that will compensate the suffering that I have to
go through and my children will go through, ‘yon and mahirap bayaran. 60

Under this circumstance, we thus find as sufficient and "somehow proportional to and in approximation of the
suffering inflicted"61 an award of moral damages in an amount similar to that awarded in Victory which is
₱100,000.00. From the above discussion, we, thus, partly grant the heirs’ petition. WHEREFORE, the petition
for review on certiorari in G.R. No. 170071 is PARTLY GRANTED while the petition in G.R. No. 170125 is
DENIED. The assailed Decision and Resolution dated June 29, 2005 and October 12, 2005 of the Court of
Appeals in CA-G.R. CV No. 75602 are AFFIRMED with the MODIFICATIONS that G & S is ordered to pay the
heirs of Jose Marcial K. Ochoa the sum of ₱6,611,634.59 for loss of earning capacity of the deceased and
₱100,000.00 as moral damages. SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 172822 Petitioner,

MOF COMPANY, INC., Petitioner,

vs.
SHIN YANG BROKERAGE CORPORATION Respondent.

DECISION

DEL CASTILLO, J.:

The necessity of proving lies with the person who sues.

The refusal of the consignee named in the bill of lading to pay the freightage on the claim that it is not privy to
the contract of affreightment propelled the shipper to sue for collection of money, stressing that its sole
evidence, the bill of lading, suffices to prove that the consignee is bound to pay. Petitioner now comes to us by
way of Petition for Review on Certiorari1 under Rule 45 praying for the reversal of the Court of Appeals' (CA)
judgment that dismissed its action for sum of money for insufficiency of evidence.

Factual Antecedents

On October 25, 2001, Halla Trading Co., a company based in Korea, shipped to Manila secondhand cars and
other articles on board the vessel Hanjin Busan 0238W. The bill of lading covering the shipment, i.e., Bill of
Lading No. HJSCPUSI14168303,2 which was prepared by the carrier Hanjin Shipping Co., Ltd. (Hanjin),
named respondent Shin Yang Brokerage Corp. (Shin Yang) as the consignee and indicated that payment was
on a "Freight Collect" basis, i.e., that the consignee/receiver of the goods would be the one to pay for the
freight and other charges in the total amount of ₱57,646.00.3

The shipment arrived in Manila on October 29, 2001. Thereafter, petitioner MOF Company, Inc. (MOF),
Hanjin’s exclusive general agent in the Philippines, repeatedly demanded the payment of ocean freight,
documentation fee and terminal handling charges from Shin Yang. The latter, however, failed and refused to
pay contending that it did not cause the importation of the goods, that it is only the Consolidator of the said
shipment, that the ultimate consignee did not endorse in its favor the original bill of lading and that the bill of
lading was prepared without its consent.

Thus, on March 19, 2003, MOF filed a case for sum of money before the Metropolitan Trial Court of Pasay City
(MeTC Pasay) which was docketed as Civil Case No. 206-03 and raffled to Branch 48. MOF alleged that Shin
Yang, a regular client, caused the importation and shipment of the goods and assured it that ocean freight and
other charges would be paid upon arrival of the goods in Manila. Yet, after Hanjin's compliance, Shin Yang
unjustly breached its obligation to pay. MOF argued that Shin Yang, as the named consignee in the bill of
lading, entered itself as a party to the contract and bound itself to the "Freight Collect" arrangement. MOF thus
prayed for the payment of ₱57,646.00 representing ocean freight, documentation fee and terminal handling
charges as well as damages and attorney’s fees.

Claiming that it is merely a consolidator/forwarder and that Bill of Lading No. HJSCPUSI14168303 was not
endorsed to it by the ultimate consignee, Shin Yang denied any involvement in shipping the goods or in
promising to shoulder the freightage. It asserted that it never authorized Halla Trading Co. to ship the articles
or to have its name included in the bill of lading. Shin Yang also alleged that MOF failed to present supporting
documents to prove that it was Shin Yang that caused the importation or the one that assured payment of the
shipping charges upon arrival of the goods in Manila.
Ruling of the Metropolitan Trial Court

On June 16, 2004, the MeTC of Pasay City, Branch 48 rendered its Decision 4 in favor of MOF. It ruled that
Shin Yang cannot disclaim being a party to the contract of affreightment because:

x x x it would appear that defendant has business transactions with plaintiff. This is evident from defendant’s
letters dated 09 May 2002 and 13 May 2002 (Exhibits "1" and "2", defendant’s Position Paper) where it
requested for the release of refund of container deposits x x x. [In] the mind of the Court, by analogy, a written
contract need not be necessary; a mutual understanding [would suffice]. Further, plaintiff would have not
included the name of the defendant in the bill of lading, had there been no prior agreement to that effect.

In sum, plaintiff has sufficiently proved its cause of action against the defendant and the latter is obliged to
honor its agreement with plaintiff despite the absence of a written contract. 5

The dispositive portion of the MeTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and against the
defendant, ordering the latter to pay plaintiff as follows:

1. ₱57,646.00 plus legal interest from the date of demand until fully paid,

2. ₱10,000.00 as and for attorney’s fees and

3. the cost of suit.

SO ORDERED.6

Ruling of the Regional Trial Court

The Regional Trial Court (RTC) of Pasay City, Branch 108 affirmed in toto the Decision of the MeTC. It held
that:

MOF and Shin Yang entered into a contract of affreightment which Black’s Law Dictionary defined as a
contract with the ship owner to hire his ship or part of it, for the carriage of goods and generally take the form
either of a charter party or a bill of lading.

The bill of lading contain[s] the information embodied in the contract.

Article 652 of the Code of Commerce provides that the charter party must be in writing; however, Article 653
says: "If the cargo should be received without charter party having been signed, the contract shall be
understood as executed in accordance with what appears in the bill of lading, the sole evidence of title with
regard to the cargo for determining the rights and obligations of the ship agent, of the captain and of the
charterer". Thus, the Supreme Court opined in the Market Developers, Inc. (MADE) vs. Honorable
Intermediate Appellate Court and Gaudioso Uy, G.R. No. 74978, September 8, 1989, this kind of contract may
be oral. In another case, Compania Maritima vs. Insurance Company of North America, 12 SCRA 213 the
contract of affreightment by telephone was recognized where the oral agreement was later confirmed by a
formal booking.

xxxx

Defendant is liable to pay the sum of ₱57,646.00, with interest until fully paid, attorney’s fees of ₱10,000.00
[and] cost of suit.

Considering all the foregoing, this Court affirms in toto the decision of the Court a quo.
SO ORDERED.7

Ruling of the Court of Appeals

Seeing the matter in a different light, the CA dismissed MOF’s complaint and refused to award any form of
damages or attorney’s fees. It opined that MOF failed to substantiate its claim that Shin Yang had a hand in the
importation of the articles to the Philippines or that it gave its consent to be a consignee of the subject goods.
In its March 22, 2006 Decision,8 the CA said:

This Court is persuaded [that except] for the Bill of Lading, respondent has not presented any other evidence
to bolster its claim that petitioner has entered [into] an agreement of affreightment with respondent, be it verbal
or written. It is noted that the Bill of Lading was prepared by Hanjin Shipping, not the petitioner. Hanjin is the
principal while respondent is the former’s agent. (p. 43, rollo)

The conclusion of the court a quo, which was upheld by the RTC Pasay City, Branch 108 xxx is purely
speculative and conjectural. A court cannot rely on speculations, conjectures or guesswork, but must depend
upon competent proof and on the basis of the best evidence obtainable under the circumstances. Litigation
cannot be properly resolved by suppositions, deductions or even presumptions, with no basis in evidence, for
the truth must have to be determined by the hard rules of admissibility and proof (Lagon vs. Hooven Comalco
Industries, Inc. 349 SCRA 363).

While it is true that a bill of lading serves two (2) functions: first, it is a receipt for the goods shipped; second, it
is a contract by which three parties, namely, the shipper, the carrier and the consignee who undertake specific
responsibilities and assume stipulated obligations (Belgian Overseas Chartering and Shipping N.V. vs. Phil.
First Insurance Co., Inc., 383 SCRA 23), x x x if the same is not accepted, it is as if one party does not accept
the contract. Said the Supreme Court:

"A bill of lading delivered and accepted constitutes the contract of carriage[,] even though not signed, because
the acceptance of a paper containing the terms of a proposed contract generally constitutes an acceptance of
the contract and of all its terms and conditions of which the acceptor has actual or constructive notice" (Keng
Hua Paper Products Co., Inc. vs. CA, 286 SCRA 257).

In the present case, petitioner did not only [refuse to] accept the bill of lading, but it likewise disown[ed] the
shipment x x x. [Neither did it] authorize Halla Trading Company or anyone to ship or export the same on its
behalf.

It is settled that a contract is upheld as long as there is proof of consent, subject matter and cause (Sta. Clara
Homeowner’s Association vs. Gaston, 374 SCRA 396). In the case at bar, there is not even any iota of
evidence to show that petitioner had given its consent.

"He who alleges a fact has the burden of proving it and a mere allegation is not evidence" (Luxuria Homes Inc.
vs. CA, 302 SCRA 315).

The 40-footer van contains goods of substantial value. It is highly improbable for petitioner not to pay the
charges, which is very minimal compared with the value of the goods, in order that it could work on the release
thereof.

For failure to substantiate its claim by preponderance of evidence, respondent has not established its case
against petitioner.9

Petitioners filed a motion for reconsideration but it was denied in a Resolution 10 dated May 25, 2006. Hence,
this petition for review on certiorari.

Petitioner’s Arguments
In assailing the CA’s Decision, MOF argues that the factual findings of both the MeTC and RTC are entitled to
great weight and respect and should have bound the CA. It stresses that the appellate court has no justifiable
reason to disturb the lower courts’ judgments because their conclusions are well-supported by the evidence on
record.

MOF further argues that the CA erred in labeling the findings of the lower courts as purely ‘speculative and
conjectural’. According to MOF, the bill of lading, which expressly stated Shin Yang as the consignee, is the
best evidence of the latter’s actual participation in the transportation of the goods. Such document, validly
entered, stands as the law among the shipper, carrier and the consignee, who are all bound by the terms
stated therein. Besides, a carrier’s valid claim after it fulfilled its obligation cannot just be rejected by the named
consignee upon a simple denial that it ever consented to be a party in a contract of affreightment, or that it ever
participated in the preparation of the bill of lading. As against Shin Yang’s bare denials, the bill of lading is the
sufficient preponderance of evidence required to prove MOF’s claim. MOF maintains that Shin Yang was the
one that supplied all the details in the bill of lading and acquiesced to be named consignee of the shipment on
a ‘Freight Collect’ basis.

Lastly, MOF claims that even if Shin Yang never gave its consent, it cannot avoid its obligation to pay, because
it never objected to being named as the consignee in the bill of lading and that it only protested when the
shipment arrived in the Philippines, presumably due to a botched transaction between it and Halla Trading Co.
Furthermore, Shin Yang’s letters asking for the refund of container deposits highlight the fact that it was aware
of the shipment and that it undertook preparations for the intended release of the shipment.

Respondent’s Arguments

Echoing the CA decision, Shin Yang insists that MOF has no evidence to prove that it consented to take part in
the contract of affreightment. Shin Yang argues that MOF miserably failed to present any evidence to prove
that it was the one that made preparations for the subject shipment, or that it is an ‘actual shipping practice’
that forwarders/consolidators as consignees are the ones that provide carriers details and information on the
bills of lading.

Shin Yang contends that a bill of lading is essentially a contract between the shipper and the carrier and
ordinarily, the shipper is the one liable for the freight charges. A consignee, on the other hand, is initially a
stranger to the bill of lading and can be liable only when the bill of lading specifies that the charges are to be
paid by the consignee. This liability arises from either a) the contract of agency between the shipper/consignor
and the consignee; or b) the consignee’s availment of the stipulation pour autrui drawn up by and between the
shipper/ consignor and carrier upon the consignee’s demand that the goods be delivered to it. Shin Yang
contends that the fact that its name was mentioned as the consignee of the cargoes did not make it
automatically liable for the freightage because it never benefited from the shipment. It never claimed or
accepted the goods, it was not the shipper’s agent, it was not aware of its designation as consignee and the
original bill of lading was never endorsed to it.

Issue

The issue for resolution is whether a consignee, who is not a signatory to the bill of lading, is bound by the
stipulations thereof. Corollarily, whether respondent who was not an agent of the shipper and who did not
make any demand for the fulfillment of the stipulations of the bill of lading drawn in its favor is liable to pay the
corresponding freight and handling charges.

Our Ruling

Since the CA and the trial courts arrived at different conclusions, we are constrained to depart from the general
rule that only errors of law may be raised in a Petition for Review on Certiorari under Rule 45 of the Rules of
Court and will review the evidence presented.11
The bill of lading is oftentimes drawn up by the shipper/consignor and the carrier without the intervention of the
consignee. However, the latter can be bound by the stipulations of the bill of lading when a) there is a relation
of agency between the shipper or consignor and the consignee or b) when the consignee demands fulfillment
of the stipulation of the bill of lading which was drawn up in its favor. 12

In Keng Hua Paper Products Co., Inc. v. Court of Appeals,13 we held that once the bill of lading is received by
the consignee who does not object to any terms or stipulations contained therein, it constitutes as an
acceptance of the contract and of all of its terms and conditions, of which the acceptor has actual or
constructive notice.1avvphi1

In Mendoza v. Philippine Air Lines, Inc.,14 the consignee sued the carrier for damages but nevertheless
claimed that he was never a party to the contract of transportation and was a complete stranger thereto. In
debunking Mendoza’s contention, we held that:

x x x First, he insists that the articles of the Code of Commerce should be applied; that he invokes the
provisions of said Code governing the obligations of a common carrier to make prompt delivery of goods given
to it under a contract of transportation. Later, as already said, he says that he was never a party to the contract
of transportation and was a complete stranger to it, and that he is now suing on a tort or a violation of his rights
as a stranger (culpa aquiliana). If he does not invoke the contract of carriage entered into with the defendant
company, then he would hardly have any leg to stand on. His right to prompt delivery of the can of film at the
Pili Air Port stems and is derived from the contract of carriage under which contract, the PAL undertook to
carry the can of film safely and to deliver it to him promptly. Take away or ignore that contract and the
obligation to carry and to deliver and right to prompt delivery disappear. Common carriers are not obligated by
law to carry and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless
such common carriers previously assume the obligation. Said rights and obligations are created by a specific
contract entered into by the parties. In the present case, the findings of the trial court which as already
stated, are accepted by the parties and which we must accept are to the effect that the LVN Pictures
Inc. and Jose Mendoza on one side, and the defendant company on the other, entered into a contract
of transportation (p. 29, Rec. on Appeal). One interpretation of said finding is that the LVN Pictures Inc.
through previous agreement with Mendoza acted as the latter's agent. When he negotiated with the
LVN Pictures Inc. to rent the film 'Himala ng Birhen' and show it during the Naga town fiesta, he most
probably authorized and enjoined the Picture Company to ship the film for him on the PAL on
September 17th. Another interpretation is that even if the LVN Pictures Inc. as consignor of its own
initiative, and acting independently of Mendoza for the time being, made Mendoza a
consignee. [Mendoza made himself a party to the contract of transportaion when he appeared at the
Pili Air Port armed with the copy of the Air Way Bill (Exh. 1) demanding the delivery of the shipment to
him.] The very citation made by appellant in his memorandum supports this view. Speaking of the possibility of
a conflict between the order of the shipper on the one hand and the order of the consignee on the other, as
when the shipper orders the shipping company to return or retain the goods shipped while the consignee
demands their delivery, Malagarriga in his book Codigo de Comercio Comentado, Vol. 1, p. 400, citing a
decision of the Argentina Court of Appeals on commercial matters, cited by Tolentino in Vol. II of his book
entitled 'Commentaries and Jurisprudence on the Commercial Laws of the Philippines' p. 209, says that the
right of the shipper to countermand the shipment terminates when the consignee or legitimate holder
of the bill of lading appears with such bill of lading before the carrier and makes himself a party to the
contract. Prior to that time he is a stranger to the contract.

Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old
Civil Code (now Art. 1311, second paragraph) which reads thus:

‘Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment
provided he has given notice of his acceptance to the person bound before the stipulation has been
revoked.'

Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the
stipulations of delivery to Mendoza as consignee. His demand for the delivery of the can of film to him
at the Pili Air Port may be regarded as a notice of his acceptance of the stipulation of the delivery in his
favor contained in the contract of carriage and delivery. In this case he also made himself a party to the
contract, or at least has come to court to enforce it. His cause of action must necessarily be founded
on its breach.15 (Emphasis Ours)

In sum, a consignee, although not a signatory to the contract of carriage between the shipper and the carrier,
becomes a party to the contract by reason of either a) the relationship of agency between the consignee and
the shipper/ consignor; b) the unequivocal acceptance of the bill of lading delivered to the consignee, with full
knowledge of its contents or c) availment of the stipulation pour autrui, i.e., when the consignee, a third person,
demands before the carrier the fulfillment of the stipulation made by the consignor/shipper in the consignee’s
favor, specifically the delivery of the goods/cargoes shipped. 16

In the instant case, Shin Yang consistently denied in all of its pleadings that it authorized Halla Trading, Co. to
ship the goods on its behalf; or that it got hold of the bill of lading covering the shipment or that it demanded
the release of the cargo. Basic is the rule in evidence that the burden of proof lies upon him who asserts it, not
upon him who denies, since, by the nature of things, he who denies a fact cannot produce any proof of
it.17 Thus, MOF has the burden to controvert all these denials, it being insistent that Shin Yang asserted itself
as the consignee and the one that caused the shipment of the goods to the Philippines.

In civil cases, the party having the burden of proof must establish his case by preponderance of
evidence,18 which means evidence which is of greater weight, or more convincing than that which is offered in
opposition to it.19 Here, MOF failed to meet the required quantum of proof. Other than presenting the bill of
lading, which, at most, proves that the carrier acknowledged receipt of the subject cargo from the shipper and
that the consignee named is to shoulder the freightage, MOF has not adduced any other credible evidence to
strengthen its cause of action. It did not even present any witness in support of its allegation that it was Shin
Yang which furnished all the details indicated in the bill of lading and that Shin Yang consented to shoulder the
shipment costs. There is also nothing in the records which would indicate that Shin Yang was an agent of Halla
Trading Co. or that it exercised any act that would bind it as a named consignee. Thus, the CA correctly
dismissed the suit for failure of petitioner to establish its cause against respondent.

WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated March 22, 2006
dismissing petitioner’s complaint and the Resolution dated May 25, 2006 denying the motion for
reconsideration are AFFIRMED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 186312 June 29, 2010

SPOUSES DANTE CRUZ and LEONORA CRUZ, Petitioners,

vs.
SUN HOLIDAYS, INC., Respondent.

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 Ruelito’s 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 ₱4,000,000.

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 ₱10,000
to petitioners upon their signing of a waiver.

As petitioners declined respondent’s 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 attorney’s fees and litigation expenses amounting to not less than ₱300,000.

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 Resort’s 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
respondent’s 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 Resort’s 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 respondent’s 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 respondent’s 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 carrier’s 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. Respondent’s 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 people’s 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.

Respondent’s 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 respondent’s 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 176427 vis-à-vis Article 220628 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 ₱50,000. 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.
Borja34 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 = ₱44 in 2000,36 amounts to
₱39,600. Ruelito’s net earning capacity is thus computed as follows:

Net Earning = life expectancy x (gross annual income - reasonable and necessary living
Capacity expenses).
= 35 x (₱475,200 - ₱237,600)
= 35 x (₱237,600)

Net Earning
= ₱8,316,000
Capacity

Respecting the award of moral damages, since respondent common carrier’s breach of contract of carriage
resulted in the death of petitioners’ son, following Article 1764 vis-à-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 ₱100,000 as moral damages and
₱100,000 as exemplary damages.381avvphi1

Pursuant to Article 220839 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 Appeals40 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) ₱50,000 as
indemnity for the death of Ruelito Cruz; (2) ₱8,316,000 as indemnity for Ruelito’s loss of earning capacity; (3)
₱100,000 as moral damages; (4) ₱100,000 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.
 THIRD DIVISION

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 decision1 of the Court of Appeals in CA-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 attorney’s 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
Domingo’s 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 attorney’s fees:

WHEREFORE, judgment is hereby rendered for the plaintiffs, ordering Nostradamus Villanueva to pay
the amount of ₱99,580 as actual damages, ₱25,000.00 as moral damages, ₱25,000.00 as exemplary
damages and attorney’s fees in the amount of ₱10,000.00 plus appearance fees of ₱500.00 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 court’s decision but deleted the award for appearance and attorney’s 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 LATTER’S 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.6 The rationale behind such doctrine was explained way
back in 1957 in Erezo vs. Jepte7:

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-appellant’s) liability?

There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the registered
owner in the Motor Vehicles Office. Should he not be allowed to prove the truth, that he had sold it to another
and thus shift the responsibility for the injury to the real and actual owner? The defendant holds the affirmative
of this proposition; the trial court held the negative.

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
manufacturer’s 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. CA9 implies that to hold the registered 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. CA10 wherein the court absolved the
registered owner from liability after finding that the vehicle was virtually stolen from the owner’s 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.

Petitioner’s 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 petitioner’s 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
(Sabiano’s) parents apologized to Duavit on his behalf. 12
As correctly pointed out by the CA, the Duavit ruling is not applicable to petitioner’s 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. CA13 and more recently
in Aguilar, Sr. vs. Commercial Savings Bank.14 In BA Finance, we held the registered owner liable even if, at
the time of the accident, the vehicle was leased by another party and was driven by the lessee’s 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.

SECOND DIVISION
 G.R. No. 209969, September 27, 2017

JOSE SANICO AND VICENTE CASTRO, Petitioners, v. WERHERLINA P. COLIPANO, Respondent.

DECISION

CAGUIOA, J.:

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court filed by petitioners
Jose Sanico (Sanico) and Vicente Castro (Castro), assailing the Decision 2 dated September 30, 2013 of the
Court of Appeals (CA) in CA-G.R. CEB-CV No. 01889. The CA affirmed with modification the Decision3 dated
October 27, 2006 of the Regional Trial Court, Branch 25, Danao City (RTC) which found Sanico and Castro
liable for breach of' contract of carriage and awarded actual and compensatory damages for loss of income in
favor of respondent Werherlina P. Colipano (Colipano). The CA reduced the compensatory damages that the
RTC awarded.

Antecedents

Colipano filed a complaint on January 7, 1997 for breach of contract of carriage and damages against Sanico
and Castro.4 In her complaint, Colipano claimed that at 4:00 P.M. more or less of December 25,
1993, Christmas Day, she and her daughter were; paying passengers in the jeepney operated by Sanico,
which was driven by Castro.5 Colipano claimed she was made to sit on an empty beer case at the edge of the
rear entrance/exit of the jeepney with her sleeping child on her lap. 6 And, at an uphill incline in the road to
Natimao-an, Carmen, Cebu, the jeepney slid backwards because it did not have the power to reach the
top.7 Colipano pushed both her feet against the step board to prevent herself and her child from being thrown
out of the exit, but because the step board was wet, her left foot slipped and got crushed between the step
board and a coconut tree which the jeepney bumped, causing the jeepney to stop its backward
movement.8 Colipano's leg was badly injured and was eventually amputated. 9 Colipano prayed for actual
damages, loss of income, moral damages, exemplary damages, and attorney's fees. 10

In their answer, Sanico and Castro admitted that Colipano's leg was crushed and amputated but claimed that
it! was Colipano's fault that her leg was crushed.11 They admitted that the jeepney slid backwards because the
jeepney lost power.12 The conductor then instructed everyone not to panic but Colipano tried to disembark and
her foot got caught in between the step board and the coconut tree. 13 Sanico claimed that he paid for all the
hospital and medical expenses of Colipano,14 and that Colipano eventually freely and voluntarily executed an
Affidavit of Desistance and Release of Claim.15

After trial, the RTC found that Sanico and Castro breached the contract of carriage between them and
Colipano but only awarded actual and compensatory damages in favor of Colipano. The dispositive portion of
the RTC Decision states:
WHEREFORE, premises considered, this Court finds the defendants LIABLE for breach of contract of carriage
and are solidarily liable to pay plaintiff:

1. Actual damages in the amount of P2,098.80; and

2. Compensatory damages for loss of income in the amount of P360,000.00.

No costs.

SO ORDERED.16
Only Sanico and Castro appealed to the CA, which affirmed with modification the RTC Decision. The
dispositive portion of the CA Decision states:
IN LIGHT OF ALL THE FOREGOING, the instant appeal is PARTIALLY GRANTED. The Decision dated
October 27, 2006 of the Regional Trial Court, Branch 25, Danao City, in Civil Case No. DNA-418, is
AFFIRMED with MODIFICATION in that the award for compensatory damages for loss of income in paragraph
2 of the dispositive portion of the RTC's decision, is reduced to P200,000.00.
SO ORDERED.17
Without moving for the reconsideration of the CA Decision, Sanico and Castro filed this petition before the
Court assailing the CA Decision.
Issues

a. Whether the CA erred in finding that Sanico and Castro breached the contract of carriage with
Colipano;

b. Whether the Affidavit of Desistance and Release of Claim is binding on Colipano; and

c. Whether the CA erred in the amount of damages awarded.

The Court's Ruling

The Court partly grants the petition.

Only Sanico breached the contract of carriage.

Here, it is beyond dispute that Colipano was injured while she was a passenger in the jeepney owned and
operated by Sanico that was being driven by Castro. Both the CA and RTC found Sanico and Castro jointly
and severally liable. This, however, is erroneous because only Sanico was the party to the contract of carriage
with Colipano.

Since the cause of action is based on a breach of a contract of carriage, the liability of Sanico is direct as the
contract is between him and Colipano. Castro, being merely the driver of Sanico's jeepney, cannot be made
liable as he is not a party to the contract of carriage.

In Soberano v. Manila Railroad Co.,18 the Court ruled that a complaint for breach of a contract of carriage is
dismissible as against the employee who was driving the bus because the parties to the contract of carriage
are only the passenger, the bus owner, and the operator, viz.:
The complaint against Caccam was therefore properly dismissed. He was not a party to the contract; he was a
mere employee of the BAL. The parties to that contract are Juana Soberano, the passenger, and the MRR and
its subsidiary, the BAL, the bus owner and operator, respectively; and consequent to the inability of the
defendant companies to carry Juana Soberano and her baggage arid personal effects securely and safely to
her destination as imposed by law (art. 1733, in relation to arts. 1736 and 1755, N.C.C.), their liability to her
becomes direct and immediate.19
Since Castro was not a party to the contract of carriage, Colipano had no cause of action against him and the
pomplaint against him should be dismissed. Although he was driving the jeepney, he was a mere employee of
Sanico, who was the operator and owner of the jeepney. The obligation to carry Colipano safely to her
destination was with Sanico. In fact, the elements of a contract of carriage existeid between Colipano and
Sanico: consent, as shown when Castro, as employee of Sanico, accepted Colipano as a passenger when he
allowed Colipano to board the jeepney, and as to Colipano, when she boarded the jeepney; cause or
consideration, when Colipano, for her part, paid her fare; and, object, the transportation of Colipano from the
place of departure to the place of destination.20

Having established that the contract of carriage was only between Sanico and Colipano and that therefore
Colipano had no cause of action against Castro, the Court next determines whether Sanico breached his
obligations to Colipano under the contract.

Sanico is liable as operator and owner of a common carrier.

Specific to a contract of carriage, ithe Civil Code requires common carriers to observe extraordinary diligence
in safely transporting their passengers. Article 1733 of the Civil Code states:
ART. 1733. Common carriers, fijpm the nature of their business and for reasons of public policy, are bbund 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, while the extraordinary diligence for the safety of the passengers is further set forth in
Articles 1755 and 1756.
This extraordinary diligence, following Article 1755 of the Civil Code, means that common carriers have the
obligation to carry 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 case of death of or injury to their passengers, Article 1756 of the Civil Code provides that common carriers
are presumed to have been at fault or negligent, and this presumption can be overcome only by proof of the
extraordinary diligence exercised to ensure the safety of the passengers.21

Being an operator and owner of a common carrier, Sanico was required to observe extraordinary diligence in
safely transporting Colipano. When Colipano's leg was injured while she was a passenger in Sanico's jeepney,
the presumption of fault or negligence on Sanico's part arose and he had the burden to prove that he exercised
the extraordinary diligence required of him. He failed to do this.

In Calalas v. Court of Appeals,22 the Court found that allowing the respondent in that case to be seated in an
extension seat, which was a wooden stool at the rear of the jeepney, "placed [the respondent] in a peril greater
than that to which the other passengers were exposed."23 The Court further ruled that the petitioner
in Calalas was not only "unable to overcome the presumption of negligence imposed on him for the injury
sustained by [the respondent], but also, the evidence shows he was actually negligent in transporting
passengers."24

Calalas squarely applies here. Sanico failed to rebut the presumption of fault or negligence under the Civil
Code. More than this, the evidence indubitably established Sanico's negligence when Castro made Colipano
sit on an empty beer case at the edge of the rear entrance/exit of the jeepney with her sleeping child on her
lap, which put her and her child in greater peril than the other passengers. As the CA correctly held:
For the driver, Vicente Castro, to allow a seat extension made of an empty case of beer clearly indicates lack
of prudence. Permitting Werherlina to occupy an improvised seat in the rear portion of the jeepney, with a child
on her lap to boot, exposed her and her child in a peril greater than that to which the other passengers were
exposed. The use of an improvised seat extension is undeniable, in view of the testimony of plaintiffs witness,
which is consistent with Werherlina's testimonial assertion. Werherlina and her witness's testimony were
accorded belief by the RTC. Factual findings of the trial court are entitled to great weight on appeal and should
not be disturbed except for strong and valid reasons, because the trial court ip in a better position to examine
the demeanor of the witnesses while testifying.25
The CA also correctly held that the!defense of engine failure, instead of exonerating Sanico, only aggravated
his already precarious position.26 The engine failure "hinted lack of regular check and maintenance to ensure
that the engine is at its best, considering that the jeepney regularly passes through a mountainous
area."27 This failure to ensure that the jeepney can safely transport passengers through its route which required
navigation through a mountainous area is proof of fault on Sanico's part. In the face of such evidence, there is
no question as to Sanico's fault or negligence.

Further, common carriers may also be liable for damages when they contravene the tenor of their obligations.
Article 1170 of the Civil Code states:
ART. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages.
In Magat v. Medialdea,28 the Court ruled: "The phrase 'in any manner contravene the tenor' of the obligation
includes any illicit act or omission which impairs the strict and faithful fulfillment of the obligation and every kind
of defective performance."29 There is no question here that making Colipano sit on the empty beer case was a
clear showing of how Sanico contravened the tenor of his obligation to safely transport Colipano from the place
of departure to the place of destination 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.

Sanico's attempt to evade liability by arguing that he exercised extraordinary diligence when he hired; Castro,
who was allegedly an experienced and time-tested driver, whom he had even accompanied on a test-drive and
in whom he was personally convinced of the driving skills,30 are not enough to exonerate him from liability -
because the liability of common carriers does not cease upon p!roof that they exercised all the diligence of a
good father of a family irii the selection. and supervision of their employees. This is the express mandate of
Article 1759 of the Civil Code:
ART. 1759. 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.

This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good
father of a family in the selection and supervision of their employees.
The only defenses available to common carriers are (1) proof that they observed extraordinary diligence as
prescribed in Article 1756,31 and (2) following Article 1174 of the Civil Code, proof that the injury or death was
brought about by an event which "could not be foreseen, or which, though foreseen, were inevitable," or a
fortuitous event.

The Court finds that neither of these defenses obtain. Thus, Sanico is liable for damages to Colipano because
of the injury that Colipano suffered as a passenger of Sanico's jeepney.

The Affidavit of Desistance and Release of Claim is void.

Sanico cannot be exonerated from liability under the Affidavit of Desistance and Release of Claim 32and his
payment of the hospital and medical bills of Colipano amounting to P44,900.00. 33

The RTC ruled that "the Affidavit of Desistance and Release of Claim is not binding on plaintiff [Colipano] in the
absence of proof that the contents thereof were sufficiently translated and explained to her."34 The CA affirmed
the findings of the RTC and ruled that the document was not binding on Colipano, as follows:
Finally, We sustain the RTC's finding that the affidavit of desistance and release of claim, offered by
defendants-appellants, are not binding on Werherlina, quoting with approval its reflection on the matter, saying:
xxx this Court finds that the Affidavit of Desistance and Release of Claim is not binding on plaintiff in the
absence of proof that the contents thereof were sufficiently explained to her. It is clear from the plaintiffs
circumstances that she is not able to understand English, more so stipulations stated in the said Affidavit and
Release. It is understandable that in her pressing need, the plaintiff may have been easily convinced to sign
the document with the promise that she will be compensated for her injuries.35
The Court finds no reason to depart from these findings of the CA and the RTC.

For there to be a valid waiver, the following requisites are essential:

(1) that the person making the waiver possesses the right, (2) that he has the capacity and power to dispose of
the right, (3) that the waiver must be clear and unequivocal although it may be made expressly or impliedly,
and (4) that the waiver is not contrary to law, public policy, public order, morals, good customs or prejudicial to
a third person with a right recognized by law.36
While the first two requirements can be said to exist in this case, the third and fourth requirements are,
however, lacking.

For the waiver to be clear and unequivocal, the person waiving the right should understand what she is waiving
and the effect of such waiver. Both the CA and RTC made the factual deitermination that Colipano was not
able to understand English and that there was no proof that the documents and their contents and effects were
explained to her. These findings of the RTC, affirmed by the CA, are entitled to great weight and respect. 37 As
this Court held in Philippine National Railways Corp. v. Vizcara 38:
It is a well-established rule that factual fill dings by the CA are conclusive on the parties and are not reviewable
byj this Court. They are entitled to great weight and respect, even finality, especially when, as in this case, the
CA affirmed the factual findings arrived at by the trial court.39
Although there are exceptions to this rule,40 the exceptions are absent here.

Colipano could not have clearly and unequivocally waived her right to claim damages when she had no
understanding of the right she was waiving and the extent of that right. Worse, she was made to sign a
document written in a language she did not understand.

The fourth requirement for a valid waiver is also lacking as the waiver, based on the attendant facts, can only
be construed as contrary to public policy. The doctrine in Gatchalian v. Delim,41 which the CA correctly
cited,42 is applicable here:
Finally, because what is involved here is the liability of a common carrier for injuries sustained by passengers
in respect of whose safety a common carrier must exercise extraordinary diligence, we must construe any such
purported waiver most strictly against the common carrier. For a waiver to be valid and effective, it must not be
contrary to law, morals, public policy or good customs. To uphold a supposed waiver of any right to claim
damages by an injured passenger, under circumstances like those exhibited in this case, would be to dilute
and weaken the standard of extraordinary diligence exacted by the law from common carriers and hence to
render that standard unenforceable. We believe such a purported waiver is offensive to public policy. 43
"[P]ublic policy refers to the aims of the state to promote the social and general well-being of the
inhabitants."44 The Civil Code requires extraordinary diligence from common carriers because the nature of
their business requires the public to put their safety and lives in the hands of these common carriers. The State
imposes this extraordinary diligence to promote the well-being of the public who avail themselves of the
services of common carriers. Thus, in instances of injury or death, a waiver of the right to claim damages is
strictly construed against the common carrier so as not to dilute or weaken the public policy behind the
required standard of extraordinary diligence.

It was for this reason that in Gatchalian, the waiver was considered offensive to public policy because it was
shown that the passenger was still in the hospital and was dizzy when she signed the document. It was also
shown that when she saw the other passengers signing the document, she signed it without reading it. .

Similar to Gatchalian, Colipano testified that she did not understand the document she signed. 45 She also did
not understand the nature and extent of her waiver as the content of the document was not explained to
her.46 The waiver is therefore void because it is contrary to public policy.47

The Court reiterates that waivers executed under similar circumstances are indeed contrary to public policy
and are void.48 To uphold waivers taken from injured passengers who have no knowledge of their entitlement
under the law and the extent of liability of common carriers would indeed dilute the extraordinary diligence
required from common carriers, and contravene a public policy reflected in the Civil Code.

Amount of compensatory damages granted is incorrect.

On the amount of damages, the RiTC awarded P2,098.80 as actual damages and P360,000.00 as
compensatoiy damages for loss of income, as follows:
[T]his Court can only award actual damages in the amount that is duly supported by receipts, that is, P2,098.80
mid not P7,277.80 as prayed for by plaintiff as there is no basis for the amount prayed for. However,
considering that plaintiff has suffered the loss of one leg which has caused her to be limited in her movement
thus resulting in loss of livelihood, she is entitled to compensatory damages for lost income at the rate of
P12,000.00/year for thirty years in the amount of P360,000.00. 49
The CA, on the other hand, modified the award of the RTC by reducing the compensatory damages from
P360,000.00 to P200,000.00, thus:
By virtue of their negligence, defendants-appellants are liable to pay Werheiiina compensatory damages for
loss of earning capacity. In arriving at the proper amount, the Supremip Court has consistently used the
following formula:
Net Earning Capacity
=
Life Expectancy x [Gross Annual Income - Living Expenses (50% of gross annual income)]

where life expectancy

=
2/3 (80 - the age of the deceased).
Based on the stated formula, the damages due to Werherlina for loss of earning capacity is:
Net Earning Capacity
 =
[2/3 x (80-30)] x (P12,000.00 x (50%)

=
(2/3 x 50) x P6,000.00

=
33.33 x P6,000.00

=
P200,000.00
The award of the sum of P200,000.00 as compensatory damages for loss of earning capacity is in order,
notwithstanding the objections of defendants-appellants with respect to lack of evidence on Werherlina's age
and annual income.50
Sanico argues that Colipano failed to present documentary evidence to support her age and her income, so
that her testimony is self-serving and that there was no basis for the award of compensatory damages in her
favor.51 Sanico is gravely mistaken.

The Court has held in Heirs of Pedro Clemeña y Zurbano v. Heirs of Irene B. Bien52 that testimonial evidence
cannot be objected to on the ground of being self-serving, thus:
"Self-serving evidence" is not to be taken literally to mean any evidence that serves its proponent's interest.
The term, if used with any legal sense, refers only to acts or declarations made by a party in his own interest at
some place and time out of court, and it does not include testimony that he gives as a witness in court.
Evidence of this sort is excluded on the same ground as any hearsay evidence, that is, lack of opportunity for
cross-examination by the adverse party and on the consideration that its admission would open the door to
fraud and fabrication. In contrast, a party's testimony in court is sworn and subject to cross-examination by the
other party, and therefore, not susceptible to an objection on the ground that it is self-serving.53
Colipano was subjected to cross-examination and both the RTC and CA believed her testimony on her age
and annual income. In fact, as these are questions of facts, these findings of the RTC and CA are likewise
binding on the Court.54

Further, although as a general rule, documentary evidence is required to prove loss of earning capacity,
Colipano's testimony on her annual earnings of P12,000.00 is an allowed exception. There are two exceptions
to the general rule and Colipano's testimonial evidence falls under the second exception, viz.:
By way of exception, damages for loss of earning capacity may be awarded despite the absence of
documentary evidence when (1) the deceased is self-employed earning less than the minimum wage under
current labor laws, and judicial notice may be taken of the fact that in the deceased's line of work no
documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than
the minimum wage under current labor laws.55
The CA applied the correct formula for computing the loss of Colipano's earning capacity:
Net earning capacity = Life expectancy x [Gross Annual Income - Living Expenses (50% of gross annual
income)], where life expectancy = 2/3 (80-the age of the deceased).56
However, the CA erred when it used Colipano's age at the time she testified as basis for computing the loss of
earning capacity.57 The loss of earning capacity commenced when Colipano's leg was crushed on December
25, 1993. Given that Colipano was 30 years old when she testified on October 14, 1997, she was roughly 27
years old on December 25, 1993 when the injury was sustained. Following the foregoing formula, the net
earning capacity of Colipano is P212,000.00.58

Sanico is liable to pay interest.

Interest is a form of actual or compensatory damages as it belongs to Chapter 2 59 of Title XVIII on Damages of
the Civil Code. Under Article 2210 of the Civil Code, "[i]nterest may, in the discretion of the court, be allowed
upon damages awarded for breach of contract." Here, given the gravity of the breach of the contract of
carriage causing the serious injury to the leg of Colipano that resulted in its amputation, the Court deems it just
and equitable to award interest from the date of the RTC decision. Since the award of damages was given by
the RTC in its Decision dated October 27, 2006, the interest on the amount awarded shall be deemed to run
beginning October 27, 2006.

As to the rate of interest, in Eastern Shipping Lines, Inc. v. Court of Appeals,60 the Court ruled that "[w]hen 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."61 Further, upon finality of
the judgment awarding a sum of money, the rate of interest shall be 12% per annum from such finality until
satisfaction because the interim period is considered a forbearance of credit. 62 Subsequently, in Nacar v.
Gallery Frames,63 the rate of legal interest for loans or forbearance of any money, goods or credits and the rate
allowed in judgments was lowered from 12% to 6%. Thus, the applicable rate of interest to the award of
damages to Colipano is 6%.

WHEREFORE, premises considered, the petition for review is hereby PARTLY GRANTED. As to petitioner
Vicente Castro, the Decision of the Court of Appeals dated September 30, 2013 is REVERSED and SET
ASIDE and the complaint against him is dismissed for lack of cause of action. As to petitioner Jose Sanico, the
Decision of the Court of Appeals is hereby AFFIRMED with MODIFICATIONS, Petitioner Jose Sanico is liable
and ordered to pay respondent Werherlina Colipano the following amounts:Actual damages in the amount of
P2,098.80;

Compensatory damages for loss of income in the amount of P212,000.00;

Interest on the total amount of the damages awarded in 1 and 2 at the rate of 6% per annum reckoned from
October 27, 2006 until finality of this Decision. The total amount of the foregoing shall, in turn, earn interest at
the rate of 6% per annum from finality of this Decision until full payment thereof.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 162267 July 4, 2008

PCI LEASING AND FINANCE, INC., petitioner,

vs.
UCPB GENERAL INSURANCE CO., INC., respondent.

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 Decision1 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
Resolution2 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-delicts under the Civil Code.

The principle of holding the registered owner of a vehicle liable for quasi-delicts resulting from its use is well-
established in jurisprudence. Erezo v. Jepte,12 with Justice Labrador as ponente, wisely explained the reason
behind this principle, thus:
Registration is required not to make said registration 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.1avvphi1
Petitioner's argument that the enactment of R.A. No. 8556, especially its addition of the new Sec. 12 to the old
law, is deemed to have absolved petitioner from liability, fails to convince the Court.

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.
 SECOND DIVISION

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 1 of the Court of Appeals which affirmed in toto
the decision2 of 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 Master’s
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 Manila from Frankfurt, Germany on January 28, 1991. From Manila, she would proceed to Malaysia on
the next day.4 It was necessary for the 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 respondent’s persistence, she was told that she can
actually fly to Hong Kong going 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. 7 Her pleas for the
respondent to make 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 petitioner’s counter which
says: "Immediate Attention To Passengers with Immediate Booking." There were four or five passengers in
line. The respondent approached petitioner’s male employee at the counter to make arrangements for
immediate booking only to be told: "Can’t you see I am doing something." She explained her predicament but
the male employee uncaringly retorted: "It’s 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 Malaysia bringing with her respondent’s 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 respondent’s performance before the Royal Family of Malaysia was below par.
Because of the rude and unkind treatment she received from the petitioner’s 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
plaintiff’s 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 attorney’s 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:

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 EXERCISE EXTRAORDINARY 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 PETITIONER’S

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 petitioner’s control. Inclement
weather prevented the petitioner’s 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. 16 The delay was even compounded when the
plane could not travel the 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 petitioner’s 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 ₱1,000,000; exemplary
damages of ₱500,000; and attorney’s fees also in the amount of ₱500,000.18

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. 20 In an action for 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 petitioner’s
control is unavailing. In PAL vs. CA,22 we held that:

.... Undisputably, PAL’s diversion of its flight due to inclement weather was a fortuitous event. Nonetheless,
such occurrence did not terminate PAL’s 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 carrier’s 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 defendant’s 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 petitioner’s 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 petitioner’s 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 petitioner’s 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 defendant’s pilot. However, knowing fully well that even before
the plaintiff boarded defendant’s 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 airline’s 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 petitioner’s 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, "Don’t 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.25 For petitioner’s failure to bring the respondent to her 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.1âwphi1 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.26 Bad faith was imputed by the trial court when it found that
the petitioner’s 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 company’s 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 petitioner’s personnel to respondent’s 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, petitioner’s 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.
 FIRST DIVISION

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 Japan’s 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 attorney’s fees; and

 5. costs of suit.

SO ORDERED.8

The trial court dismissed JAL’s counterclaim for litigation expenses, exemplary damages and attorney’s 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 carrier’s 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. Villavicencio’s 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 agent’s 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 couldn’t 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.1awphi1.nét 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 Michael’s 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.1awphi1.nét

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. Attorney’s 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 JAL’s counterclaim for litigation expenses,
exemplary damages and attorney’s fees. The action was filed by respondents in utmost good faith and not
manifestly frivolous. Respondents honestly believed that JAL breached its contract. A person’s 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, attorney’s 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
attorney’s 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 petitioner’s counterclaim for litigation expenses,
exemplary damages and attorney’s fees, is SUSTAINED. No pronouncement as to costs.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

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 Carriers 1 are new and were taken from Anglo-American
Law.2 There, 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 carriage 7 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.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

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

COMPAÑIA MARITIMA, petitioner,

vs.
COURT OF APPEALS and VICENTE CONCEPCION, respondents.

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. 3 The 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. 4 Consolidated Construction likewise notified 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:

x x x x (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. 10 Otherwise 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."11 Under 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 12 as an addendum to the original enumeration of equipment to be shipped was entered into the bill
of lading by petitioner, thru Pacifico Fernandez, a company collector, without seeing the equipment to be
shipped.13 Mr. Mariano Gupana, assistant traffic manager of petitioner, confirmed in his testimony that the
company never checked the information entered in the bill of lading. 14 Worse, the weight of the payloader as
entered in the 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. 16 Besides, common carriers can 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. 18 While it was his duty to determine the 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. 19 Acknowledging that 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. 21 Even if petitioner chose not to take the necessary precaution to avoid
damage 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. 22 Since
private respondent did not appeal from the 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.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 157009 March 17, 2010

SULPICIO LINES, INC., Petitioner,

vs.
DOMINGO E. CURSO, LUCIA E. CURSO, MELECIO E. CURSO, SEGUNDO E. CURSO, VIRGILIO E.
CURSO, DIOSDADA E. CURSO, and CECILIA E. CURSO, Respondents.

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 Doña Marilyn, an inter-island vessel
owned and operated by petitioner Sulpicio Lines, Inc., bound for Tacloban City. Unfortunately, the MV Doña
Marilyn 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
₱3,940.00, 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. Curso’s surviving heirs and successors in interest entitled to recover moral and
other damages.1 They prayed for judgment, as follows: (a) compensatory damages of ₱1,924,809.00; (b)
moral damages of ₱100,000.00; (c) exemplary or corrective damages in the amount deemed proper and just;
(d) expenses of litigation of at least ₱50,000.00; (e) attorney’s fees of ₱50,000.00; 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 Doña 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 Doña 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 Doña 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 Doña 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 appellee’s 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. Doña 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. Doña Marilyn. If the officers and
crew of the Doña 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
ship’s 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 appellee’s 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. Doña 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. Doña 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 ₱100,000.00 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-appellee Sulpicio Lines, Inc, to have been negligent in transporting the deceased Cenon E. Curso
who was on board the ill-fated M.V. Doña 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 ₱50,000.00;

 (2) Loss of Earning Capacity in the amount of ₱504,241.20;

(3) Moral Damages in the amount of ₱100,000.00.

(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. Ybañez,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.
Ybañez,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 100314 of the Civil Code they succeeded to the entire estate of the late Dr. Curso in the absence of the
latter’s 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 question15 following the ejusdem generis rule. Hence, Article 1003 of the
Civil Code is 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 ₱100,000.00 is
deleted and set aside.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 171092 March 15, 2010

EDNA DIAGO LHUILLIER, Petitioner,

vs.
BRITISH AIRWAYS, Respondent.

DECISION

DEL CASTILLO, J.:

Jurisdictio est potestas de publico introducta cum necessitate juris dicendi. Jurisdiction is a power introduced
for the public good, on account of the necessity of dispensing justice.1

Factual Antecedents

On April 28, 2005, petitioner Edna Diago Lhuillier filed a Complaint 2 for damages against respondent British
Airways before the Regional Trial Court (RTC) of Makati City. She alleged that on February 28, 2005, she took
respondent’s flight 548 from London, United Kingdom to Rome, Italy. Once on board, she allegedly requested
Julian Halliday (Halliday), one of the respondent’s flight attendants, to assist her in placing her hand-carried
luggage in the overhead bin. However, Halliday allegedly refused to help and assist her, and even sarcastically
remarked that "If I were to help all 300 passengers in this flight, I would have a broken back!"

Petitioner further alleged that when the plane was about to land in Rome, Italy, another flight attendant,
Nickolas Kerrigan (Kerrigan), singled her out from among all the passengers in the business class section to
lecture on plane safety. Allegedly, Kerrigan made her appear to the other passengers to be ignorant,
uneducated, stupid, and in need of lecturing on the safety rules and regulations of the plane. Affronted,
petitioner assured Kerrigan that she knew the plane’s safety regulations being a frequent traveler. Thereupon,
Kerrigan allegedly thrust his face a mere few centimeters away from that of the petitioner and menacingly told
her that "We don’t like your attitude."

Upon arrival in Rome, petitioner complained to respondent’s ground manager and demanded an apology.
However, the latter declared that the flight stewards were "only doing their job."

Thus, petitioner filed the complaint for damages, praying that respondent be ordered to pay ₱5 million as moral
damages, ₱2 million as nominal damages, ₱1 million as exemplary damages, ₱300,000.00 as attorney’s fees,
₱200,000.00 as litigation expenses, and cost of the suit.

On May 16, 2005, summons, together with a copy of the complaint, was served on the respondent through
Violeta Echevarria, General Manager of Euro-Philippine Airline Services, Inc.3

On May 30, 2005, respondent, by way of special appearance through counsel, filed a Motion to Dismiss 4 on
grounds of lack of jurisdiction over the case and over the person of the respondent. Respondent alleged that
only the courts of London, United Kingdom or Rome, Italy, have jurisdiction over the complaint for damages
pursuant to the Warsaw Convention,5 Article 28(1) of which provides:

An action for damages must be brought at the option of the plaintiff, either before the court of domicile of the
carrier or his principal place of business, or where he has a place of business through which the contract has
been made, or before the court of the place of destination.
Thus, since a) respondent is domiciled in London; b) respondent’s principal place of business is in London; c)
petitioner bought her ticket in Italy (through Jeepney Travel S.A.S, in Rome);6 and d) Rome, Italy is petitioner’s
place of destination, then it follows that the complaint should only be filed in the proper courts of London,
United Kingdom or Rome, Italy.

Likewise, it was alleged that the case must be dismissed for lack of jurisdiction over the person of the
respondent because the summons was erroneously served on Euro-Philippine Airline Services, Inc. which is
not its resident agent in the Philippines.

On June 3, 2005, the trial court issued an Order requiring herein petitioner to file her Comment/Opposition on
the Motion to Dismiss within 10 days from notice thereof, and for respondent to file a Reply thereon.7 Instead of
filing a Comment/Opposition, petitioner filed on June 27, 2005, an Urgent Ex-Parte Motion to Admit Formal
Amendment to the Complaint and Issuance of Alias Summons.8 Petitioner alleged that upon verification with
the Securities and Exchange Commission, she found out that the resident agent of respondent in the
Philippines is Alonzo Q. Ancheta. Subsequently, on September 9, 2005, petitioner filed a Motion to Resolve
Pending Incident and Opposition to Motion to Dismiss. 9

Ruling of the Regional Trial Court

On October 14, 2005, the RTC of Makati City, Branch 132, issued an Order10 granting respondent’s Motion to
Dismiss. It ruled that:

The Court sympathizes with the alleged ill-treatment suffered by the plaintiff. However, our Courts have to
apply the principles of international law, and are bound by treaty stipulations entered into by the Philippines
which form part of the law of the land. One of this is the Warsaw Convention. Being a signatory thereto, the
Philippines adheres to its stipulations and is bound by its provisions including the place where actions involving
damages to plaintiff is to be instituted, as provided for under Article 28(1) thereof. The Court finds no justifiable
reason to deviate from the indicated limitations as it will only run counter to the provisions of the Warsaw
Convention. Said adherence is in consonance with the comity of nations and deviation from it can only be
effected through proper denunciation as enunciated in the Santos case (ibid). Since the Philippines is not the
place of domicile of the defendant nor is it the principal place of business, our courts are thus divested of
jurisdiction over cases for damages. Neither was plaintiff’s ticket issued in this country nor was her destination
Manila but Rome in Italy. It bears stressing however, that referral to the court of proper jurisdiction does not
constitute constructive denial of plaintiff’s right to have access to our courts since the Warsaw Convention itself
provided for jurisdiction over cases arising from international transportation. Said treaty stipulations must be
complied with in good faith following the time honored principle of pacta sunt servanda.

The resolution of the propriety of service of summons is rendered moot by the Court’s want of jurisdiction over
the instant case.

WHEREFORE, premises considered, the present Motion to Dismiss is hereby GRANTED and this case is
hereby ordered DISMISSED.

Petitioner filed a Motion for Reconsideration but the motion was denied in an Order 11 dated January 4, 2006.

Petitioner now comes directly before us on a Petition for Review on Certiorari on pure questions of law, raising
the following issues:

Issues

I. WHETHER X X X PHILIPPINE COURTs HAVE JURISDICTION OVER A TORTIOUS CONDUCT

COMMITTED AGAINST A FILIPINO CITIZEN AND RESIDENT BY AIRLINE PERSONNEL OF A FOREIGN
CARRIER TRAVELLING BEYOND THE TERRITORIAL LIMIT OF ANY FOREIGN COUNTRY; AND THUS IS
OUTSIDE THE AMBIT OF THE WARSAW CONVENTION.
II. WHETHER x x x RESPONDENT AIR CARRIER OF PASSENGERS, IN FILING ITS MOTION TO DISMISS
BASED ON LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE CASE AND OVER ITS
PERSON MAY BE DEEMED AS HAVING IN FACT AND IN LAW SUBMITTED ITSELF TO THE
JURISDICTION OF THE LOWER COURT, ESPECIALLY SO, WHEN THE VERY LAWYER ARGUING FOR IT
IS HIMSELF THE RESIDENT AGENT OF THE CARRIER.

Petitioner’s Arguments

Petitioner argues that her cause of action arose not from the contract of carriage, but from the tortious conduct
committed by airline personnel of respondent in violation of the provisions of the Civil Code on Human
Relations. Since her cause of action was not predicated on the contract of carriage, petitioner asserts that she
has the option to pursue this case in this jurisdiction pursuant to Philippine laws.

Respondent’s Arguments

In contrast, respondent maintains that petitioner’s claim for damages fell within the ambit of Article 28(1) of the
Warsaw Convention. As such, the same can only be filed before the courts of London, United Kingdom or
Rome, Italy.

Our Ruling

The petition is without merit.

The Warsaw Convention has the force and effect of law in this country.

It is settled that the Warsaw Convention has the force and effect of law in this country. In Santos III v.
Northwest Orient Airlines,12 we held that:

The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules Relating to
International Transportation by Air, otherwise known as the Warsaw Convention. It took effect on February 13,
1933. The Convention was concurred in by the Senate, through its Resolution No. 19, on May 16, 1950. The
Philippine instrument of accession was signed by President Elpidio Quirino on October 13, 1950, and was
deposited with the Polish government on November 9, 1950. The Convention became applicable to the
Philippines on February 9, 1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation
No. 201, declaring our 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."

The Convention is thus a treaty commitment voluntarily assumed by the Philippine government and, as such,
has the force and effect of law in this country.13

The Warsaw Convention applies because the air travel, where the alleged tortious conduct occurred, was
between the United Kingdom and Italy, which are both signatories to the Warsaw Convention.

Article 1 of the Warsaw Convention provides:

1. This Convention applies to all international carriage of persons, luggage or goods performed by
aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport
undertaking.

2. For the purposes of this Convention the expression "international carriage" means any carriage in
which, 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 carriage or a transhipment, are situated either within
the territories of two High Contracting Parties, or within the territory of a single High Contracting Party, if
there is an agreed stopping place within a territory subject to the sovereignty, suzerainty, mandate or
authority of another Power, even though that Power is not a party to this Convention. A carriage without
 such an agreed stopping place between territories subject to the sovereignty, suzerainty, mandate or
authority of the same High Contracting Party is not deemed to be international for the purposes of this
Convention. (Emphasis supplied)

Thus, when the place of departure and the place of destination in a contract of carriage are situated within the
territories of two High Contracting Parties, said carriage is deemed an "international carriage". The High
Contracting Parties referred to herein were the signatories to the Warsaw Convention and those which
subsequently adhered to it.14

In the case at bench, petitioner’s place of departure was London, United Kingdom while her place of
destination was Rome, Italy.15 Both the United Kingdom16 and Italy17 signed and ratified the Warsaw
Convention. As such, the transport of the petitioner is deemed to be an "international carriage" within the
contemplation of the Warsaw Convention.

Since the Warsaw Convention applies in the instant case, then the jurisdiction over the subject matter of the
action is governed by the provisions of the Warsaw Convention.

Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages before –

1. the court where the carrier is domiciled;

2. the court where the carrier has its principal place of business;

3. the court where the carrier has an establishment by which the contract has been made; or

4. the court of the place of destination.

In this case, it is not disputed that respondent is a British corporation domiciled in London, United Kingdom
with London as its principal place of business. Hence, under the first and second jurisdictional rules, the
petitioner may bring her case before the courts of London in the United Kingdom. In the passenger ticket and
baggage check presented by both the petitioner and respondent, it appears that the ticket was issued in Rome,
Italy. Consequently, under the third jurisdictional rule, the petitioner has the option to bring her case before the
courts of Rome in Italy. Finally, both the petitioner and respondent aver that the place of destination is Rome,
Italy, which is properly designated given the routing presented in the said passenger ticket and baggage check.
Accordingly, petitioner may bring her action before the courts of Rome, Italy. We thus find that the RTC of
Makati correctly ruled that it does not have jurisdiction over the case filed by the petitioner.

Santos III v. Northwest Orient Airlines18 applies in this case.

Petitioner contends that Santos III v. Northwest Orient Airlines19 cited by the trial court is inapplicable to the
present controversy since the facts thereof are not similar with the instant case.

We are not persuaded.

In Santos III v. Northwest Orient Airlines,20 Augusto Santos III, a resident of the Philippines, purchased a ticket
from Northwest Orient Airlines in San Francisco, for transport between San Francisco and Manila via Tokyo
and back to San Francisco. He was wait-listed in the Tokyo to Manila segment of his ticket, despite his prior
reservation. Contending that Northwest Orient Airlines acted in bad faith and discriminated against him when it
canceled his confirmed reservation and gave his seat to someone who had no better right to it, Augusto Santos
III sued the carrier for damages before the RTC. Northwest Orient Airlines moved to dismiss the complaint on
ground of lack of jurisdiction citing Article 28(1) of the Warsaw Convention. The trial court granted the motion
which ruling was affirmed by the Court of Appeals. When the case was brought before us, we denied the
petition holding that under Article 28(1) of the Warsaw Convention, Augusto Santos III must prosecute his
claim in the United States, that place being the (1) domicile of the Northwest Orient Airlines; (2) principal office
of the carrier; (3) place where contract had been made (San Francisco); and (4) place of destination (San
Francisco).21

We further held that Article 28(1) of the Warsaw Convention is jurisdictional in character. Thus:

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.

xxxx

In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on a dual concept.
Jurisdiction in the international sense must be established in accordance with Article 28(1) of the Warsaw
Convention, following which the jurisdiction of a particular court must be established pursuant to the applicable
domestic law. Only after the question of which court has jurisdiction is determined will the issue of venue be
taken up. This second question shall be governed by the law of the court to which the case is submitted. 22

Contrary to the contention of petitioner, Santos III v. Northwest Orient Airlines23 is analogous to the instant
case because (1) the domicile of respondent is London, United Kingdom; 24 (2) the principal office of
respondent airline is likewise in London, United Kingdom;25 (3) the ticket was purchased in Rome, Italy;26 and
(4) the place of destination is Rome, Italy.27 In addition, petitioner based her complaint on Article 2176 28 of the
Civil Code on quasi-delict and Articles 1929 and 2130 of the Civil Code on Human Relations. In Santos III v.
Northwest Orient Airlines,31 Augusto Santos III similarly posited that Article 28 (1) of the Warsaw Convention
did not apply if the action is based on tort. Hence, contrary to the contention of the petitioner, the factual setting
of Santos III v. Northwest Orient Airlines32 and the instant case are parallel on the material points.

Tortious conduct as ground for the petitioner’s complaint is within the purview of the Warsaw Convention.

Petitioner contends that in Santos III v. Northwest Orient Airlines, 33 the cause of action was based on a breach
of contract while her cause of action arose from the tortious conduct of the airline personnel and violation of the
Civil Code provisions on Human Relations.34 In addition, she claims that our pronouncement in Santos III v.
Northwest Orient Airlines35 that "the allegation of willful misconduct resulting in a tort is insufficient to exclude
the case from the comprehension of the Warsaw Convention," is more of an obiter dictum rather than the ratio
decidendi.36 She maintains that the fact that said acts occurred aboard a plane is merely incidental, if not
irrelevant.37

We disagree with the position taken by the petitioner. Black defines obiter dictum as "an opinion entirely
unnecessary for the decision of the case" and thus "are not binding as precedent." 38 In Santos III v. Northwest
Orient Airlines,39 Augusto Santos III categorically put in issue the applicability of Article 28(1) of the Warsaw
Convention if the action is based on tort.

In the said case, we held that the allegation of willful misconduct resulting in a tort is insufficient to exclude the
case from the realm of the Warsaw Convention. In fact, our ruling that a cause of action based on tort did not
bring the case outside the sphere of the Warsaw Convention was our ratio decidendi in disposing of the
specific issue presented by Augusto Santos III. Clearly, the contention of the herein petitioner that the said
ruling is an obiter dictum is without basis.

Relevant to this particular issue is the case of Carey v. United Airlines, 40 where the passenger filed an action
against the airline arising from an incident involving the former and the airline’s flight attendant during an
international flight resulting to a heated exchange which included insults and profanity. The United States Court
of Appeals (9th Circuit) held that the "passenger's action against the airline carrier arising from alleged
confrontational incident between passenger and flight attendant on international flight was governed
exclusively by the Warsaw Convention, even though the incident allegedly involved intentional misconduct by
the flight attendant."41

In Bloom v. Alaska Airlines,42 the passenger brought nine causes of action against the airline in the state court,
arising from a confrontation with the flight attendant during an international flight to Mexico. The United States
Court of Appeals (9th Circuit) held that the "Warsaw Convention governs actions arising from international air
travel and provides the exclusive remedy for conduct which falls within its provisions." It further held that the
said Convention "created no exception for an injury suffered as a result of intentional conduct" 43 which in that
case involved a claim for intentional infliction of emotional distress.

It is thus settled that allegations of tortious conduct committed against an airline passenger during the course
of the international carriage do not bring the case outside the ambit of the Warsaw Convention.

Respondent, in seeking remedies from the trial court through special appearance of counsel, is not deemed to
have voluntarily submitted itself to the jurisdiction of the trial court.

Petitioner argues that respondent has effectively submitted itself to the jurisdiction of the trial court when the
latter stated in its Comment/Opposition to the Motion for Reconsideration that "Defendant [is at a loss] x x x
how the plaintiff arrived at her erroneous impression that it is/was Euro-Philippines Airlines Services, Inc. that
has been making a special appearance since x x x British Airways x x x has been clearly specifying in all the
pleadings that it has filed with this Honorable Court that it is the one making a special appearance." 44

In refuting the contention of petitioner, respondent cited La Naval Drug Corporation v. Court of
Appeals45 where we held that even if a party "challenges the jurisdiction of the court over his person, as by
reason of absence or defective service of summons, and he also invokes other grounds for the dismissal of the
action under Rule 16, he is not deemed to be in estoppel or to have waived his objection to the jurisdiction over
his person."46

This issue has been squarely passed upon in the recent case of Garcia v. Sandiganbayan, 47 where we
reiterated our ruling in La Naval Drug Corporation v. Court of Appeals 48 and elucidated thus:

Special Appearance to Question a Court’s Jurisdiction Is Not

Voluntary Appearance

The second sentence of Sec. 20, Rule 14 of the Revised Rules of Civil Procedure clearly provides:

Sec. 20. Voluntary appearance. – The defendant’s voluntary appearance in the action shall be equivalent to
service of summons. The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over
the person of the defendant shall not be deemed a voluntary appearance.

Thus, a defendant who files a motion to dismiss, assailing the jurisdiction of the court over his person, together
with other grounds raised therein, is not deemed to have appeared voluntarily before the court. What the rule
on voluntary appearance – the first sentence of the above-quoted rule – means is that the voluntary
appearance of the defendant in court is without qualification, in which case he is deemed to have waived his
defense of lack of jurisdiction over his person due to improper service of summons.

The pleadings filed by petitioner in the subject forfeiture cases, however, do not show that she voluntarily
appeared without qualification. Petitioner filed the following pleadings in Forfeiture I: (a) motion to dismiss; (b)
motion for reconsideration and/or to admit answer; (c) second motion for reconsideration; (d) motion to
consolidate forfeiture case with plunder case; and (e) motion to dismiss and/or to quash Forfeiture I. And in
Forfeiture II: (a) motion to dismiss and/or to quash Forfeiture II; and (b) motion for partial reconsideration.
The foregoing pleadings, particularly the motions to dismiss, were filed by petitioner solely for special
appearance with the purpose of challenging the jurisdiction of the SB over her person and that of her three
children. Petitioner asserts therein that SB did not acquire jurisdiction over her person and of her three children
for lack of valid service of summons through improvident substituted service of summons in both Forfeiture I
and Forfeiture II. This stance the petitioner never abandoned when she filed her motions for reconsideration,
even with a prayer to admit their attached Answer Ex Abundante Ad Cautelam dated January 22, 2005 setting
forth affirmative defenses with a claim for damages. And the other subsequent pleadings, likewise, did not
abandon her stance and defense of lack of jurisdiction due to improper substituted services of summons in the
forfeiture cases. Evidently, from the foregoing Sec. 20, Rule 14 of the 1997 Revised Rules on Civil Procedure,
petitioner and her sons did not voluntarily appear before the SB constitutive of or equivalent to service of
summons.

Moreover, the leading La Naval Drug Corp. v. Court of Appeals applies to the instant case. Said case
elucidates the current view in our jurisdiction that a special appearance before the court––challenging its
jurisdiction over the person through a motion to dismiss even if the movant invokes other grounds––is not
tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his person; and such is
not constitutive of a voluntary submission to the jurisdiction of the court.1avvphi1

Thus, it cannot be said that petitioner and her three children voluntarily appeared before the SB to cure the
defective substituted services of summons. They are, therefore, not estopped from questioning the jurisdiction
of the SB over their persons nor are they deemed to have waived such defense of lack of jurisdiction.
Consequently, there being no valid substituted services of summons made, the SB did not acquire jurisdiction
over the persons of petitioner and her children. And perforce, the proceedings in the subject forfeiture cases,
insofar as petitioner and her three children are concerned, are null and void for lack of jurisdiction. (Emphasis
supplied)

In this case, the special appearance of the counsel of respondent in filing the Motion to Dismiss and other
pleadings before the trial court cannot be deemed to be voluntary submission to the jurisdiction of the said trial
court. We hence disagree with the contention of the petitioner and rule that there was no voluntary appearance
before the trial court that could constitute estoppel or a waiver of respondent’s objection to jurisdiction over its
person.

WHEREFORE, the petition is DENIED. The October 14, 2005 Order of the Regional Trial Court of Makati City,
Branch 132, dismissing the complaint for lack of jurisdiction, is AFFIRMED.

SO ORDERED.
 THIRD DIVISION

G.R. No. 213418, September 21, 2016

ALFREDO S.RAMOS, CONCHITA S. RAMOS, BENJAMIN B. RAMOS, NELSON T. RAMOS AND

ROBINSON T. RAMOS, Petitioners, v. CHINA SOUTHERN AIRLINES CO. LTD., Respondent.

DECISION

PEREZ, J.:

For resolution of the Court is this Petition for Review on Certiorari1 filed by petitioners Alfredo S. Ramos,
Conchita S. Ramos, Benjamin B. Ramos, Nelson T. Ramos and Robinson T. Ramos, seeking to reverse and
set aside the Decision2 dated 19 March 2013 and Resolution 3 dated 9 July 2014 of the Court of Appeals (CA)
in CA-G.R. CV. No. 94561. The assailed decision and resolution affirmed with modification the 23 March 2009
Decision4 of the Regional Trial Court (RTC) of Manila, Branch 36, which ordered respondent China Southern
Airlines to pay petitioners the amount of P692,000.00, representing the amount of damages and attorney's
fees. On appeal, the appellate court affirmed the award of actual damages but deleted the order for payment of
moral and exemplary damages in the amount of P600,000.00. 5chanrobleslaw

The Facts

On 7 August 2003, petitioners purchased five China Southern Airlines roundtrip plane tickets from Active
Travel Agency for $985.00.6 It is provided in their itineraries that petitioners will be leaving Manila on 8 August
2003 at 0900H and will be leaving Xiamen on 12 August 2003 at 1920H.7 Nothing eventful happened during
petitioners' flight going to Xiamen as they were able to successfully board the plane which carried them to
Xiamen International Airport. On their way back to the Manila, however, petitioners were prevented from taking
their designated flight despite the fact that earlier that day an agent from Active Tours informed them that their
bookings for China Southern Airlines 1920H flight are confirmed. 8 The refusal came after petitioners already
checked in all their baggages and were given the corresponding claim stubs and after they had paid the
terminal fees. According to the airlines' agent with whom they spoke at the airport, petitioners were merely
chance passengers but they may be allowed to join the flight if they are willing to pay an additional 500
Renminbi (RMB) per person. When petitioners refused to defray the additional cost, their baggages were
offloaded from the plane and China Southern Airlines 1920H flight then left Xiamen International Airport without
them.9 Because they have business commitments waiting for them in Manila, petitioners were constrained to
rent a car that took them to Chuan Chio Station where they boarded the train to Hongkong. 10 Upon reaching
Hong Kong, petitioners purchased new plane tickets from Philippine Airlines (PAL) that flew them back to
Manila.11chanrobleslaw

Upon arrival in Manila, petitioners went to Active Travel to inform them of their unfortunate fate with China
Southern Airlines. In their effort to avoid lawsuit, Active Travel offered to refund the price of the plane tickets
but petitioners refused to accept the offer. Petitioners then went to China Southern Airlines to demand for the
reimbursement of their airfare and travel expenses in the amount of P87,375.00. When the airline refused to
accede to their demand, petitioners initiated an action for damages before the RTC of Manila against China
Southern Airlines and Active Travel. In their Complaint docketed as Civil Case No. 04-109574, petitioners
sought for the payment of the amount of P87,375.00 as actual damages, P500,000.00 as moral damages,
P500,000.00 as exemplary damages and cost of the suit. 12chanrobleslaw

In their Answer,13 China Southern Airlines denied liability by alleging that petitioners were not confirmed
passengers of the airlines but were merely chance passengers. According to the airlines, it was specifically
provided in the issued tickets that petitioners are required to re-confirm all their bookings at least 72 hours
before their scheduled time of departures but they failed to do so which resulted in the automatic cancellation
of their bookings.

The RTC then proceeded with the reception of evidence after the pre-trial conference.
On 23 March 2009, the RTC rendered a Decision14 in favor of the petitioners and ordered Chkia Southern
Airlines to pay damages in the amount of P692,000.00, broken down as follows:

"WHEREFORE, judgment is hereby rendered ordering the defendant [China Southern Airlines] to pay
[petitioners]:

1. The sum of [P]62,000.00 as actual damages;

2. The sum of [P]300,000.00 as moral damages;

3. The sum of [P]300,000.00 as exemplary damages; and

4. The sum of [P]30,000.00 for attorney's fees.

The defendants' counterclaim against plaintiffs are [hereby] dismissed for insufficiency of evidence [enough] to
sustain the damages claimed."15

On appeal, however, the CA modified the RTC Decision by deleting the award for moral and exemplary
damages. According to the appellate court, petitioners failed to prove that China Southern Airlines' breach of
contractual obligation was attended with bad faith. 16 The disquisition of the CA reads:

"xxx. Where in breaching the contract, the defendant 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 and
which the parties had foreseen or could reasonably have foreseen; and in that case, such liability would not
include liability for moral and exemplary damages.

In this case, We are not persuaded that [China Southern Airlines] breach of contractual obligation had been
attended by bad faith or malice or gross negligence amounting to bad faith. On the contrary, it appears that
despite [petitioner's] failure to "re-confirm" their bookings, [China Southern Airlines] exerted diligent efforts to
comply with its obligation to [petitioners]. If at the outset, [China Southern Airlines] simply did not intend to
comply with its promise to transport [petitioners] back to Manila, it would not have taken the trouble of
proposing that the latter could still board the plane as "chance passengers" provided [that] they will pay the
necessary pay and penalties.

Thus, We believe and so hold that the damages recoverable by [petitioners] are limited to the peso value of the
PAL ticket they had purchased for their return flight from Xiamen, plus attorney's fees, in the amount of
[P]30,000.00, considering that [petitioners] were ultimately compelled to litigate their claim[s] against [China
Southern Airlines]."17chanroblesvirtuallawlibrary
Since China Southern, Airlines' refusal to let petitioners board the plane was not attended by bad faith, the
appellate court decided not to award petitioners moral and exemplary damages. The CA disposed in this wise:

"WHEREFORE, premises considered, the instant appeal is hereby AFFIRMED with MODIFICATION in that
the award of moral and exemplary damages are hereby DELETED."18chanroblesvirtuallawlibrary
Dissatisfied, petitioners timely interposed a Motion for Partial Reconsideration which was partially granted by
the CA in a Resolution19 dated 9 July 2014, to wit:

"ACCORDINGLY, the instant Motion is PARTIALLY GRANTED. The Decision dated 19 March 2013 rendered
by this Court in CA-G.R. CV No. 94561 is hereby MODIFIED in that [China Southern Airlines] is ORDERED to
pay [petitioners] interest of 6% per annum on the P62,000.00 as actual damages from the finality of this
Court's Decision until the same is fully satisfied." 20chanroblesvirtuallawlibrary
Unflinching, petitioners elevated the matter before the Court by filing the instant Petition for Review
on Certiorari assailing the CA Decision and Resolution on the following grounds:
 The Issues

I.

THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR WHEN IT DELETED THE
AWARDS OF MORAL AND EXEMPLARY DAMAGES, A DEPARTURE FROM ESTABLISHED DOCTRINES
THAT PASSENGERS WHO ARE BUMPED-OFF ARE ENTITLED TO MORAL AND EXEMPLARY DAMAGES;

I.

THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR WHEN IT DECLARED THAT
BUMPING OFF OF THE PETITIONERS WAS NOT ATTENDED BY BAD FAITH AND MALICE CONTRARY
TO THE FINDINGS OF THE LOWER COURT;

III.

THE COURT OF APPEALS COMMITTED GRAVE AND SERIOUS ERROR WHEN IT HELD THAT THE
LEGAL INTEREST COMMENCE ONLY FROM THE FINALITY OF THE DECISION INSTEAD OF FROM THE
DATE OF EXTRA-JUDICIAL DEMAND ON 18 AUGUST 2003.21chanroblesvirtuallawlibrary

The Court's Ruling

We resolve to grant the petition.

A contract of carriage, in this case, air transport, is intended to serve the traveling public and thus, imbued with
public interest.22 The law governing common carriers consequently imposes an exacting standard of
conduct,23viz:ChanRoblesVirtualawlibrary
"1755 of the New Civil Code. A common carrier is bound to carry 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 on a particular flight, on a certain date, a contract of
carriage arises, and the passenger has every right to expect that he would fly on that flight and on that date. If
that does not happen, then the carrier opens itself to a suit for breach of contract of carriage. 24 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.25cralawred All he has to prove is the existence of the contract and the fact of its
non-performance by the carrier, through the latter's failure to carry the passenger to its
destination.26chanrobleslaw

It is beyond question in the case at bar that petitioners had an existing contract of air carriage with China
Southern Airlines as evidenced by the airline tickets issued by Active Travel. When they showed up at the
airport and after they went through the routine security check including the checking in of their luggage and the
payment of the corresponding terminal fees, petitioners were not allowed by China Southern Airlines to board
on the plane. The airlines' claim that petitioners do not have confirmed reservations cannot be given credence
by the Court. The petitioners were issued two-way tickets with itineraries indicating the date and time of their
return flight to Manila. These are binding contracts of carriage. 27 China Southern Airlines allowed petitioners to
check in their luggage and issued the necessary claim stubs showing that they were part of the flight. It was
only after petitioners went through all the required check-in procedures that they were informed by the airlines
that they were merely chance passengers. Airlines companies do not, as a practice, accept pieces of luggage
from passengers without confirmed reservations. Quite tellingly, all the foregoing circumstances lead us to the
inevitable conclusion that petitioners indeed were bumped off from the flight. We cannot from the records of
this case deduce the true reason why the airlines refused to board petitioners back to Manila. What we can be
sure of is the unacceptability of the proffered reason that rightfully gives rise to the claim for damages.

The prologue shapes the body of the petitioners' rights, that is, that they are entitled to damages, actual, moral
and exemplary.

There is no doubt that petitioners are entitled to actual or compensatory damages. Both the RTC and the CA
uniformly held that there was a breach of contract committed by China Southern Airlines when it failed to
deliver petitioners to their intended destination, a factual finding that we do not intend to depart from in the
absence of showing that it is unsupported by evidence. As the aggrieved parties, petitioners had satisfactorily
proven the existence of the contract and the fact of its non-performance by China Southern Airlines; the
concurrence of these elements called for the imposition of actual or compensatory damages.

With respect to moral damages, the following provision of the New Civil Code is
instructive:ChanRoblesVirtualawlibrary

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should
find that, under the circumstances, such damages are justly due. The same rule applies to breaches of
contract where the defendant acted fraudulently or in bad faith.
Bad faith does not simply connote bad judgment or negligence. It imports dishonest purpose or some moral
obliquity and conscious doing of a wrong. It means breach of a known duty through some motive, interest or ill
will that partakes the nature of fraud. Bad faith is in essence a question of intention.28chanrobleslaw

In Japan Airlines v. Simangan,29 the Court took the occasion to expound on the meaning of bad faith in a
breach of contract of carriage that merits the award of moral damages:
ChanRoblesVirtualawlibrary
"Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are recoverable in suits
predicated on breach of a contract of carriage where it is proved that the carrier was guilty of fraud or bad faith,
as in this case. Inattention to and lack of care for the interests 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. 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."

Applying the foregoing yardstick in the case at bar, We find that the airline company acted in bad faith in
insolently bumping petitioners off the flight after they have completed all the pre-departure routine. Bad faith is
evident when the ground personnel of the airline company unjustly and unreasonably refused to board
petitioners to the plane which compelled them to rent a car and take the train to the nearest airport where they
bought new sets of plane tickets from another airline that could fly them home. Petitioners have every reason
to expect that they would be transported to their intended destination after they had checked in their luggage
and had gone through all the security checks. Instead, China Southern Airlines offered to allow them to join the
flight if they are willing to pay additional cost; this amount is on top of the purchase price of the plane tickets.
The requirement to pay an additional fare was insult upon injury. It is an aggravation of the breach of contract.
Undoubtedly, petitioners are entitled to the award of moral damages. 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 [that] he has undergone by reason of defendant['s] culpable action. 30chanrobleslaw

China Southern Airlines is also liable for exemplary damages as it acted in a wantonly oppressive manner as
succinctly discussed above against the petitioners. Exemplary damages which are awarded by way of example
or correction for the public good, may be recovered in contractual obligations, as in this case, if defendant
acted in wanton, fraudulent, reckless, oppressive or malevolent manner. 31chanrobleslaw

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.32 With fairness as the benchmark, We find adequate the amount of P300,000.00 each for moral
and exemplary damages imposed by the trial court.

The last issue is the reckoning point of the 6% interest on the money judgment. Following this Court's ruling
in Nacar v. Gallery Frames,33 we agree with the petitioners that the 6% rate of interest per annum shall be
reckoned from the date of their extrajudicial demand on 18 August 2003 until the date of finality of this
judgment. The total amount shall thereafter earn interest at the rate of six percent (6%) per annum from such
finality of judgment until its satisfaction.

WHEREFORE, premises considered, the petition is GRANTED. The Court hereby AWARDS petitioners the
following amounts:

(a) P62,000.00 as actual damages, with 6% interest per annum from date of extrajudicial demand on 18
August 2003 until finality of this judgment, and the total amount to thereafter earn interest at 6% per
annum from finality of judgment until full satisfaction;

(b) P300,000.00 as moral damages; and

(c) P300,000.00 as exemplary damages.

SO ORDERED.ch

FIRST DIVISION
 July 27, 2016

G.R. No. 172682

SULPICIO LINES, INC., Petitioner

vs.
NAPOLEON SESANTE, NOW SUBSTITUTED BY MARIBEL ATILANO, KRISTEN MARIE, CHRISTIAN
IONE, KENNETH KERRN AND KARISNA KATE, ALL SURNAMED SESANTE, Respondents

DECISION

BERSAMIN, J.:

Moral damages are meant to enable the injured party to obtain the means, diversions or amusements in order
to alleviate the moral suffering. Exemplary damages are designed to permit the courts to reshape behavior that
is socially deleterious in its consequence by creating negative incentives or deterrents against such behavior.

The Case

This appeal seeks to undo and reverse the adverse decision promulgated on June 27, 2005,1 whereby the
Court of Appeals (CA) affirmed with modification the judgment of the Regional Trial Court (RTC), Branch 91, in
Quezon City holding the petitioner liable to pay temperate and moral damages due to breach of contract of
carriage.2

Antecedents

On September 18, 1998, at around 12:55 p.m., the M/V Princess of the Orient, a passenger vessel owned and
operated by the petitioner, sank near Fortune Island in Batangas. Of the 388 recorded passengers, 150 were
lost.3 Napoleon Sesante, then a member of the Philippine National Police (PNP) and a lawyer, was one of the
passengers who survived the sinking. He sued the petitioner for breach of contract and damages. 4

Sesante alleged in his complaint that the M/V Princess of the Orient left the Port of Manila while Metro Manila
was experiencing stormy weather; that at around 11:00 p.m., he had noticed the vessel listing starboard, so he
had gone to the uppermost deck where he witnessed the strong winds and big waves pounding the vessel; that
at the same time, he had seen how the passengers had been panicking, crying for help and frantically
scrambling for life jackets in the absence of the vessel's officers and crew; that sensing danger, he had called
a certain Veney Ceballos through his cellphone to request him to inform the proper authorities of the situation;
that thereafter, big waves had rocked the vessel, tossing him to the floor where he was pinned by a long steel
bar; that he had freed himself only after another wave had hit the vessel; 5 that he had managed to stay afloat
after the vessel had sunk, and had been carried by the waves to the coastline of Cavite and Batangas until he
had been rescued; that he had suffered tremendous hunger, thirst, pain, fear, shock, serious anxiety and
mental anguish; that he had sustained injuries,6 and had lost money, jewelry, important documents, police
uniforms and the .45 caliber pistol issued to him by the PNP; and that because it had committed bad faith in
allowing the vessel to sail despite the storm signal, the petitioner should pay him actual and moral damages of
₱500,000.00 and ₱l,000,000.00, respectively.7

In its defense, the petitioner insisted on the seaworthiness of the M/V Princess of the Orient due to its having
been cleared to sail from the Port of Manila by the proper authorities; that the sinking had been due to force
majeure; that it had not been negligent; and that its officers and crew had also not been negligent because
they had made preparations to abandon the "'vessel because they had launched life rafts and had provided the
passengers assistance in that regard.8

Decision of the RTC

On October 12, 2001, the RTC rendered its judgment in favor of the respondent, 9 holding as follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Napoleon Sesante and against defendant
Sulpicio Lines, Inc., ordering said defendant to pay plaintiff:

1. Temperate damages in the amount of ₱400,000.00;

2. Moral damages in the amount of One Million Pesos (₱l ,000,000.00);

3. Costs of suit.

SO ORDERED.10

The RTC observed that the petitioner, being negligent, was liable to Sesante pursuant to Articles 1739 and
1759 of the Civil Code; that the petitioner had not established its due diligence in the selection and supervision
of the vessel crew; that the ship officers had failed to inspect the stowage of cargoes despite being aware of
the storm signal; that the officers and crew of the vessel had not immediately sent a distress signal to the
Philippine Coast Guard; that the ship captain had not called for then "abandon ship" protocol; and that based
on the report of the Board of Marine Inquiry (BMI), the erroneous maneuvering of the vessel by the captain
during the extreme weather condition had been the immediate and proximate cause of the sinking.

The petitioner sought reconsideration, but the RTC only partly granted its motion by reducing the temperate
damages from ₱500,000.00 to ₱300,000.00.11

Dissatisfied, the petitioner appealed.12 It was pending the appeal in the CA when Sesante passed away. He
was substituted by his heirs.13

Judgment of the CA

On June 27, 2005, the CA promulgated its assailed decision. It lowered the temperate damages to
₱120,000.00, which approximated the cost of Sesante's lost personal belongings; and held that despite the
seaworthiness of the vessel, the petitioner remained civilly liable because its officers and crew had been
negligent in performing their duties.14

Sttill aggrieved, Sulpicio Lines moved for reconsideration, but the CA denied the motion.15

Hence, this appeal.

Issues

The petitioner attributes the following errors to the CA, to wit:

THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF MORAL DAMAGES, AS THE
INSTANT CASE IS FOR ALLEGED PERSONAL INJURIES PREDICATED ON BREACH OF CONTRACT OF
CARRIAGE, AND THERE BEING NO PROOF OF BAD FAITH ON THE PART OF SULPICIO

II

THE ASSAILED DECISION ERRED IN SUSTAINING THE AMOUNT OF MORAL DAMAGES AWARDED,
THE SAME BEING UNREASONABLE, EXCESSIVE AND UNCONSCIONABLE, AND TRANSLATES TO
UNJUST ENRICHMENT AGAINST SULPICIO

III
THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF TEMPERATE DAMAGES AS THE
SAME CANNOT SUBSTITUTE FOR A FAILED CLAIM FOR ACTUAL DAMAGES, THERE BEING NO
COMPETENT PROOF TO WARRANT SAID AWARD

IV

THE AWARD OF TEMPERATE DAMAGES IS UNTENABLE AS THE REQUISITE NOTICE UNDER THE LAW
WAS NOT GIVEN TO SULPICIO IN ORDER TO HOLD IT LIABLE FOR THE ALLEGED LOSS OF
SESANTE'S PERSONAL BELONGINGS

THE ASSAILED DECISION ERRED IN SUBSTITUTING THE HEIRS OF RESPONDENT SESANTE IN THE
INST ANT CASE, THE SAME BEING A PERSONAL ACTION WHICH DOES NOT SURVIVE

VI

THE ASSAILED DECISION ERRED IN APPLYING ARTICLE 1759 OF THE NEW CIVIL CODE AGAINST
SULPICIO SANS A CLEAR-CUT FINDING OF SULPICIO'S BAD FAITH IN THE INCIDENT 16

In other words, to be resolved are the following, namely: (1) Is the complaint for breach of contract and
damages a personal action that does not survive the death of the plaintiff?; (2) Is the petitioner liable for
damages under Article 1759 of the Civil Code?; and (3) Is there sufficient basis for awarding moral and
temperate damages?

Ruling of the Court

The appeal lacks merit.

An action for breach of contract of carriage

survives the death of the plaintiff

The petitioner urges that Sesante's complaint for damages was purely personal and cannot be transferred to
his heirs upon his death. Hence, the complaint should be dismissed because the death of the plaintiff abates a
personal action.

The petitioner's urging is unwarranted.

Section 16, Rule 3 of the Rules of Court lays down the proper procedure in the event of the death of a
litigant, viz.:

Section 16. Death of party; duty of counsel. - Whenever a party to a pending action dies, and the claim is
not thereby extinguished, it shall be the duty of his counsel to inform the court within thirty (30) days after
such death of the fact thereof, and to give the name and address of his legal representative or representatives.
Failure of counsel to comply with his duty shall be a ground for disciplinary action.

The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or administrator and the court may appoint a guardian ad litem for the minor heirs.

xxxx
Substitution by the heirs is not a matter of jurisdiction, but a requirement of due process.17 It protects the right
of due process belonging to any party, that in the event of death the deceased litigant continues to be
protected and properly represented in the suit through the duly appointed legal representative of his estate. 18

The application of the rule on substitution depends on whether or not the action survives the death of the
litigant. Section 1, Rule 87 of the Rules of Court enumerates the following actions that survive the death of a
party, namely: (1) recovery of real or personal property, or an interest from the estate; (2) enforcement of liens
on the estate; and (3) recovery of damages for an injury to person or property. On the one hand, Section 5,
Rule 86 of the Rules of Court lists the actions abated by death as including: (1) claims for funeral expenses
and those for the last sickness of the decedent; (2) judgments for money; and (3) all claims for money against
the deceased, arising from contract, express or implied.

A contract of carriage generates a relation attended with public duty, neglect or malfeasance of the carrier's
employees and gives ground for an action for damages. 19 Sesante's claim against the petitioner involved his
personal injury caused by the breach of the contract of carriage. Pursuant to the aforecited rules, the complaint
survived his death, and could be continued by his heirs following the rule on substitution.

II

The petitioner is liable for

breach of contract of carriage

The petitioner submits that an action for damages based on breach of contract of carriage under Article 1759
of the Civil Code should be read in conjunction with Article 2201 of the same code; that although Article 1759
only provides for a presumption of negligence, it does not envision automatic liability; and that it was not guilty
of bad faith considering that the sinking of M/V Princess of the Orient had been due to a fortuitous event, an
exempting circumstance under Article 1174 of the Civil Code.

The submission has no substance.

Article 1759 of the Civil Code does not establish a presumption of negligence because it explicitly makes the
common carrier liable in the event of death or injury to passengers due to the negligence or fault of the
common carrier's employees. It reads:

Article 1759. Common carriers are liable for the death 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 earners.

This liability of the common carriers does not cease upon proof that they exercised all the diligence of a good
father of a family in the selection and supervision of their employees.

The liability of common carriers under Article 1759 is demanded by the duty of extraordinary diligence required
of common carriers in safely carrying their passengers. 20

On the other hand, Article 1756 of the Civil Code lays down the presumption of negligence against the
common carrier in the event of death or injury of its passenger, viz.:

Article 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at fault
or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in
Articles 1733 and 1755.

Clearly, the trial court is not required to make an express finding of the common carrier's fault or
negligence.21 Even the mere proof of injury relieves the passengers from establishing the fault or negligence of
the carrier or its employees.22 The presumption of negligence applies so long as there is evidence showing
that: (a) a contract exists between the passenger and the common carrier; and (b) the injury or death took
place during the existence of such contract.23 In such event, the burden shifts to the common carrier to prove
its observance of extraordinary diligence, and that an unforeseen event or force majeure had caused the
injury.24

Sesante sustained injuries due to the buffeting by the waves and consequent sinking of M/V Princess of the
Orient where he was a passenger. To exculpate itself from liability, the common carrier vouched for the
seaworthiness of M/V Princess of the Orient, and referred to the BMI report to the effect that the severe
weather condition - a force majeure – had brought about the sinking of the vessel.

The petitioner was directly liable to Sesante and his heirs.

A common carrier may be relieved of any liability arising from a fortuitous event pursuant to Article 1174 25 of
the Civil Code. But while it may free a common carrier from liability, the provision still requires exclusion of
human agency from the cause of injury or loss.26 Else stated, for a common carrier to be absolved from liability
in case of force majeure, it is not enough that the accident was caused by a fortuitous event. The common
carrier must still prove that it did not contribute to the occurrence of the incident due to its own or its
employees' negligence.27 We explained in Schmitz Transport & Brokerage Corporation v. Transport Venture,
Inc.,28 as follows:

In order to be considered a fortuitous event, however, (1) the cause of the unforeseen and unexpected
occurrence, or the failure of the debtor to comply with his obligation, must be independent of human will; (2) it
must be impossible to foresee the event which constitute the caso fortuito, or if it can be foreseen it must be
impossible to avoid; (3) the occurrence must be such as to render it impossible for the debtor to fulfill his
obligation in any manner; and (4) the obligor must be free from any participation in the aggravation of the injury
resulting to the creditor.

[T]he principle embodied in the act of God doctrine strictly requires that the act must be occasioned solely
by the violence of nature. Human intervention is to be excluded from creating or entering into the
cause of the mischief. When the effect is found to be in part the result of the participation of man,
whether due to his active intervention or neglect or failure to act, the whole occurrence is then
humanized and removed from the rules applicable to the acts of God.29 (bold underscoring supplied for
emphasis)

The petitioner has attributed the sinking of the vessel to the storm notwithstanding its position on the
seaworthiness of M/V Princess of the Orient.1âwphi1 Yet, the findings of the BMI directly contradicted the
petitioner's attribution, as follows:

7. The Immediate and the Proximate Cause of the Sinking

The Captain's erroneous maneuvers of the MIV Princess of the Orient minutes before she sunk [sic] had
caused the accident. It should be noted that during the first two hours when the ship left North Harbor, she was
navigating smoothly towards Limbones Point. During the same period, the ship was only subjected to the
normal weather stress prevailing at the time. She was then inside Manila Bar. The waves were observed to be
relatively small to endanger the safety of the ship. It was only when the MV Princess of the Orient had cleared
Limbones Pt. while navigating towards the direction of the Fortune Island when this agonizing misfortune
struck the ship.

Initially, a list of three degrees was observed. The listing of the ship to her portside had continuously increased.
It was at this point that the captain had misjudged the situation. While the ship continuously listed to her
portside and was battered by big waves, strong southwesterly winds, prudent judgement [sic] would dictate
that the Captain should have considerably reduced the ship's speed. He could have immediately ordered the
Chief Engineer to slacken down the speed. Meanwhile, the winds and waves continuously hit the ship on her
starboard side. The waves were at least seven to eight meters in height and the wind velocity was a[t] 25
knots. The MV Princess of the Orient being a close-type ship (seven decks, wide and high superstructure) was
vulnerable and exposed to the howling winds and ravaging seas. Because of the excessive movement, the
solid and liquid cargo below the decks must have shifted its weight to port, which could have contributed to the
tilted position of the ship.

Minutes later, the Captain finally ordered to reduce the speed of the ship to 14 knots. At the same time, he
ordered to put ballast water to the starboard-heeling tank to arrest the continuous listing of the ship. This was
an exercise in futility because the ship was already listing between 15 to 20 degrees to her portside. The ship
had almost reached the maximum angle of her loll. At this stage, she was about to lose her stability.

Despite this critical situation, the Captain executed several starboard maneuvers. Steering the course of
the Princess to starboard had greatly added to her tilting. In the open seas, with a fast speed of 14 knots,
advance maneuvers such as this would tend to bring the body of the ship in the opposite side. In navigational
terms, this movement is described as the centripetal force. This force is produced by the water acting on the
side of the ship away from the center of the turn. The force is considered to act at the center of lateral
resistance which, in this case, is the centroid of the underwater area of the ship's side away from the center of
the turn. In the case of the Princess, when the Captain maneuvered her to starboard, her body shifted its
weight to port. Being already inclined to an angle of 15 degrees, coupled with the instantaneous movement of
the ship, the cargoes below deck could have completely shifted its position and weight towards portside. By
this time, the ship being ravaged simultaneously by ravaging waves and howling winds on her starboard side,
finally lost her grip.30

Even assuming the seaworthiness of the M/VPrincess of the Orient, the petitioner could not escape liability
considering that, as borne out by the aforequoted findings of the BMI, the immediate and proximate cause of
the sinking of the vessel had been the gross negligence of its captain in maneuvering the vessel.

The Court also notes that Metro Manila was experiencing Storm Signal No. 1 during the time of the
sinking.31 The BMI observed that a vessel like the M/V Princess of the Orient, which had a volume of 13.734
gross tons, should have been capable of withstanding a Storm Signal No. I considering that the responding
fishing boats of less than 500 gross tons had been able to weather through the same waves and winds to go to
the succor of the sinking vessel and had actually rescued several of the latter's distressed passengers.32

III

The award of moral damages and

temperate damages is proper

The petitioner argues that moral damages could be meted against a common carrier only in the following
instances, to wit: (1) in the situations enumerated by Article 2201 of the Civil Code; (2) in cases of the death of
a passenger; or (3)where there was bad faith on the part of the common carrier. It contends that none of these
instances obtained herein; hence, the award should be deleted.

We agree with the petitioner that moral damages may be recovered in an action upon breach of contract of
carriage only when: (a) 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.33 However, moral damages may be awarded if the contractual breach
is found to be wanton and deliberately injurious, or if the one responsible acted fraudulently or with malice or
bad faith.34

The CA enumerated the negligent acts committed by the officers and crew of M/V Princess of the Orient, viz.:

x x x. [W]hile this Court yields to the findings of the said investigation report, yet it should be observed that
what was complied with by Sulpicio Lines were only the basic and minimal safety standards which would
qualify the vessel as seaworthy. In the same report however it also revealed that the immediate and proximate
cause of the sinking of the M/V Princess of the Orient was brought by the following: erroneous maneuvering
command of Captain Esrum Mahilum and due to the weather condition prevailing at the time of the tragedy.
There is no doubt that under the circumstances the crew of the vessel were negligent in manning it. In fact this
was clearly established by the investigation of the Board of Marine Inquiry where it was found that:
The Chief Mate, when interviewed under oath, had attested that he was not able to make stability calculation of
the ship vis-à-vis her cargo. He did not even know the metacentric height (GM) of the ship whether it be
positive or negative.

As cargo officer of the ship, he failed to prepare a detailed report of the ship's cargo stowage plan.

He likewise failed to conduct the soundings (measurement) of the ballast tanks before the ship departed from
port. He readily presumed that the ship was full of ballast since the ship was fully ballasted when she left Cebu
for Manila on 16 September 1998 and had never discharge[d] its contents since that time.

Being the officer-in-charge for emergency situation (sic) like this, he failed to execute and supervise the actual
abandonship (sic) procedure. There was no announcement at the public address system of abandonship (sic),
no orderly distribution of life jackets and no orderly launching of life rafts. The witnesses have confirmed this
finding on their sworn statements.

There was miscalculation in judgment on the part of the Captain when he erroneously navigated the ship at her
last crucial moment.x x x

To aggravate his case, the Captain, having full command and responsibility of the MV Princess of the Orient,
had failed to ensure the proper execution of the actual abandoning of the ship.

The deck and engine officers (Second Mate, Third Mate, Chief Engineers, Second Engineer, Third Engineer
and Fourth Engineer), being in charge of their respective abandonship (sic) post, failed to supervise the crew
and passengers in the proper execution of abandonship (sic) procedure.

The Radio Officer (spark) failed to send the SOS message in the internationally accepted communication
network (VHF Channel 16). Instead, he used the Single Side Band (SSB) radio in informing the company about
the emergency situation. x x x x35

The aforestated negligent acts of the officers and crew of M/V Princess of the Orient could not be ignored in
view of the extraordinary duty of the common carrier to ensure the safety of the passengers. The totality of the
negligence by the officers and crew of M/V Princess of the Orient, coupled with the seeming indifference of the
petitioner to render assistance to Sesante,36 warranted the award of moral damages.

While there is no hard-and-fast rule in determining what is a fair and reasonable amount of moral damages, the
discretion to make the determination is lodged in the trial court with the limitation that the amount should not be
palpably and scandalously excessive. The trial court then bears in mind that moral damages are not intended
to impose a penalty on the wrongdoer, or to enrich the plaintiff at the expense of the defendant. 37 The amount
of the moral damages must always reasonably approximate the extent of injury and be proportional to the
wrong committed.38

The Court recognizes the mental anguish, agony and pain suffered by Sesante who fought to survive in the
midst of the raging waves of the sea while facing the immediate prospect of losing his life. His claim for moral
and economic vindication is a bitter remnant of that most infamous tragedy that left hundreds of families broken
in its wake. The anguish and moral sufferings he sustained after surviving the tragedy would always include
the memory of facing the prospect of his death from drowning, or dehydration, or being preyed upon by sharks.
Based on the established circumstances, his survival could only have been a miracle wrought by God's grace,
by which he was guided in his desperate swim for the safety of the shore. But even with the glory of survival,
he still had to grapple with not just the memory of having come face to face with almost certain death, but also
with having to answer to the instinctive guilt for the rest of his days of being chosen to live among the many
who perished in the tragedy.39

While the anguish, anxiety, pain and stress experienced by Sesante during and after the sinking cannot be
quantified, the moral damages to be awarded should at least approximate the reparation of all the
consequences of the petitioner's negligence. With moral damages being meant to enable the injured party to
obtain the means, diversions or amusements in order to alleviate his moral and physical sufferings, 40 the Court
is called upon to ensure that proper recompense be allowed to him, through his heirs. For this purpose, the
amount of ₱l,000,000.00, as granted by the RTC and affirmed by the CA, is maintained.

The petitioner contends that its liability for the loss of Sesante' s personal belongings should conform with
A1iicle 1754, in relation to Articles 1998, 2000 to 2003 of the Civil Code, which provide:

Article 1754. The provisions of Articles 1733 to 1753 shall apply to the passenger's baggage which is not in his
personal custody or in that of his employees. As to other baggage, the rules in Articles 1998 and 2000 to 2003
concerning the responsibility of hotel-keepers shall be applicable.

xxxx

Article 1998. The deposit of effects made by travellers in hotels or inns shall also be regarded as necessary.
The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to
them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the
precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their
effects.

xxxx

Article 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the
personal property of the guests caused by the servants or employees of the keepers of hotels or inns as well
as by strangers; but not that which may proceed from any force majeure. The fact that travellers are
constrained to rely on the vigilance of the keeper of the hotel or inn shall be considered in determining the
degree of care required of him.

Article 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is
done with the use of arms or through an irresistible force.

Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his
family, servants or visitors, or if the loss arises from the character of the things brought into the hotel.

Article 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is
not liable for the articles brought by the guest. Any stipulation to the contrary between the hotel-keeper and the
guest whereby the responsibility of the former as set forth in Articles 1998 to 2001 is suppressed or diminished
shall be void.

The petitioner denies liability because Sesante' s belongings had remained in his custody all throughout the
voyage until the sinking, and he had not notified the petitioner or its employees about such belongings. Hence,
absent such notice, liability did not attach to the petitioner.

Is notification required before the common carrier becomes liable for lost belongings that remained in the
custody of the passenger?

We answer in the negative.

The rule that the common carrier is always responsible for the passenger's baggage during the voyage needs
to be emphasized. Article 1754 of the Civil Code does not exempt the common carrier from liability in case of
loss, but only highlights the degree of care required of it depending on who has the custody of the belongings.
Hence, the law requires the common carrier to observe the same diligence as the hotel keepers in case the
baggage remains with the passenger; otherwise, extraordinary diligence must be exercised. 41 Furthermore, the
liability of the common carrier attaches even if the loss or damage to the belongings resulted from the acts of
the common carrier's employees, the only exception being where such loss or damages is due to force
majeure.42
In YHT Realty Corporation v. Court of Appeals,43we declared the actual delivery of the goods to the innkeepers
or their employees as unnecessary before liability could attach to the hotelkeepers in the event of loss of
personal belongings of their guests considering that the personal effects were inside the hotel or inn because
the hotelkeeper shall remain accountable.44 Accordingly, actual notification was not necessary to render the
petitioner as the common carrier liable for the lost personal belongings of Sesante. By allowing him to board
the vessel with his belongings without any protest, the petitioner became sufficiently notified of such
belongings. So long as the belongings were brought inside the premises of the vessel, the petitioner was
thereby effectively notified and consequently duty-bound to observe the required diligence in ensuring the
safety of the belongings during the voyage. Applying Article 2000 of the Civil Code, the petitioner assumed the
liability for loss of the belongings caused by the negligence of its officers or crew. In view of our finding that the
negligence of the officers and crew of the petitioner was the immediate and proximate cause of the sinking of
the M/V Princess of the Orient, its liability for Sesante' s lost personal belongings was beyond question.

The petitioner claims that temperate damages were erroneously awarded because Sesante had not proved
pecuniary loss; and that the CA merely relied on his self-serving testimony.

The award of temperate damages was proper.

Temperate damages may be recovered when some pecuniary loss has been suffered but the amount cannot,
from the nature of the case, be proven with certainty.45 Article 222446 of the Civil Code expressly authorizes the
courts to award temperate damages despite the lack of certain proof of actual damages. 47

Indubitably, Sesante suffered some pecuniary loss from the sinking of the vessel, but the value of the loss
could not be established with certainty. The CA, which can try facts and appreciate evidence, pegged the value
of the lost belongings as itemized in the police report at P120,000.00. The valuation approximated the costs of
the lost belongings. In that context, the valuation of ₱120,000.00 is correct, but to be regarded as temperate
damages.

In fine, the petitioner, as a common carrier, was required to observe extraordinary diligence in ensuring the
safety of its passengers and their personal belongings. It being found herein short of the required diligence
rendered it liable for the resulting injuries and damages sustained by Sesante as one of its passengers.

Should the petitioner be further held liable for exemplary damages?

In contracts and quasi-contracts, the Court has the discretion to award exemplary damages if the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner.48 Indeed, exemplary damages
cannot be recovered as a matter of right, and it is left to the court to decide whether or not to award them. 49 In
consideration of these legal premises for the exercise of the judicial discretion to grant or deny exemplary
damages in contracts and quasi-contracts against a defendant who acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner, the Court hereby awards exemplary damages to Sesante.

First of all, exemplary damages did not have to be specifically pleaded or proved, because the courts had the
discretion to award them for as long as the evidence so warranted. In Marchan v. Mendoza,50 the Court has
relevantly discoursed:

x x x. It is argued that this Court is without jurisdiction to adjudicate this exemplary damages since
there was no allegation nor prayer, nor proof, nor counterclaim of error for the same by the appellees.
It is to be observed however, that in the complaint, plaintiffs "prayed for such other and further relief
as this Court may deem just and equitable." Now, since the body of the complaint sought to recover
damages against the defendant-carrier wherein plaintiffs prayed for indemnification for the damages
they suffered as a result of the negligence of said Silverio Marchan who is appellant's employee; and
since exemplary damages is intimately connected with general damages, plaintiffs may not be
expected to single out by express term the kind of damages they arc trying to recover against the
defendant's carrier. Suffice it to state that when plaintiffs prayed in their complaint for such other relief
and remedies that may be availed of under the premises, in effect, therefore, the court is called upon to
exercise and use its discretion whether the imposition of punitive or exemplary damages even though
not expressly prayed or pleaded in the plaintiffs' complaint."

x x x It further appears that the amount of exemplary damages need not be proved, because its
determination depends upon the amount of compensatory damages that may be awarded to the
claimant. If the amount of exemplary damages need not be proved, it need not also be alleged, and the
reason is obvious because it is merely incidental or dependent upon what the court may award as
compensatory damages. Unless and until this premise is determined and established, what may be
claimed as exemplary damages would amount to a mere surmise or speculation. It follows as a
necessary consequence that the amount of exemplary damages need not be pleaded in the complaint
because the same cannot be predetermined. One can merely ask that it be determined by the court if in
the use of its discretion the same is warranted by the evidence, and this is just what appellee has
done. (Bold underscoring supplied for emphasis)

And, secondly, exemplary damages are designed by our civil law to "permit the courts to reshape behavior that
is socially deleterious in its consequence by creating negative incentives or deterrents against such behavior.
"51 The nature and purpose for this kind of damages have been well-stated in People v. Dalisay,52to wit:

Also known as 'punitive' or 'vindictive' damages, exemplary or corrective damages are intended to serve as
a deterrent to serious wrong doings, and as a vindication of undue sufferings and wanton invasion of
the rights of an injured or a punishment for those guilty of outrageous conduct. These terms are
generally, but not always, used interchangeably. In common law, there is preference in the use of exemplary
damages when the award is to account for injury to feelings and for the sense of indignity and humiliation
suffered by a person as a result of an injury that has been maliciously and wantonly inflicted, the theory being
that there should be compensation for the hurt caused by the highly reprehensible conduct of the defendant -
associated with such circumstances as willfulness, wantonness, malice, gross negligence or recklessness,
oppression, insult or fraud or gross fraud - that intensifies the injury. The terms punitive or vindictive damages
are often used to refer to those species of damages that may be awarded against a person to punish him for
his outrageous conduct. In either case, these damages arc intended in good measure to deter the
wrongdoer and others like him from similar conduct in the future. (Bold underscoring supplied for
emphasis)

The BMI found that the "erroneous maneuvers" during the ill-fated voyage by the captain of the petitioner's
vessel had caused the sinking. After the vessel had cleared Limbones Point while navigating towards the
direction of Fortune Island, the captain already noticed the listing of the vessel by three degrees to the portside
of the vessel, but, according to the BMI, he did not exercise prudence as required by the situation in which his
vessel was suffering the battering on the starboard side by big waves of seven to eight meters high and strong
southwesterly winds of 25 knots. The BMI pointed out that he should have considerably reduced the speed of
the vessel based on his experience about the vessel - a close-type ship of seven decks, and of a wide and
high superstructure - being vulnerable if exposed to strong winds and high waves. He ought to have also
known that maintaining a high speed under such circumstances would have shifted the solid and liquid cargo
of the vessel to port, worsening the tilted position of the vessel. It was only after a few minutes thereafter that
he finally ordered the speed to go down to 14 knots, and to put ballast water to the starboard-heeling tank to
arrest the continuous listing at portside. By then, his moves became an exercise in futility because, according
to the BMI, the vessel was already listing to her portside between 15 to 20 degrees, which was almost the
maximum angle of the vessel's loll. It then became inevitable for the vessel to lose her stability.

The BMI concluded that the captain had executed several starboard maneuvers despite the critical situation of
the vessel, and that the maneuvers had greatly added to the tilting of the vessel. It observed:

x x x In the open seas, with a fast speed of 14 knots, advance maneuvers such as this would tend to
bring the body of the ship in the opposite side. In navigational terms, this movement is described as
the centripetal force. This force is produced by the water acting on the side of the ship away from the
center of the turn. The force is considered to act at the center of lateral resistance which, in this case,
is the centroid of the underwater area of the ship's side away from the center of the turn. In the case of
the Princess, when the Captain maneuvered her to starboard, her body shifted its weight to port. Being
already inclined to an angle of 15 degrees, coupled with the instantaneous movement of the ship, the
cargoes below deck could have completely shifted its position and weight towards portside. By this
time, the ship being ravaged simultaneously by ravaging waves and howling winds on her starboard
side, finally lost her grip.53

Clearly, the petitioner and its agents on the scene acted wantonly and recklessly. Wanton and reckless are
virtually synonymous in meaning as respects liability for conduct towards others. 54 Wanton means
characterized by extreme recklessness and utter disregard for the rights of others; or marked by or manifesting
arrogant recklessness of justice or of rights or feelings of others. 55 Conduct is reckless when it is an extreme
departure from ordinary care, in a situation in which a high degree of danger is apparent. It must be more than
any mere mistake resulting from inexperience, excitement, or confusion, and more than mere thoughtlessness
or inadvertence, or simple inattention.56

The actuations of the petitioner and its agents during the incident attending the unfortunate sinking of the M/V
Princess of the Orient were far below the standard of care and circumspection that the law on common carriers
demanded. Accordingly, we hereby fix the sum of ₱l ,000,000.00 in order to serve fully the objective of
exemplarity among those engaged in the business of transporting passengers and cargo by sea. The amount
would not be excessive, but proper. As the Court put it in Pereria v. Zarate:57

Anent the ₱1,000,000.00 allowed as exemplary damages, we should not reduce the amount if only to render
effective the desired example for the public good. As a common carrier, the Pereñas needed to be vigorously
reminded to observe their duty to exercise extraordinary diligence to prevent a similarly senseless accident
from happening again. Only by an award of exemplary damages in that amount would suffice to instill in them
and others similarly situated like them the ever-present need for greater and constant vigilance in the conduct
of a business imbued with public interest.58 (Bold underscoring supplied for emphasis)

WHEREFORE, the Court AFFIRMS the decision promulgated on June 27, 2005 with
the MODIFICATIONS that: (a) the amount of moral damages is fixed at ₱l,000,000.00; (b) the amount of
₱l,000,000.00 is granted as exemplary damages; and (c) the sum of ₱l20,000.00 is allowed as temperate
damages, all to be paid to the heirs of the late Napoleon Sesante. In addition, all the amounts hereby awarded
shall earn interest of 6% per annum from the finality of this decision until fully paid. Costs of suit to be paid by
the petitioner.

SO ORDERED.
 SECOND DIVISION

July 11, 2016

G.R. No. 194121

TORRES-MADRID BROKERAGE, INC., Petitioner

vs.
FEB MITSUI MARINE INSURANCE CO., INC. and BENJAMIN P. MANALAST AS, doing business under
the name of BMT TRUCKING SERVICES, Respondents

DECISION

BRION, J.:

We resolve the petition for review on certiorari challenging the Court of Appeals' (CA) October 14, 2010
decision in CA-G.R. CV No. 91829.1

The CA affirmed the Regional Trial Court's (RTC) decision in Civil Case No. 01-1596, and found petitioner
Torres-Madrid Brokerage, Inc. (TMBI) and respondent Benjamin P. Manalastas jointly and solidarily liable to
respondent FEB Mitsui Marine Insurance Co., Inc. (Mitsui) for damages from the loss of transported cargo.

Antecedents

On October 7, 2000, a shipment of various electronic goods from Thailand and Malaysia arrived at the Port of
Manila for Sony Philippines, Inc. (Sony). Previous to the arrival, Sony had engaged the services of TMBI
to facilitate, process, withdraw, and deliver the shipment from the port to its warehouse in Biñan, Laguna. 2

TMBI – who did not own any delivery trucks – subcontracted the services of Benjamin Manalastas’ company,
BMT Trucking Services (BMT), to transport the shipment from the port to the Biñan warehouse.3 Incidentally,
TMBI notified Sony who had no objections to the arrangement. 4

Four BMT trucks picked up the shipment from the port at about 11:00 a.m. of October 7, 2000. However, BMT
could not immediately undertake the delivery because of the truck ban and because the following day was a
Sunday. Thus, BMT scheduled the delivery on October 9, 2000.

In the early morning of October 9, 2000, the four trucks left BMT’s garage for Laguna.5 However, only three
trucks arrived at Sony’s Biñan warehouse.

At around 12:00 noon, the truck driven by Rufo Reynaldo Lapesura (NSF-391) was found abandoned along
the Diversion Road in Filinvest, Alabang, Muntinlupa City. 6 Both the driver and the shipment were missing.

Later that evening, BMT’s Operations Manager Melchor Manalastas informed Victor Torres, TMBI’s General
Manager, of the development.7 They went to Muntinlupa together to inspect the truck and to report the matter
to the police.8

Victor Torres also filed a complaint with the National Bureau of Investigation (NBI) against Lapesura for
"hijacking."9 The complaint resulted in a recommendation by the NBI to the Manila City Prosecutor’s Office to
prosecute Lapesura for qualified theft.10

TMBI notified Sony of the loss through a letter dated October 10, 2000.11 It also sent BMT a letter dated March
29, 2001, demanding payment for the lost shipment. BMT refused to pay, insisting that the goods were
"hijacked."
In the meantime, Sony filed an insurance claim with the Mitsui, the insurer of the goods. After evaluating the
merits of the claim, Mitsui paid Sony PHP7,293,386.23 corresponding to the value of the lost goods.12

After being subrogated to Sony’s rights, Mitsui sent TMBI a demand letter dated August 30, 2001 for payment
of the lost goods. TMBI refused to pay Mitsui’s claim. As a result, Mitsui filed a complaint against TMBI on
November 6, 2001,

TMBI, in turn, impleaded Benjamin Manalastas, the proprietor of BMT, as a third-party defendant. TMBI
alleged that BMT’s driver, Lapesura, was responsible for the theft/hijacking of the lost cargo and claimed
BMT’s negligence as the proximate cause of the loss. TMBI prayed that in the event it is held liable to Mitsui for
the loss, it should be reimbursed by BMT.

At the trial, it was revealed that BMT and TMBI have been doing business with each other since the early 80’s.
It also came out that there had been a previous hijacking incident involving Sony’s cargo in 1997, but neither
Sony nor its insurer filed a complaint against BMT or TMBI. 13

On August 5, 2008, the RTC found TMBI and Benjamin Manalastas jointly and solidarily liable to pay Mitsui
PHP 7,293,386.23 as actual damages, attorney’s fees equivalent to 25% of the amount claimed, and the costs
of the suit.14 The RTC held that TMBI and Manalastas were common carriers and had acted negligently.

Both TMBI and BMT appealed the RTC’s verdict.

TMBI denied that it was a common carrier required to exercise extraordinary diligence. It maintains that it
exercised the diligence of a good father of a family and should be absolved of liability because the truck
was "hijacked" and this was a fortuitous event.

BMT claimed that it had exercised extraordinary diligence over the lost shipment, and argued as well that the
loss resulted from a fortuitous event.

On October 14, 2010, the CA affirmed the RTC’s decision but reduced the award of attorney’s fees to PHP
200,000.

The CA held: (1) that "hijacking" is not necessarily a fortuitous event because the term refers to the general
stealing of cargo during transit;15 (2) that TMBI is a common carrier engaged in the business of transporting
goods for the general public for a fee;16 (3) even if the "hijacking" were a fortuitous event, TMBI’s failure to
observe extraordinary diligence in overseeing the cargo and adopting security measures rendered it liable for
the loss;17 and (4) even if TMBI had not been negligent in the handling, transport and the delivery of the
shipment, TMBI still breached its contractual obligation to Sony when it failed to deliver the shipment. 18

TMBI disagreed with the CA’s ruling and filed the present petition on December 3, 2010.

The Arguments

TMBI’s Petition

TMBI insists that the hijacking of the truck was a fortuitous event. It contests the CA’s finding that neither force
nor intimidation was used in the taking of the cargo. Considering Lapesura was never found, the Court should
not discount the possibility that he was a victim rather than a perpetrator. 19

TMBI denies being a common carrier because it does not own a single truck to transport its shipment and it
does not offer transport services to the public for compensation. 20 It emphasizes that Sony knew TMBI did not
have its own vehicles and would subcontract the delivery to a third-party.

Further, TMBI now insists that the service it offered was limited to the processing of paperwork attendant to the
entry of Sony’s goods. It denies that delivery of the shipment was a part of its obligation. 21
TMBI solely blames BMT as it had full control and custody of the cargo when it was lost. 22 BMT, as a common
carrier, is presumed negligent and should be responsible for the loss.

BMT’s Comment

BMT insists that it observed the required standard of care. 23 Like the petitioner, BMT maintains that the
hijacking was a fortuitous event – a force majeure – that exonerates it from liability.24 It points out that
Lapesura has never been seen again and his fate remains a mystery. BMT likewise argues that the loss of the
cargo necessarily showed that the taking was with the use of force or intimidation.25

If there was any attendant negligence, BMT points the finger on TMBI who failed to send a representative to
accompany the shipment.26 BMT further blamed TMBI for the latter’s failure to adopt security measures to
protect Sony’s cargo.27

Mitsui’s Comment

Mitsui counters that neither TMBI nor BMT alleged or proved during the trial that the taking of the cargo was
accompanied with grave or irresistible threat, violence, or force. 28 Hence, the incident cannot be considered
"force majeure" and TMBI remains liable for breach of contract.

Mitsui emphasizes that TMBI’s theory – that force or intimidation must have been used because Lapesura was
never found – was only raised for the first time before this Court. 29 It also discredits the theory as a mere
conjecture for lack of supporting evidence.

Mitsui adopts the CA’s reasons to conclude that TMBI is a common carrier. It also points out Victor Torres’
admission during the trial that TMBI’s brokerage service includes the eventual delivery of the cargo to the
consignee.30

Mitsui invokes as well the legal presumption of negligence against TMBI, pointing out that TMBI simply
entrusted the cargo to BMT without adopting any security measures despite: (1) a previous hijacking incident
when TMBI lost Sony’s cargo; and (2) TMBI’s knowledge that the cargo was worth more than 10 million
pesos.31

Mitsui affirms that TMBI breached the contract of carriage through its negligent handling of the cargo, resulting
in its loss.

The Court’s Ruling

A brokerage may be considered a

common carrier if it also undertakes to
deliver the goods for its customers

Common carriers are persons, corporations, firms or associations engaged in the business of transporting
passengers or goods or both, by land, water, or air, for compensation, offering their services to the public. 32 By
the nature of their business and for reasons of public policy, they are bound to observe extraordinary diligence
in the vigilance over the goods and in the safety of their passengers.33

In A.F. Sanchez Brokerage Inc. v. Court of Appeals,34we held that a customs broker – whose principal
business is the preparation of the correct customs declaration and the proper shipping documents – is still
considered a common carrier if it also undertakes to deliver the goods for its customers. The law does not
distinguish between one whose principal business activity is the carrying of goods and one who undertakes
this task only as an ancillary activity.35 This ruling has been reiterated in Schmitz Transport & Brokerage Corp.
v. Transport Venture, Inc.,36 Loadmasters Customs Services, Inc. v. Glodel Brokerage
Corporation,37and Westwind Shipping Corporation v. UCPB General Insurance Co., Inc. 38
Despite TMBI’s present denials, we find that the delivery of the goods is an integral, albeit ancillary, part of its
brokerage services. TMBI admitted that it was contracted to facilitate, process, and clear the shipments from
the customs authorities, withdraw them from the pier, then transport and deliver them to Sony’s warehouse in
Laguna.39

Further, TMBI’s General Manager Victor Torres described the nature of its services as follows:

ATTY. VIRTUDAZO: Could you please tell the court what is the nature of the business of [TMBI]?

Witness MR. Victor Torres of Torres Madrid: We are engaged in customs brokerage business. We acquire
the release documents from the Bureau of Customs and eventually deliver the cargoes to the consignee’s
warehouse and we are engaged in that kind of business, sir.40

That TMBI does not own trucks and has to subcontract the delivery of its clients’ goods, is immaterial. As long
as an entity holds itself to the public for the transport of goods as a business, it is considered a common carrier
regardless of whether it owns the vehicle used or has to actually hire one.41

Lastly, TMBI’s customs brokerage services – including the transport/delivery of the cargo – are available to
anyone willing to pay its fees. Given these circumstances, we find it undeniable that TMBI is a common carrier.

Consequently, TMBI should be held responsible for the loss, destruction, or deterioration of the goods it
transports unless it results from:

(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 of 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.42

For all other cases - such as theft or robbery – a common carrier is presumed to have been at fault or to have
acted negligently, unless it can prove that it observed extraordinary diligence.43

Simply put, the theft or the robbery of the goods is not considered a fortuitous event or a force majeure.
Nevertheless, a common carrier may absolve itself of liability for a resulting loss: (1) if it proves that it
exercised extraordinary diligence in transporting and safekeeping the goods; 44 or (2) if it stipulated with the
shipper/owner of the goods to limit its liability for the loss, destruction, or deterioration of the goods to a degree
less than extraordinary diligence.45

However, a stipulation diminishing or dispensing with the common carrier’s liability for acts committed by
thieves or robbers who do not act with grave or irresistible threat, violence, or force is void under Article 1745
of the Civil Code for being contrary to public policy.46 Jurisprudence, too, has expanded Article 1734’s five
exemptions. De Guzman v. Court of Appeals47 interpreted Article 1745 to mean that a robbery attended by
"grave or irresistible threat, violence or force" is a fortuitous event that absolves the common carrier from
liability.

In the present case, the shipper, Sony, engaged the services of TMBI, a common carrier, to facilitate the
release of its shipment and deliver the goods to its warehouse. In turn, TMBI subcontracted a portion of its
obligation – the delivery of the cargo – to another common carrier, BMT.

Despite the subcontract, TMBI remained responsible for the cargo. Under Article 1736, a common carrier’s
extraordinary responsibility over the shipper’s goods lasts from the time these goods are unconditionally placed
in the possession of, and received by, the carrier for transportation, until they are delivered, actually or
constructively, by the carrier to the consignee.48

That the cargo disappeared during transit while under the custody of BMT – TMBI’s subcontractor – did not
diminish nor terminate TMBI’s responsibility over the cargo. Article 1735 of the Civil Code presumes that it was
at fault.

Instead of showing that it had acted with extraordinary diligence, TMBI simply argued that it was not a common
carrier bound to observe extraordinary diligence. Its failure to successfully establish this premise carries with it
the presumption of fault or negligence, thus rendering it liable to Sony/Mitsui for breach of contract.

Specifically, TMBI’s current theory – that the hijacking was attended by force or intimidation – is untenable.

First, TMBI alleged in its Third Party Complaint against BMT that Lapesura was responsible for hijacking the
shipment.49 Further, Victor Torres filed a criminal complaint against Lapesura with the NBI. 50 These actions
constitute direct and binding admissions that Lapesura stole the cargo. Justice and fair play dictate that TMBI
should not be allowed to change its legal theory on appeal.

Second, neither TMBI nor BMT succeeded in substantiating this theory through evidence. Thus, the theory
remained an unsupported allegation no better than speculations and conjectures. The CA therefore correctly
disregarded the defense of force majeure.

TMBI and BMT are not solidarily liable

to Mitsui

We disagree with the lower courts’ ruling that TMBI and BMT are solidarily liable to Mitsui for the loss as joint
tortfeasors. The ruling was based on Article 2194 of the Civil Code:

Art. 2194. The responsibility of two or more persons who are liable for quasi-delict is solidary.

Notably, TMBI’s liability to Mitsui does not stem from a quasi-delict (culpa aquiliana) but from its breach of
contract (culpa contractual). The tie that binds TMBI with Mitsui is contractual, albeit one that passed on to
Mitsui as a result of TMBI’s contract of carriage with Sony to which Mitsui had been subrogated as an insurer
who had paid Sony’s insurance claim. The legal reality that results from this contractual tie precludes the
application of quasi-delict based Article 2194.

A third party may recover from a

common carrier for quasi-delict but must
prove actual negligence

We likewise disagree with the finding that BMT is directly liable to Sony/Mitsui for the loss of the cargo. While it
is undisputed that the cargo was lost under the actual custody of BMT (whose employee is the primary suspect
in the hijacking or robbery of the shipment), no direct contractual relationship existed between Sony/Mitsui and
BMT. If at all, Sony/Mitsui’s cause of action against BMT could only arise from quasi-delict, as a third party
suffering damage from the action of another due to the latter’s fault or negligence, pursuant to Article 2176 of
the Civil Code.51

We have repeatedly distinguished between an action for breach of contract (culpa contractual) and an action
for quasi-delict (culpa aquiliana).

In culpa contractual, the plaintiff only needs to establish the existence of the contract and the obligor’s failure to
perform his obligation. It is not necessary for the plaintiff to prove or even allege that the obligor’s non-
compliance was due to fault or negligence because Article 1735 already presumes that the common carrier is
negligent. The common carrier can only free itself from liability by proving that it observed extraordinary
diligence. It cannot discharge this liability by shifting the blame on its agents or servants. 52
On the other hand, the plaintiff in culpa aquiliana must clearly establish the defendant’s fault or negligence
because this is the very basis of the action.53 Moreover, if the injury to the plaintiff resulted from the act or
omission of the defendant’s employee or servant, the defendant may absolve himself by proving that he
observed the diligence of a good father of a family to prevent the damage.54

In the present case, Mitsui’s action is solely premised on TMBI’s breach of contract. Mitsui did not even sue
BMT, much less prove any negligence on its part. If BMT has entered the picture at all, it is because TMBI
sued it for reimbursement for the liability that TMBI might incur from its contract of carriage with Sony/Mitsui.
Accordingly, there is no basis to directly hold BMT liable to Mitsui for quasi-delict.

BMT is liable to TMBI for breach of their

contract of carriage

We do not hereby say that TMBI must absorb the loss. By subcontracting the cargo delivery to BMT, TMBI
entered into its own contract of carriage with a fellow common carrier.

The cargo was lost after its transfer to BMT' s custody based on its contract of carriage with TMBI. Following
Article 1735, BMT is presumed to be at fault. Since BMT failed to prove that it observed extraordinary
diligence in the performance of its obligation to TMBI, it is liable to TMBI for breach of their contract of carriage.

In these lights, TMBI is liable to Sony (subrogated by Mitsui) for breaching the contract of carriage. In tum,
TMBI is entitled to reimbursement from BMT due to the latter's own breach of its contract of carriage with
TMBI. The proverbial buck stops with BMT who may either: (a) absorb the loss, or (b) proceed after its missing
driver, the suspected culprit, pursuant to Article 2181.55

WHEREFORE, the Court hereby ORDERS petitioner TorresMadrid Brokerage, Inc. to pay the respondent FEB
Mitsui Marine Insurance Co", Inc. the following:

a. Actual damages in the amount of PHP 7,293,386.23 plus legal interest from the time the complaint was filed
until it is fully paid;

b. Attorney's foes in the amount of PHP 200,000.00; and

c. Costs of suit.

Respondent Benjamin P. Manalastas is in turn ORDERED to REIMBURSE Torres-Madrid Brokerage, Inc. of

the above-mentioned amounts.

SO ORDERED.
 SECOND DIVISION

June 28, 2017

G.R. No. 213088

LAND TRANSPORTATION FRANCHISING AND REGULATORY BOARD (LTFRB), Petitioner

vs.
G.V. FLORIDA TRANSPORT, INC., Respondent

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari seeking the reversal and setting aside of the Decision 1 of
the Court of Appeals (CA), dated June 26, 2014 in CA-G.R. SP No. 134772.

The pertinent factual and procedural antecedents of the case are as follows:

Around 7:20 in the morning of February 7, 2014, a vehicular accident occurred at Sitio Paggang, Barangay
Talubin, Bontoc, Mountain Province involving a public utility bus coming from Sampaloc, Manila, bound for
Poblacion Bontoc and bearing a "G.V. Florida" body mark with License Plate No. TXT-872. The mishap
claimed the lives of fifteen (15) passengers and injured thirty-two (32) others.

An initial investigation report, which came from the Department of Transportation and Communications of the
Cordillera Administrative Region (DOTC-CAR), showed that based on the records of the Land Transportation
Office (LTO) and herein petitioner, License Plate No. TXT-872 actually belongs to a different bus owned by
and registered under the name of a certain Norberto Cue, Sr. (Cue) under Certificate of Public
Convenience (CPC) Case No. 2007-0407 and bears engine and chassis numbers LX004564 and
KN2EAM12PK004452, respectively; and that the bus involved in the accident is not duly authorized to operate
as a public transportation.

Thus, on the same day of the accident, herein petitioner, pursuant to its regulatory powers, immediately issued
an Order2 preventively suspending, for a period not exceeding thirty (30) days, the operations of ten (10) buses
of Cue under its CPC Case No. 2007-0407, as well as respondent's entire fleet of buses, consisting of two
hundred and twenty-eight (228) units, under its twenty-eight (28) CPCs. In the same Order, respondent and
Cue were likewise directed to comply with the following:

1. Inspection and determination of road worthiness of the authorized PUB unit of respondents-operators
bringing the said buses to the Motor Vehicle Inspection Service (MVIS) of the Land Transportation Office,
together with the authorized representatives of the Board;

2. Undergo Road Safety Seminar of respondents-operators' drivers and conductors to be conducted or

scheduled by the Board and/or its authorized seminar provider;

3. Compulsory Drug Testing of the respondents-operators' drivers and conductors to be conducted by

authorized/accredited agency of the Department of Health and the Land Transportation Office;

4. Submit the Certificates of Registration and latest LTO Official Receipts of the units, including the names of
the respective drivers and conductors; and

5. Submit the video clippings of roadworthiness inspection, Road Safety Seminar and Drug Testing. 3

Furthermore, respondent and Cue were ordered to show cause why their respective CPCs should not be
suspended, canceled or revoked due to the said accident.
Thereafter, in its Incident Report dated February 12, 2014, the DOTC-CAR stated, among others: that the
License Plate Number attached to the ill-fated bus was indeed TXT-872, which belongs to a different unit
owned by Cue; that the wrecked bus had actual engine and chassis numbers DE12T-601104BD and
KTP1011611C,4 respectively; that, per registration records, the subject bus was registered as "private" on April
4, 2013 with issued License Plate No. UDO 762; and that the registered owner is Dagupan Bus Co.,
Inc. (Dagupan Bus) while the previous owner is herein respondent bus company.

As a result, Dagupan Bus was also ordered to submit an Answer on the DOTC-CAR Incident Report,
particularly, to explain why the bus involved in the above accident, which is registered in its name, was sporting
the name "G.V. Florida" at the time of the accident.

Subsequently, Dagupan Bus filed its Answer claiming that: it is not the owner of the bus which was involved in
the accident; the owner is G.V. Florida; Dagupan Bus entered into a Memorandum of Agreement with G.V.
Florida, which, among others, facilitated the exchange of its CPC covering the Cagayan route for the CPC of
Florida covering the Bataan route; and the subsequent registration of the subject bus in the name of Dagupan
Bus is a mere preparatory act on the part of G.V. Florida to substitute the old authorized units of Dagupan Bus
plying the Cagayan route which are being operated under the abovementioned CPC which has been
exchanged with G. V. Florida.

On the other hand, Cue filed his Position Paper contending that: License Plate No. TXT-872 was issued by the
LTO to one among ten public utility buses under CPC No. 2007-040i issued to him as operator of the Mountain
Province Cable Tours; the application for the extension of the validity of the said CPC is pending with
petitioner; the subject CPC, together with all authorized units, had been sold to G.V. Florida in September
2013; and thereafter, Cue completely ceded the operation and maintenance of the subject buses in favor of
G.R. Florida.

In its Position Paper, herein respondent alleged that: it, indeed, bought Cue's CPC and the ten public utility
buses operating under the said CPC, including the one which bears License Plate No. TXT-872; since Cue's
buses were already old and dilapidated, and not wanting to stop its operations to the detriment of the riding
public, it replaced these buses with new units using the License Plates attached to the old buses, pending
approval by petitioner of the sale and transfer of Cue's CPC in its favor; and it exercised utmost good faith in
deciding to dispatch the ill-fated bus notwithstanding the absence of prior adequate compliance with the
requirements that will constitute its operation legal.

On March 14, 2014, herein petitioner rendered its Decision canceling Cue's CPC No. 2007-0407 and
suspending the operation of respondent's 186 buses under 28 of its CPCs for a period of six (6) months.
Pertinent portions of the dispositive portion of the said Decision read as follows:

WHEREFORE, premises considered and by virtue of Commonwealth Act 146 (otherwise known as "The Public
Service Law"), as amended, and Executive Order No. 202, the Board hereby ORDERS that:

a. The Certificate of Public Convenience of respondentoperator NORBERTO M. CUE, SR. under Case No.
2007- 0407, now under the beneficial ownership of respondentoperator G.V. FLORIDA TRANSPORT, INC., be
CANCELLED and REVERTED to the State. Therefore, upon receipt of this Decision, respondent-operator G.V.
FLORIDA TRANSPORT, INC. is hereby directed to CEASE and DESIST from operating the Certificate of
Public Convenience under Case No. 2007-0407 involving ten (10) authorized units, to wit:

xxxx

b. Upon finality of this Decision, the above-mentioned for hire plates of respondent-operator NORBERTO M.
CUE, SR. are hereby ordered DESTRUCTED (sic) and DESTROYED prior to their turn over to the Land
Transportation Office (LTO).

xxxx
c. All existing Certificates of Public Convenience of respondent-operator G.V. FLORIDA TRANSPORT, INC.
under case numbers listed under case numbers listed below are hereby SUSPENDED for a period of SIX (6)
MONTHS commencing from March 11, 2014, which is the lapse of the 30-day preventive suspension order
issued by this Board, to wit:

xxxx

[d.] During the period of suspension of its CPCs and as a condition for the lifting thereof, respondent-operator
G.V. FLORIDA TRANSPORT, INC. must comply with the following:

1. All its authorized drivers must secure the National Competency III issued by the Technical Education and
Skills Development Authority (TESDA)

2. All its conductors must secure Conductor's License from the Land Transportation Office (LTO);

3. Submit all its authorized units that have not undergone inspection and determination of roadworthiness to
the Motor Vehicle Inspection Service of the LTO, together with the authorized representatives of the Board;
and

4. Compulsory Drug Testing of all its authorized drivers and conductors to be conducted by the authorized
accredited agency of the Department of Health and the Land Transportation Office at least thirty (30) days
before the expiration of its suspension.

[e.] The Show Cause Order issued against respondent-operator DAGUPAN BUS CO., INC. is hereby SET
ASIDE.

The Information Systems Management Division (ISMD) is also directed to make proper recording of this
Decision for future reference against subject vehicles and respondents-operators. During the period of
suspension of its CPCs, respondent-operator G.V. FLORIDA TRANSPORT, INC. is allowed to confirm its
authorized units subject to submission of all requirements for confirmation.

The Law Enforcement Unit of this Board, the Land Transportation Office (LTO), the Metro Manila
Development Authority (MMDA), the Philippine National Police-Highway Patrol Group (PNP-HPG), and
other authorized traffic enforcement agencies are hereby ordered to APPREHEND and IMPOUND the said
vehicles, if found operating.

SO ORDERED.6

Respondent then filed with the CA a petition for certiorari under Rule 65 of the Rules of Court, with prayer for
the issuance of a preliminary mandatory injunction, assailing petitioner's above Decision.

On June 26, 2014, the CA promulgated its questioned Decision, disposing as follows:

WHEREFORE, the instant petition is PARTIALLY GRANTED. The Decision dated March 14, 2014 of the Land
Transportation Franchising and Regulatory Board is MODIFIED as follows:

1. The Order canceling and reverting to the State of the Certificate of Public Convenience of operator Cue
under Case No. 2007-0407, under the beneficial ownership of petitioner G.V. Florida Transport, Inc. is
AFFIRMED;

2. The penalty of suspension for a period of six (6) months against all existing 28 Certificates of Public
Convenience of petitioner G.V. Florida, Transport, Inc., is REVERSED and SET ASIDE;

3. The condition set forth in the Decision for the lifting of the penalty of suspension is DELETED; and
4. The order to apprehend and impound petitioner G.V. Florida Transport, Inc.'s 186 authorized bus units
under the 28 CPCs if found operating is RECALLED

Accordingly, petitioner G.V. Florida Transport, Inc. prayer for mandatory injunctive relief is hereby GRANTED.
The Land Transportation and Franchising Regulatory Board is hereby ordered to immediately LIFT the order of
suspension and RETURN or CAUSE the RETURN of the confiscated license plates of petitioner G.V. Florida
Transport, Inc.'s 186 authorized bus units under its 28 Certificates of Public Convenience without need of
further order from this Court. Said Office is further DIRECTED to submit its Compliance within five (5) days
from receipt thereof.

SO ORDERED.7

Hence, the present petition grounded on a lone issue, to wit:

DOES THE LTFRB HAVE THE POWER TO SUSPEND THE FLEET OF A PUBLIC UTILITY THAT VIOLATES
THE LAW, TO THE DAMAGE OF THE PUBLIC?8

The main issue brought before this Court is whether or not petitioner is justified in suspending respondent's 28
CPCs for a period of six (6) months. In other words, is the suspension within the powers of the LTFRB to
impose and is it reasonable?

Petitioner contends that it is vested by law with jurisdiction to regulate the operation of public utilities; that
under Section 5(b) of Executive Order No. 202 (E. 0. 202),9 it is authorized "[t]o issue, amend, revise, suspend
or cancel Certificates of Public Convenience or permits authorizing the operation of public land transportation
services provided by motorized vehicles, and to prescribe the appropriate terms and conditions therefor;" and
that petitioner's authority to impose the penalty of suspension of CPCs of bus companies found to have
committed violations of the law is broad and is consistent with its mandate and regulatory capability.

On the other hand, respondent, in its Comment to the present Petition, contends that the suspension of its 28
CPCs is tantamount to an outright confiscation of private property without due process of law; and that
petitioner cannot simply ignore respondent's property rights on the pretext of promoting public safety.
Respondent insists that the penalty imposed by petitioner is not commensurate to the infraction it had
committed.

The Court rules in favor of petitioner.

Section 16(n) of Commonwealth Act. No. 146, otherwise known as the Public Service Act, provides:

Section 16. Proceedings of the Commission, upon notice and hearing. - The Commission shall have power,
upon proper notice and hearing in accordance with the rules and provisions of this Act, subject to the
limitations and exceptions mentioned and saving provisions to the contrary:

xxxx

(n) To suspend or revoke any certificate issued under the provisions of this Act whenever the holder thereof
has violated or willfully and contumaciously refused to comply with any order rule or regulation of the
Commission or any provision of this Act: Provided, That the Commission, for good cause, may prior to the
hearing suspend for a period not to exceed thirty days any certificate or the exercise of any right or authority
issued or granted under this Act by order of the Commission, whenever such step shall in the judgment of the
Commission be necessary to avoid serious and irreparable damage or inconvenience to the public or to private
interests.

xxxx

Also, Section 5(b) of E.O. 202 states:

Sec. 5. Powers and Functions of the Land Transportation Franchising and Regulatory Board. The Board shall
have the following powers and functions:

Also, Section 5(b) of E.O. 202 states:

Sec. 5. Powers and Functions of the Land Transportation Franchising and Regulatory Board. The Board shall
have the following powers and functions:

xxxx

b. To issue, amend, revise, suspend or cancel Certificates of Public Convenience or permits authorizing the
operation of public land transportation services provided by motorized vehicles, and to prescribe the
appropriate terms and conditions therefor;

xxxx

In the present case, respondent is guilty of several violations of the law, to wit: lack of petitioner's approval of
the sale and transfer of the CPC which respondent bought from Cue; operating the ill-fated bus under its name
when the same is registered under the name of Dagupan Bus Co., Inc.; attaching a vehicle license plate to the
ill-fated bus when such plate belongs to a different bus owned by Cue; and operating the subject bus under the
authority of a different CPC. What makes matters worse is that respondent knowingly and blatantly committed
these violations. How then can respondent claim good faith under these circumstances?

Respondent, nonetheless, insists that it is unreasonable for petitioner to suspend the operation of 186 buses
covered by its 28 CPCs, considering that only one bus unit, covered by a single CPC, was involved in the
subject accident.

The Court is not persuaded. It bears to note that the suspension of respondent's 28 CPCs is not only because
of the findings of petitioner that the ill-fated bus was not roadworthy. 10 Rather, and more importantly, the
suspension of the 28 CPCs was also brought about by respondent's wanton disregard and obstinate defiance
of the regulations issued by petitioner, which is tantamount to a willful and contumacious refusal to comply with
the requirements of law or of the orders, rules or regulations issued by petitioner and which is punishable,
under the law, by suspension or revocation of any of its CPCs.

The Court agrees with petitioner that its power to suspend the CPCs issued to public utility vehicles depends
on its assessment of the gravity of the violation, the potential and actual harm to the public, and the policy
impact of its own actions. In this regard, the Court gives due deference to petitioner's exercise of its sound
administrative discretion in applying its special knowledge, experience and expertise to resolve respondent's
case.

Indeed, the law gives to the LTFRB (previously known, among others, as Public Service Commission or Board
of Transportation) ample power and discretion to decree or refuse the cancellation of a certificate of public
convenience issued to an operator as long as there is evidence to support its action. 11 As held by this Court in
a long line of cases, 12 it was even intimated that, in matters of this nature so long as the action is justified, this
Court will not substitute its discretion for that of the regulatory agency which, in this case, is the LTFRB.

Moreover, the Court finds the ruling in Rizal Light & Ice Co., Inc. v. The Municipality of Morang, Rizal and The
Public Service Commission, 13 instructive, to wit:

xxxx

It should be observed that Section 16(n) of Commonwealth Act No. 146, as amended, confers upon the
Commission ample power and discretion to order the cancellation and revocation of any certificate of public
convenience issued to an operator who has violated, or has willfully and contumaciously refused to comply
with, any order, rule or regulation of the Commission or any provision of law. What matters is that there is
evidence to support the action of the Commission. In the instant case, as shown by the evidence, the
contumacious refusal of the petitioner since 1954 to comply with the directives, rules and regulations of the
Commission, its violation of the conditions of its certificate and its incapability to comply with its commitment as
shown by its inadequate service, were the circumstances that warranted the action of the Commission in not
merely imposing a fine but in revoking altogether petitioner's certificate. To allow petitioner to continue its
operation would be to sacrifice public interest and convenience in favor of private interest.

A grant of a certificate of public convenience confers no property rights but is a mere license or privilege, and
such privilege is forfeited when the grantee fails to comply with his commitments behind which lies the
paramount interest of the public, for public necessity cannot be made to wait, nor sacrificed for private
convenience. (Collector of Internal Revenue v. Estate of F. P. Buan, et al., L-11438 and Santiago Sambrano,
et al. v. PSC, et al., L-11439 & L- 11542-46, July 31, 1958)

(T)he Public Service Commission, . . . has the power to specify and define the terms and conditions upon
which the public utility shall be operated, and to make reasonable rules and regulations for its operation and
the compensation which the utility shall receive for its services to the public, and for any failure to comply with
such rules and regulations or the violation of any of the terms and conditions for which the license was granted,
the Commission has ample power to enforce the provisions of the license or even to revoke it, for any failure or
neglect to comply with any of its terms and provisions. x xx x x x14

Respondent likewise contends that, in suspending its 28 CPCs, the LTFRB acted in reckless disregard of the
property rights of respondent as a franchise holder, considering that it has put in substantial investments
amounting to hundreds of millions in running its operations. In this regard, the Court's ruling in the case
of Luque v. Villegas 15 is apropos:

xxxx

Contending that they possess valid and subsisting certificates of public convenience, the petitioning public
services aver that they acquired a vested right to operate their public utility vehicles to and from Manila as
appearing in their said respective certificates of public convenience.

Petitioner's argument pales on the face of the fact that the very nature of a certificate of public convenience is
at cross purposes with the concept of vested rights. To this day, the accepted view, at least insofar as the
State is concerned, is that "a certificate of public convenience constitutes neither a franchise nor a contract,
confers no property right, and is a mere license or privilege." The holder of such certificate does not acquire a
property right in the route covered thereby. Nor does it confer upon the holder any proprietary right or interest
of franchise in the public highways. Revocation of this certificate deprives him of no vested right. Little
reflection is necessary to show that the certificate of public convenience is granted with so many strings
attached. New and additional burdens, alteration of the certificate, and even revocation or annulment thereof is
reserved to the State.

We need but add that the Public Service Commission, a government agency vested by law with "jurisdiction,
supervision, and control over all public services and their franchises, equipment, and other properties" is
empowered, upon proper notice and hearing, amongst others: (1) "[t]o amend, modify or revoke at any time a
certificate issued under the provisions of this Act [Commonwealth Act 146, as amended], whenever the facts
and circumstances on the strength of which said certificate was issued have been misrepresented or materially
changed"; and (2) "[t]o suspend or revoke any certificate issued under the provisions of this Act whenever the
holder thereof has violated or wilfully and contumaciously refused to comply with any order, rule or regulation
of the Commission or any provision of this Act: Provided, That the Commission, for good cause, may prior to
the hearing suspend for a period not to exceed thirty days any certificate or the exercise of any right or
authority issued or granted under this Act by order of the Commission, whenever such step shall in the
judgment of the Commission be necessary to avoid serious and irreparable damage or inconvenience to the
public or to private interests."

Jurisprudence echoes the rule that the Commission is authorized to make reasonable rules and regulations for
the operation of public services and to enforce them. In reality, all certificates of public convenience issued are
subject to the condition that all public services "shall observe and comply [with] ... all the rules and regulations
of the Commission relative to" the service. To further emphasize the control imposed on public services, before
any public service can "adopt, maintain, or apply practices or measures, rules, or regulations to which the
public shall be subject in its relation with the public service," the Commission's approval must first be had.

And more. Public services must also reckon with provincial resolutions and municipal ordinances relating to the
operation of public utilities within the province or municipality concerned. The Commission can require
compliance with these provincial resolutions or municipal ordinances.

Illustrative of the lack of "absolute, complete, and unconditional" right on the part of public services to operate
because of the delimitations and restrictions which circumscribe the privilege afforded a certificate of public
convenience is the following from the early (March 31, 1915) decision of this Court in Fisher vs. Yangco
Steamship Company, 31 Phil. 1, 18-19:

Common carriers exercise a sort of public office, and have duties to perform in which the public is interested.
Their business is, therefore, affected with a public interest, and is subject of public regulation. (New Jersey
Steam Nav. Co. vs. Merchants Banks, 6 How. 344, 382; Munn vs. Illinois, 94 U.S. 113, 130.) Indeed, this right
of regulation is so far beyond question that it is well settled that the power of the state to exercise legislative
control over railroad companies and other carriers 'in all respects necessary to protect the public against
danger, injustice and oppression' may be exercised through boards of commissioners. (New York, etc. R. Co.
vs. Bristol, 151 U.S. 556, 571; Connecticut, etc. R. Co. vs. Woodruff, 153 U.S. 689.).

xxxx

.... The right to enter the public employment as a common carrier and to offer one's services to the public for
hire does not carry with it the right to conduct that business as one pleases, without regard to the interests of
the public and free from such reasonable and just regulations as may be prescribed for the protection of the
public from the reckless or careless indifference of the carrier as to the public welfare and for the prevention of
unjust and unreasonable discrimination of any kind whatsoever in the performance of the carrier's duties as a
servant of the public.

Business of certain kinds, including the business of a common carrier, holds such a peculiar relation to the
public interest that there is superinduced upon it the right of public regulation. (Budd vs. New York, 143 U.S.
517, 533.) When private property is "affected with a public interest it ceases to be Juris privati only." Property
becomes clothed with a public interest when used in a manner to make it of public consequence and affect the
community at large. "When, therefore, one devotes his property to a use in which the public has an interest,
he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the
common good, to the extent of the interest he has thus created. He may withdraw his grant by discontinuing
the use, but so long as he maintains the use he must submit to control." (Munn vs. Illinois, 94 U.S. 113;
Georgia R. & Bkg. Co. vs. Smith, 128 U.S. 174; Budd vs. New York, 143 U.S. 517; Louisville, etc. Ry. Co. vs.
Kentucky, 161 U.S. 677, 695.).

The foregoing, without more, rejects the vested rights theory espoused by petitioning bus operators.

x x x16

Neither is the Court convinced by respondent's contention that the authority given to petitioner, under the
abovequoted Section 16(n) of the Public Service Act does not mean that petitioner is given the power to
suspend the entire operations of a transport company. Respondent must be reminded that, as quoted above,
the law clearly states that petitioner has the power "[t]o suspend or revoke any certificate issued under the
provisions of [the Public Service Act] whenever the holder thereof has violated or willfully and
contumaciously refused to comply with any order rule or regulation of the Commission or any
provision of this Act x x x" This Court has held that when the context so indicates, the word "any" may be
construed to mean, and indeed it has been frequently used in its enlarged and Plural sense as meaning "all "
"all or every" "each " "each one of all " ' ' ' ' ' "every" without limitation; indefinite number or quantity, an
indeterminate unit or number of units out of many or all, one or more as the case may be, several,
some. 17 Thus, in the same vein, the Merriam-Webster Dictionary defines the word "any" as "one, some, or all
indiscriminately of whatever quantity"; "used to indicate a maximum or whole"; "unmeasured or unlimited in
amount, number, or extent." 18 Hence, under the above definitions, petitioner undoubtedly wields authority,
under the law, to suspend not only one but all of respondent's CPCs if warranted, which is proven to be the
case here.

As to whether or not the penalty imposed by petitioner is reasonable, respondent appears to trivialize the
effects of its deliberate and shameless violations of the law. Contrary to its contention, this is not simply a case
of one erring bus unit. Instead, the series or combination of violations it has committed with respect to the ill-
fated bus is indicative of its design and intent to blatantly and maliciously defy the law and disregard, with
impunity, the regulations imposed by petitioner upon all holders of CPCs. Thus, the Court finds nothing
irregular in petitioner's imposition of the penalty of sixmonths suspension of the operations of respondent's 28
CPCs. In other words, petitioner did not commit grave abuse of discretion in imposing the questioned penalty.

Lastly, the suspension of respondent's CPCs finds relevance in light of the series of accidents met by different
bus units owned by different operators in recent events. This serves as a reminder to all operators of public
utility vehicles that their franchises and CPCs are mere privileges granted by the government. As such, they
are sternly warned that they should always keep in mind that, as common carriers, they bear the responsibility
of exercising extraordinary diligence in the transportation of their passengers. Moreover, they should
conscientiously comply with the requirements of the law in the conduct of their operations, failing which they
shall suffer the consequences of their own actions or inaction.

WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals, dated June 26, 2014 in
CA-GR. SP No. 134772, is REVERSED and SET ASIDE. The March 14, 2014 Decision of the Land
Transportation Franchising and Regulatory Board is REINSTATED.

SO ORDERED.
 THIRD DIVISION

July 13, 2016

G.R. No. 181375

PHIL-NIPPON KYOEI, CORP., Petitioner,

vs.
ROSALIA T. GUDELOSAO, on her behalf and in behalf of minor children CHRISTY MAE T.
GUDELOSAO and ROSE ELDEN T. GUDELOSAO, CARMEN TANCONTIAN, on her behalf and in behalf
of the children CAMELA B. TANCONTIAN, BEVERLY B. TANCONTIAN, and ACE B.
TANCONTIAN, Respondents.

DECISION

JARDELEZA, J.:

This is a petition for review on certiorari1under Rule 45 of the Revised Rules of Court filed by Phil-Nippon
Kyoei, Corp. (Petitioner) from the Decision 2 of the Court of Appeals (CA) dated October 4, 2007 (CA Decision)
and its Resolution3 dated January 11, 2008 in CA-G.R. SP No. 95456. The CA reinstated the Labor Arbiter's
Decision4 dated August 5, 2004 (LA Decision) with the modification, among others, that petitioner is liable to
respondents under the insurance cover it procured from South Sea Surety & Insurance Co., Inc. (SSSICI). The
CA ruled that petitioner's liability would be extinguished only upon payment by SSSICI of the insurance
proceeds to respondents.5

Facts

Petitioner, a domestic shipping corporation, purchased a "Ro-Ro" passenger/cargo vessel "MV Mahlia" in
Japan in February 2003.6 For the vessel's one month conduction voyage from Japan to the Philippines,
petitioner, as local principal, and Top Ever Marine Management Maritime Co., Ltd. (TMCL), as foreign
principal, hired Edwin C. Gudelosao, Virgilio A. Tancontian, and six other crewmembers. They were hired
through the local manning agency of TMCL, Top Ever Marine Management Philippine Corporation (TEMMPC).
TEMMPC, through their president and general manager, Capt. Oscar Orbeta (Capt. Orbeta), and the eight
crewmembers signed separate contracts of employment. Petitioner secured a Marine Insurance Policy
(Maritime Policy No. 00001) from SSSICI over the vessel for P10,800,000.00 against loss, damage, and third
party liability or expense, arising from the occurrence of the perils of the sea for the voyage of the vessel from
Onomichi, Japan to Batangas, Philippines. This Marine Insurance Policy included Personal Accident Policies
for the eight crewmembers for P3,240,000.00 each in case of accidental death or injury. 7

On February 24, 2003, while still within Japanese waters, the vessel sank due to extreme bad weather
condition. Only Chief Engineer Nilo Macasling survived the incident while the rest of the crewmembers,
including Gudelosao and Tancontian, perished.8

Respondents, as heirs and beneficiaries of Gudelosao and Tancontian, filed separate complaints for death
benefits and other damages against petitioner, TEMMPC, Capt. Orbeta, TMCL, and SSSICI, with the
Arbitration Branch of the National Labor Relations Commission (NLRC).9

On August 5, 2004, Labor Arbiter (LA) Pablo S. Magat rendered a Decision 10 finding solidary liability among
petitioner, TEMMPC, TMCL and Capt. Orbeta. The LA also found SSSICI liable to the respondents for the
proceeds of the Personal Accident Policies and attorney's fees. The LA, however, ruled that the liability of
petitioner shall be deemed extinguished only upon SSSICI's payment of the insurance proceeds. The
dispositive portion of the LA Decision reads:

WHEREFORE, premises considered, CAPT. OSCAR ORBETA, [TEMMPC], [TMCL], and PHIL-NIPPON
KYOEI CORPORATION are hereby directed to pay solidarily the complainants as follows:
 Death Benefits Burial Expenses 10% atty's [fees]

1. ROSALIA T. GUDELOSAO: US$50,000 US$1,000 US$5,100

2. CARMEN B. TANCONTIAN: US$50,000 US$1,000 US$5,100

3. CARMELA B. TANCONTIAN: US$7,000 US$700

4. BEVERLY B. TANCONTIAN: US$7,000 US$700

5. ACE B. TANCONTIAN: US$7,000 US$700

Further, respondent SOUTH SEA SURETY & INSURANCE CO., INC. is hereby directed to pay as
beneficiaries complainants ROSALIA T. GUDELOSAO and CARMEN B. TANCONTIAN [P]3,240,000.00
each for the proceeds of the Personal Accident Policy Cover it issued for each of the deceased seafarers
EDWIN C. GUDELOSAO and VIRGILIO A. T ANCONTIAN plus 10% attorney's fees thereof at [P]324,000.00
each thereof or a total of [P]648,000.00.

Nevertheless, upon payment of said proceeds to said widows by respondent SOUTH SEA SURETY &
INSURANCE CO., INC., respondent PHIL-NIPPON CORPORATION's liability to all the complainants is
deemed extinguished.

Any other claim is hereby dismissed for lack of merit.

SO ORDERED.11

On appeal, the NLRC modified the LA Decision in a Resolution 12 dated February 28, 2006, the dispositive
portion of which reads:

WHEREFORE, premises considered, the Appeals of Complainants and PNKC are GRANTED but only partially
in the case of Complainants' Appeal, and the Appeal of [SSSICI] is DISMISSED for lack of merit. Accordingly,
the Decision is SUSTAINED subject to the modification that [SSSICI] is DIRECTED to pay Complainants in
addition to their awarded claims, in the appealed decision, additional death benefits of US$7,000 each to the
minor children of Complainant Gudelosao, namely, Christy Mae T. Gudelosao and Rose Elden T. Gudelosao.

As regards the other issues, the appealed Decision is SUSTAINED.

SO ORDERED.13

The NLRC absolved petitioner, TEMMPC and TMCL and Capt. Orbeta from any liability based on the limited
liability rule.14 It, however, affirmed SSSICI's liability after finding that the Personal Accident Policies answer for
the death benefit claims under the Philippine Overseas Employment Administration Standard Employment
Contract (POEASEC).15 Respondents filed a Partial Motion for Reconsideration which the NLRC denied in a
Resolution dated May 5, 2006.16

Respondents filed a petition for certiorari17before the CA where they argued that the NLRC gravely abused its
discretion in ruling that TEMMPC, TMCL, and Capt. Orbeta are absolved from the terms and conditions of the
POEA-SEC by virtue of the limited liability rule. Respondents also argued that the NLRC gravely abused its
discretion in ruling that the obligation to pay the surviving heirs rests solely on SSSICI. The CA granted the
petition, the dispositive portion thereof reads:

WHEREFORE for being impressed with merit the petition is hereby GRANTED. Accordingly, the Resolution
dated February 28, 2006, and Resolution, dated May 5, 2006, of the public respondent NLRC are hereby SET
ASIDE. The Decision of the Labor Arbiter dated [August 5, 2004] is REINSTATED, subject to the following
modifications:
(1) [R]espondents CAPT. OSCAR ORBETA, [TEMMPC] and [TMCL] (the manning agency), are hereby
directed to pay solidarily the complainants as follows:

Death Benefits Burial Expenses 10% atty's fees

ROSALIA T. GUDELOSAO: US$50,000 US$1,000 US$5,1OO

CARMEN B. TANCONTIAN: US$50,000 US$1,000 US$5,1OO

CARMELA B. TANCONTIAN: US$7,000 US$700

BEVERLY B. TANCONTIAN: US$7,000 US$700

ACE B. TANCONTIAN: US$7,000 US$700

Further, [respondents] CAPT. OSCAR ORBETA, [TEMMPC] and [TMCL] (the manning agency) are hereby
directed to pay solidarily the complainants in addition to their awarded claims, additional death benefits of
US$7,000 each to the minor children of petitioner Rosalia T. Gudelosao, namely, Christy Mae T. Gudelosao
and Rose Elden T. Gudelosao.

Respondent SOUTH SEA SURETY & INSURANCE CO., INC. is hereby directed to pay as beneficiaries
complainants ROSALIA T. GUDELOSAO and CARMEN B. TANCONTIAN [P]3,240,000.00 each for the
proceeds of the Personal Accident Policy Cover it issued for each of the deceased seafarers EDWIN C.
GUDELOSAO and VIRGILIO A. TANCONTIAN plus 10% attorney's fees thereof at [P]324,000.00 each thereof
or a total of [P]648,000.00.

Nevertheless, upon payment of said proceeds to said widows by respondent SOUTH SEA SURETY &
INSURANCE CO., INC., respondent PHIL-NIPPON CORPORATION's liability to all the complainants is
deemed extinguished.

SO ORDERED.18

The CA found that the NLRC erred when it ruled that the obligation of petitioner, TEMMPC and TMCL for the
payment of death benefits under the POEA-SEC was ipso facto transferred to SSSICI upon the death of the
seafarers. TEMMPC and TMCL cannot raise the defense of the total loss of the ship because its liability under
POEA-SEC is separate and distinct from the liability of the shipowner. 19 To disregard the contract, which has
the force of law between the parties, would defeat the purpose of the Labor Code and the rules and regulations
issued by the Department of Labor and Employment (DOLE) in setting the minimum terms and conditions of
employment for the protection of Filipino seamen. 20 The CA noted that the benefits being claimed are not
dependent upon whether there is total loss of the vessel, because the liability attaches even if the vessel did
not sink.21 Thus, it was error for the NLRC to absolve TEMMPC and TMCL on the basis of the limited liability
rule.

Significantly though, the CA ruled that petitioner is not liable under the POEA-SEC, but by virtue of its being a
shipowner.22 Thus, petitioner is liable for the injuries to passengers even without a determination of its fault or
negligence.1âwphi1 It is for this reason that petitioner obtained insurance from SSSICI - to protect itself against
the consequences of a total loss of the vessel caused by the perils of the sea. Consequently, SSSICI's liability
as petitioner's insurer directly arose from the contract of insurance against liability (i.e., Personal Accident
Policy).23 The CA then ordered that petitioner's liability will only be extinguished upon payment by SSSICI of
the insurance proceeds.24

Petitioner filed a Motion for Reconsideration25 dated November 5, 2007 but this was denied by the CA in its
Resolution26 dated January 11, 2008. On the other hand, since SSSICI did not file a motion for reconsideration
of the CA Decision, the CA issued a Partial Entry of Judgment27 stating that the decision became final and
executory as to SSSICI on October 27, 2007.
Hence, this petition where petitioner claims that the CA erred in ignoring the fundamental rule in Maritime Law
that the shipowner may exempt itself from liability by abandoning the vessel and freight it may have earned
during the voyage, and the proceeds of the insurance if any. Since the liability of the shipowner is limited to the
value of the vessel unless there is insurance, any claim against petitioner is limited to the proceeds arising
from the insurance policies procured from SSSICI. Thus, there is no reason in making petitioner's exoneration
from liability conditional on SSSICI's payment of the insurance proceeds.

On December 8, 2008, TEMMPC filed its Manifestation 28 informing us of TEMMPC and TMCL's Joint Motion to
Dismiss the Petition and the CA's Resolution 29 dated January 11, 2008 granting it. The dismissal is based on
the execution of the Release of All Rights and Full Satisfaction Claim30 (Release and Quitclaim) on December
14, 2007 between respondents and TEMMPC, TMCL, and Capt. Orbeta. In a Resolution 31 dated January 28,
2009, we noted that TEMMPC, TMCL, and Capt. Orbeta will no longer comment on the Petition.

On the other hand, SSSICI filed its Comment32 to the petition dated September 3, 2010. It alleged that the
NLRC has no jurisdiction over the insurance claim because claims on the Personal Accident Policies did not
arise from employer-employee relations. It also alleged that petitioner filed a complaint for sum of money33 in
the Regional Trial Court (RTC) of Manila, Branch 46, where it prays for the payment of the insurance proceeds
on the individual Marine Insurance Policy with a Personal Accident Policy covering the crewmembers of MV
Mahlia. This case was eventually dismissed and is now subject of an appeal 34 before the CA. SSSICI prays
that this matter be considered in resolving the present case. 35

Issues

I. Whether the doctrine of real and hypothecary nature of maritime law (also known as the limited liability rule)
applies in favor of petitioner.

II. Whether the CA erred in ruling that the liability of petitioner is extinguished only upon SSSICI's payment of
insurance proceeds.

Discussion

I. Liability under the POEA

Standard Employment Contract.

At the outset, the CA erred in absolving petitioner from the liabilities under the POEA-SEC. Petitioner was the
local principal of the deceased seafarers for the conduction trip of MV Mahlia. Petitioner hired them through
TMCL, which also acted through its agent, TEMMPC. Petitioner admitted its role as a principal of its agents
TMCL, TEMMPC and Capt. Orbeta in their Joint Partial Appeal 36 before the NLRC.37 As such, it is solidarily
liable with TEMMPC and TMCL for the benefits under the POEA-SEC.

Doctrine of limited liability is not

applicable to claims under POEA-SEC.

In this jurisdiction, the limited liability rule is embodied in Articles 587, 590 and 837 under Book III of the Code
of Commerce, viz:

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which arise from
the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself
therefrom by abandoning the vessel with all her equipment and the freightage he may have earned during the
voyage.

Art. 590. The co-owners of a vessel shall be civilly liable, in the proportion of their contribution to the common
fund, for the results of the acts of the captain, referred to in Art. 587.
Each part-owner may exempt himself from this liability by the abandonment before a notary of the part of the
vessel belonging to him.

Art. 837. The civil liability incurred by the shipowners in the cases prescribed in this section, shall be
understood as limited to the value of the vessel with all its appurtenances and freightage earned during the
voyage.

Article 83 7 applies the limited liability rule in cases of collision. Meanwhile, Articles 587 and 590 embody the
universal principle of limited liability in all cases wherein the shipowner or agent may be properly held liable for
the negligent or illicit acts of the captain.38 These articles precisely intend to limit the liability of the shipowner or
agent to the value of the vessel, its appurtenances and freightage earned in the voyage, provided that the
owner or agent abandons the vessel.39 When the vessel is totally lost, in which case abandonment is not
required because there is no vessel to abandon, the liability of the shipowner or agent for damages is
extinguished.40 Nonetheless, the limited liability rule is not absolute and is without exceptions. It does not apply
in cases: (1) where the injury or death to a passenger is due either to the fault of the shipowner, or to the
concurring negligence of the shipowner and the captain; (2) where the vessel is insured; and (3) in workmen's
compensation claims.41

In Abueg v. San Diego,42 we ruled that the limited liability rule found in the Code of Commerce is inapplicable
in a liability created by statute to compensate employees and laborers, or the heirs and dependents, in cases
of injury received by or inflicted upon them while engaged in the performance of their work or employment, to
wit:

The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions of the
Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime trade and
sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these
adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed necessary to
confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and
freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment, and freight, his
liability was extinguished.

But the provisions of the Code of Commerce invoked by appellant have no room in the application of the
Workmen's Compensation Act which seeks to improve, and aims at the amelioration of, the condition of
laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a
passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of the
ship as a result of collision; nor the responsibility for wages of the crew, but a liability created by a statute to
compensate employees and laborers in cases of injury received by or inflicted upon them, while engaged in the
performance of their work or employment, or the heirs and dependents of such laborers and employees in the
event of death caused by their employment. Such compensation has nothing to do with the provisions of the
Code of Commerce regarding maritime commerce. It is an item in the cost of production which must be
included in the budget of any well-managed industry.43 (Underscoring supplied.)

We see no reason why the above doctrine should not apply here.

Act No. 3428, otherwise known as The Workmen's Compensation Act 44 is the first law on workmen's
compensation in the Philippines for work-related injury, illness, or death. This was repealed on November 1,
1974 by the Labor Code,45 and was further amended on December 27, 1974 by Presidential Decree No.
626.46 The pertinent provisions are now found in Title II, Book IV of the Labor Code on Employees
Compensation and State Insurance Fund.

The death benefits granted under Title II, Book IV of the Labor Code are similar to the death benefits granted
under the POEA-SEC.47 Specifically, its Section 20(A)(l) and (4)(c) provides that:

1. In case of work-related death of the seafarer, during the term of his contract the employer shall pay his
beneficiaries the Philippine Currency equivalent to the amount of Fifty Thousand US dollars (US$50,000) and
an additional amount of Seven Thousand US dollars (US$7,000) to each child under the age of twenty-one
(21) but not exceeding four (4) children, at the exchange rate prevailing during the time of payment.

xxx

4. The other liabilities of the employer when the seafarer dies as a result of work-related injury or illness during
the term of employment are as follows:

xxx

c. The employer shall pay the beneficiaries of the seafarer the [Philippine] currency equivalent to the amount of
One Thousand US dollars (US$1,000) for burial expenses at the exchange rate prevailing during the time of
payment.

Akin to the death benefits under the Labor Code, these benefits under the POEA-SEC are given when the
employee dies due to a work-related cause during the term of his contract.48 The liability of the shipowner or
agent under the POEA-SEC has likewise nothing to do with the provisions of the Code of Commerce regarding
maritime commerce. The death benefits granted under the POEA-SEC is not due to the death of a passenger
by or through the misconduct of the captain or master of the ship; nor is it the liability for the loss of the ship as
result of collision; nor the liability for wages of the crew. It is a liability created by contract between the
seafarers and their employers, but secured through the State's intervention as a matter of constitutional and
statutory duty to protect Filipino overseas workers and to secure for them the best terms and conditions
possible, in order to compensate the seafarers' heirs and dependents in the event of death while engaged in
the performance of their work or employment. The POEA-SEC prescribes the set of standard provisions
established and implemented by the POEA containing the minimum requirements prescribed by the
government for the employment of Filipino seafarers. While it is contractual in nature, the POEA-SEC is
designed primarily for the protection and benefit of Filipino seamen in the pursuit of their employment on board
ocean-going vessels.49 As such, it is deemed incorporated in every Filipino seafarers' contract of
employment.50 It is established pursuant to POEA's power "to secure the best terms and conditions of
employment of Filipino contract workers and ensure compliance therewith" and "to protect the well-being of
Filipino workers overseas" 51 pursuant to Article 17 of the Labor Code as amended by Executive Order (EO)
Nos. 79752 and 247.53

But while the nature of death benefits under the Labor Code and the POEA-SEC are similar, the death benefits
under the POEA-SEC are intended to be separate and distinct from, and in addition to, whatever benefits the
seafarer is entitled to under Philippine laws, including those benefits which may be claimed from the State
Insurance Fund.54

Thus, the claim for death benefits under the POEA-SEC is the same species as the workmen's compensation
claims under the Labor Code – both of which belong to a different realm from that of Maritime Law. Therefore,
the limited liability rule does not apply to petitioner's liability under the POEA-SEC.

Nevertheless, the Release and Quitclaim benefit petitioner as a solidary debtor.

All the same, the Release and Quitclaim executed between TEMMPC, TMCL and Capt. Oscar Orbeta, and
respondents redounded to the benefit of petitioner as a solidary debtor.

Petitioner is solidarily liable with TEMMPC and TMCL for the death benefits under the POEA-SEC. The basis
of the solidary liability of the principal with the local manning agent is found in the second paragraph of Section
10 of the Migrant Workers and Overseas Filipino Act of 1995,55 which, in part, provides: "[t]he liability of the
principal/employer and the recruitment/placement agency for any and all claims under this section shall be joint
and several." This provision, is in tum, implemented by Section 1 (e)(8), Rule 2, Part II of the POEA Rules and
Regulations Governing the Recruitment and Employment of Seafarers, which requires the undertaking of the
manning agency to "[a]ssume joint and solidary liability with the employer for all claims and liabilities which
may arise in connection with the implementation of the employment contract [and POEA-SEC]."
We have consistently applied the Civil Code provisions on solidary obligations, specifically Articles 1217 56 and
1222,57 to labor cases.58 We explained in Varorient Shipping Co., Inc. v. NLRC59the nature of the solidary
liability in labor cases, to wit:

x x x The POEA Rules holds her, as a corporate officer, solidarily liable with the local licensed manning
agency. Her liability is inseparable from those of Varorient and Lagoa. If anyone of them is held liable then all
of them would be liable for the same obligation. Each of the solidary debtors, insofar as the creditor/s
is/are concerned, is the debtor of the entire amount; it is only with respect to his co-debtors that
he/she is liable to the extent of his/her share in the obligation. Such being the case, the Civil Code
allows each solidary debtor, in actions filed by the creditor/s, to avail himself of all defenses which are
derived from the nature of the obligation and of those which are personal to him, or pertaining to his
share. He may also avail of those defenses personally belonging to his co-debtors, but only to the extent of
their share in the debt. Thus, Varorient may set up all the defenses pertaining to Colarina and Lagoa; whereas
Colarina and Lagoa are liable only to the extent to which Varorient may be found liable by the court. The
complaint against Varorient, Lagoa and Colarina is founded on a common cause of action; hence, the defense
or the appeal by anyone of these solidary debtors would redound to the benefit of the others.

xxx

x x x If Varorient were to be found liable and made to pay pursuant thereto, the entire obligation would already
be extinguished even if no attempt was made to enforce the judgment against Colarina. Because there
existed a common cause of action against the three solidary obligors, as the acts and omissions
imputed against them are one and the same, an ultimate finding that Varorient was not liable would,
under these circumstances, logically imply a similar exoneration from liability for Colarina and Lagoa,
whether or not they interposed any defense.60 (Emphasis supplied.)

Thus, the rule is that the release of one solidary debtor redounds to the benefit of the others. 61 Considering that
petitioner is solidarily liable with TEMMPC and TMCL, we hold that the Release and Quitclaim executed by
respondents in favor of TEMMPC and TMCL redounded to petitioner's benefit. Accordingly, the liabilities of
petitioner under Section 20(A)(l) and (4)(c) of the POEA-SEC to respondents are now deemed extinguished.
We emphasize, however, that this pronouncement does not foreclose the right of reimbursement of the
solidary debtors who paid (i.e., TEMMPC and TMCL) from petitioner as their co-debtor.

II. Liability under the Personal

Accident Policies.

The NLRC has jurisdiction over the

claim on the Personal Accident
Policies.

We find that the CA correctly upheld the NLRC's jurisdiction to order SSSICI to pay respondents the value of
the proceeds of the Personal Accident Policies.

The Migrant Workers and Overseas Filipinos Act of 1995 gives the Labor Arbiters of the NLRC the original and
exclusive jurisdiction over claims arising out of an employer-employee relationship or by virtue of any law or
contract involving Filipino workers for overseas deployment, including claims for actual, moral, exemplary and
other forms of damage. It further creates a joint and several liability among the principal or employer, and the
recruitment/placement agency, for any and all claims involving Filipino workers, viz:

SEC. 10. Money Claims. - Notwithstanding any provision of law to the contrary, the Labor Arbiters of the
National Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear
and decide, within ninety (90) calendar days after the filing of the complaint, the claims arising out of an
employer-employee relationship or by virtue of any law or contract involving Filipino workers for
overseas deployment including claims for actual, moral, exemplary and other forms of damages. Consistent
with this mandate, the NLRC shall endeavor to update and keep abreast with the developments in the global
services industry.

The liability of the principal/employer and the recruitment/placement agency for any and all claims under this
section shall be joint and several. This provision shall be incorporated in the contract for overseas employment
and shall be a condition precedent for its approval. The performance bond to be filed by the
recruitment/placement agency, as provided by law, shall be answerable for all money claims or damages that
may be awarded to the workers. If the recruitment/placement agency is a juridical being, the corporate officers
and directors and partners as the case may be, shall themselves be jointly and solidarily liable with the
corporation or partnership for the aforesaid claims and damages. x x x (Emphasis supplied.)

In Finman General Assurance Corp. v. Inocencio,62 we upheld the jurisdiction of the POEA to determine a
surety's liability under its bond. We ruled that the adjudicatory power to do so is not vested with the Insurance
Commission exclusively. The POEA (now the NLRC) is vested with quasi-judicial powers over all cases,
including money claims, involving employer-employee relations arising out of or by virtue of any law or contract
involving Filipino workers for overseas employment. 63 Here, the award of the insurance proceeds arose out of
the personal accident insurance procured by petitioner as the local principal over the deceased seafarers who
were Filipino overseas workers. The premiums paid by petitioner were, in actuality, part of the total
compensation paid for the services of the crewmembers.64 Put differently, the labor of the employees is the
true source of the benefits which are a form of additional compensation to them. Undeniably, such claim on the
personal accident cover is a claim under an insurance contract involving Filipino workers for overseas
deployment within the jurisdiction of the NLRC.

It must also be noted that the amendment under Section 37-A of the Migrant Workers and Overseas Filipinos
Act of 1995 on Compulsory Insurance Coverage does not apply.1âwphi1 The amendment requires the
claimant to bring any question or dispute in the enforcement of any insurance policy before the Insurance
Commission for mediation or adjudication. The amendment, however, took effect on May 8, 2010 long after the
Personal Accident Policies in this case were procured in 2003. Accordingly, the NLRC has jurisdiction over the
claim for proceeds under the Personal Accident Policies.

In any event, SSSICI can no longer assail its liability under the Personal Accident Policies. SSSICI failed to file
a motion for reconsideration on the CA Decision. In a Resolution dated April 24, 2008, the CA certified in a
Partial Entry of Judgment that the CA Decision with respect to SSSICI has become final and executory and is
recorded in the Book of Entries of Judgments.65 A decision that has acquired finality becomes immutable and
unalterable. This quality of immutability precludes the modification of a final judgment, even if the modification
is meant to correct erroneous conclusions of fact and law. This holds true whether the modification is made by
the court that rendered it or by the highest court in the land. Thus, SSSICI's liability on the Personal Accident
Policies can no longer be disturbed in this petition.

SSSICI 's liability as insurer under the

Personal Accident Policies is direct.

We, however, find that the CA erred in ruling that "upon payment of [the insurance] proceeds to said widows by
respondent SOUTH SEA SURETY & INSURANCE CO., INC., respondent PHIL-NIPPON CORPORATION's
liability to all the complainants is deemed extinguished."66

This ruling makes petitioner's liability conditional upon SSSICI's payment of the insurance proceeds. In doing
so, the CA determined that the Personal Accident Policies are casualty insurance, specifically one of liability
insurance. The CA determined that petitioner, as insured, procured from SSSICI the Personal Accident
Policies in order to protect itself from the consequences of the total loss of the vessel caused by the perils of
the sea. The CA found that the liabilities insured against are all monetary claims, excluding the benefits under
the POEA-SEC, of respondents in connection with the sinking of the vessel.

We rule that while the Personal Accident Policies are casualty insurance, they do not answer for petitioner's
liabilities arising from the sinking of the vessel. It is an indemnity insurance procured by petitioner for the
benefit of the seafarers. As a result, petitioner is not directly liable to pay under the policies because it is
merely the policyholder of the Personal Accident Policies.

Section 176 (formerly Sec. 174) of The Insurance Code 67 defines casualty insurance as follows:

SEC. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom are considered as falling exclusively within the
scope of other types of insurance such as fire or marine. It includes, but is not limited to, employer's
liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as written by non-life insurance companies, and
other substantially similar kinds of

insurance. (Emphasis supplied.)

Based on Section 176, casualty insurance may cover liability or loss arising from accident or
mishap.1âwphi1 In a liability insurance, the insurer assumes the obligation to pay third party in whose favor the
liability of the insured arises.68 On the other hand, personal accident insurance refers to insurance against
death or injury by accident or accidental means.69 In an accidental death policy, the accident causing the death
is the thing insured against.70

Notably, the parties did not submit the Personal Accident Policies with the NLRC or the CA. However, based
on the pleadings submitted by the parties, SSSICI admitted that the crewmembers of MV Mahlia are insured
for the amount of P3,240,000.00, payable upon the accidental death of the crewmembers. 71 It further admitted
that the insured risk is the loss of life or bodily injury brought about by the violent external event or accidental
means.72 Based on the foregoing, the insurer itself admits that what is being insured against is not the liability
of the shipowner for death or injuries to passengers but the death of the seafarers arising from accident.

The liability of SSSICI to the beneficiaries is direct under the insurance contract.73 Under the contract,
petitioner is the policyholder, with SSSICI as the insurer, the crewmembers as the cestui que vie or the person
whose life is being insured with another as beneficiary of the proceeds, 74 and the latter's heirs as beneficiaries
of the policies. Upon petitioner's payment of the premiums intended as additional compensation to the
crewmembers, SSSICI as insurer undertook to indemnify the crewmembers' beneficiaries from an unknown or
contingent event.75 Thus, when the CA conditioned the extinguishment of petitioner's liability on SSSICI's
payment of the Personal Accident Policies' proceeds, it made a finding that petitioner is subsidiarily liable for
the face value of the policies. To reiterate, however, there is no basis for such finding; there is no obligation on
the part of petitioner to pay the insurance proceeds because petitioner is, in fact, the obligee or policyholder in
the Personal Accident Policies. Since petitioner is not the party liable for the value of the insurance proceeds, it
follows that the limited liability rule does not apply as well.

One final note. Petitioner's claim that the limited liability rule and its corresponding exception (i.e., where the
vessel is insured) apply here is irrelevant because petitioner was not found liable under tort or quasi-
delict. Moreover, the insurance proceeds contemplated under the exception in the case of a lost vessel are the
insurance over the vessel and pending freightage for the particular voyage.76 It is not the insurance in favor of
the seafarers, the proceeds of which are intended for their beneficiaries. Thus, if ever petitioner is liable for the
value of the insurance proceeds under tort or quasi-delict, it would be from the Marine Insurance Policy over
the vessel and not from the Personal Accident Policies over the seafarers.

WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated October 4, 2007 and the
Resolution dated January 11, 2008 of the Court of Appeals are AFFIRMED WITH THE FOLLOWING
MODIFICATIONS:

(1) The death benefits are limited to the amount granted under the Release of All Rights and Full Satisfaction
of Claim dated December 14, 2007 executed between respondents and Top Ever Marine Management
Company Ltd., Top Ever Marine Management Philippine Corporation, and Captain Oscar Or beta;
(2) As a solidary co-debtor, petitioner's liability to respondents under the POEA-SEC is also extinguished by
virtue of the Release of All Rights and Full Satisfaction of Claim dated December 14, 2007; and

(3) The last paragraph of the dispositive portion of the CA Decision dated October 4, 2007 stating:
"Nevertheless, upon payment of said proceeds to said widows by respondent SOUTH SEA SURETY &
INSURANCE CO., INC., respondent PHIL-NIPPON CORPORATION's liability to all the complainants is
deemed extinguished ... " is DELETED.

SO ORDERED.
 SECOND DIVISION

August 2, 2017

G.R. No. 226345

PIONEER INSURANCE and SURETY CORPORATION, Petitioner,

vs.
APL CO. PTE. LTD.,, Respondent.

DECISION

MENDOZA, J.:

This petition for review on certiorari seeks to reverse and set aside the May 26, 2016 Decision1 and August 8,
2016 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 143912, which reversed the November 3,
2015 Decision3 of the Regional Trial Court, Branch 137, Makati City (RTC). The RTC affirmed in toto the March
9, 2015 Decision4 of the Municipal Trial Court, Branch 65, Makati City (MTC).

On January 13, 2012, the shipper, Chillies Export House Limited, turned over to respondent APL Co. Pte.
Ltd. (APL) 250 bags of chili pepper for transport from the port of Chennai, India, to Manila. The shipment, with
a total declared value of $12,272.50, was loaded on board MN Wan Hai 262. In turn, BSFIL Technologies,
Inc. (BSFIL), as consignee, insured the cargo with petitioner Pioneer Insurance and Surety
Corporation (Pioneer Insurance). 5

On February 2, 2012, the shipment arrived at the port of Manila and was temporarily stored at North Harbor,
Manila. On February 6, 2012, the bags of chili were withdrawn and delivered to BSFIL. Upon receipt thereof, it
discovered that 76 bags were wet and heavily infested with molds. The shipment was declared unfit for human
consumption and was eventually declared as a total loss. 6

As a result, BSFIL made a formal claim against APL and Pioneer Insurance. The latter hired an independent
insurance adjuster, which found that the shipment was wet because of the water which seeped inside the
container van APL provided. Pioneer Insurance paid BSFIL Pl 95,505.65 after evaluating the claim. 7

Having been subrogated to all the rights and cause of action of BSFIL, Pioneer Insurance sought payment
from APL, but the latter refused. This prompted Pioneer Insurance to file a complaint for sum of money against
APL.

MTC Ruling

In its March 9, 2015 decision, the MTC granted the complaint and ordered APL to pay Pioneer Insurance the
amount claimed plus six percent (6%) interest per annum from the filing of the complaint until fully paid, and
₱10,000.00 as attorney's fees. It explained that by paying BSFIL, Pioneer Insurance was subrogated to the
rights of the insured and, as such, it may pursue all the remedies the insured may have against the party
whose negligence or wrongful act caused the loss. The MTC declared that as a common carrier, APL was
bound to observe extraordinary diligence. It noted that because the goods were damaged while it was in APL's
custody, it was presumed that APL did not exercise extraordinary diligence, and that the latter failed to
overcome such presumption. The dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering defendant APL Co. Pte Ltd. to pay
plaintiff the amount of ₱195,505.65 plus 6% interest per annum from the filing of this case (01 February 2013)
until the whole amount is fully paid and the amount of ₱10,000.00 as attorney's fees; and the costs.

SO ORDERED.8
Aggrieved, APL appealed to the RTC.

The RTC Ruling

In its November 3, 2015 decision, the RTC concurred with the MTC. It agreed that APL was presumed to have
acted negligently because the goods were damaged while in its custody. In addition, the RTC stated that under
the Carriage of Goods by Sea Act (COOSA), lack of written notice shall not prejudice the right of the shipper to
bring a suit within one year after delivery of the goods. Further, the trial court stated that the shorter
prescriptive period set in the Bill of Lading could not apply because it is contrary to the provisions of the
COGSA. It ruled:

WHEREFORE, PREMISESCONSIDERED, the Decision dated March 9, 2015 of the Metropolitan Trial Court
Branch 65, Makati City is hereby AFFIRMED in toto, with costs against defendant-appellant APL.

SO ORDERED.9

Undeterred, APL appealed before the CA.

The CA Ruling

In its May 26, 2016 decision, the CA reversed the decisions of the trial courts and ruled that the present action
was barred by prescription. The appellate court noted that under Clause 8 of the Bill of Lading, the carrier shall
be absolved from any liability unless a case is filed within nine (9) months after the delivery of the goods. It
explained that a shorter prescriptive period may be stipulated upon, provided it is reasonable. The CA opined
that the nine-month prescriptive period set out in the Bill of Lading was reasonable and provided a sufficient
period of time within which an action to recover any loss or damage arising from the contract of carriage may
be instituted.

The appellate court pointed out that as subrogee, Pioneer Insurance was bound by the stipulations of the Bill of
Lading, including the shorter period to file an action. It stated that the contract had the force of law between the
parties and so it could not countenance an interpretation which may undermine the stipulations freely agreed
upon by the parties. The fallo reads:

WHEREFORE, premises considered, the instant Petition for Review is hereby GRANTED. The assailed
Decision dated November 3, 2015 of the RTC, Branch 137, Makati City in Civil Case No. 15-403 is
hereby REVERSED and SETASIDE. Respondent Pioneer Insurance & Surety Corporation's Complaint is
accordingly DISMISSED.

SO ORDERED.10

Pioneer Insurance moved for reconsideration, but the CA denied its motion in its August 8, 2016 Resolution.

Hence, this petition.

ISSUES

WHETHER THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED THAT
PETITIONER'S CLAIM AGAINST THE RESPONDENT IS ALREADY BARRED BY PRESCRIPTION; AND

II
WHETHER THE HONORABLE COURT OF APPEALS SERIOSULY ERRED IN HOLDING THAT THE ONE
YEAR PRESCRIPTIVE PERIOD PROVIDED UNDER THE CARRIAGE OF GOODS BY SEA ACT (COGSA)
IS NOT APPLICABLE IN THE INSTANT CASE.11

Pioneer Insurance insists the action, which was filed on February 1, 2013, was within the one year prescriptive
period under the COGSA after BSFIL received the goods on February 6, 2012. It argues that the nine-month
period provided under the Bill of Lading was inapplicable because the Bill of Lading itself states that in the
event that such time period is found to be contrary to any law compulsorily applicable, then the period
prescribed by such law shall then apply. Pioneer Insurance is of the view that the stipulation in the Bill of
Lading is subordinate to the COOSA. It asserts that while parties are free to stipulate the terms and conditions
of their contract, the same should not be contrary to law, morals, good customs, public order, or public policy.

Further, Pioneer Insurance contends that it was not questioning the validity of the terms and conditions of the
Bill of Lading as it was merely pointing out that the Bill of Lading itself provides that the nine-month prescriptive
period is subservient to the one-year prescriptive period under the COOSA.

In its Comment,12 dated November 3, 2016, APL countered that Pioneer Insurance erred in claiming that the
nine-month period under the Bill of Lading applies only in the absence of an applicable law. It stressed that the
nine-month period under the Bill of Lading applies, unless there is a law to the contrary. APL explained that
"absence" differs from "contrary." It, thus, argued that the nine-month period was applicable because it is not
contrary to any applicable law.

In its Reply,13 dated February 23, 2017, Pioneer Insurance averred that the nine-month period shall be applied
only if there is no law to the contrary. It noted that the COGSA was clearly contrary to the provisions of the Bill
of Lading because it provides for a different prescriptive period. For said reason, Pioneer Insurance believed
that the prescriptive period under the COGSA should be controlling.

The Court's Ruling

The petition is meritorious

It is true that in Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc. (Philippine
American), 14 the Court recognized that stipulated prescriptive periods shorter than their statutory counterparts
are generally valid because they do not affect the liability of the carrier but merely affects the shipper's remedy.
The CA, nevertheless, erred in applying Philippine American in the case at bench as it does not fall squarely
with the present circumstances.

It is elementary that a contract is the law between the parties and the obligations it carries must be complied
with in good faith.15 In Norton Resources and Development Corporation v. All Asia Bank Corporation, 16 the
Court reiterated that when the terms of the contract are clear, its literal meaning shall control, to wit:

The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of
the Civil Code: 11 [i]f the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control. "This provision is akin to the "plain
meaning rule" applied by Pennsylvania courts, which assumes that the intent of the parties to an instrument is
"embodied in the writing itself, and when the words are clear and unambiguous the intent is to be discovered
only from the express language of the agreement". It also resembles the "four corners" rule, a principle which
allows courts in some cases to search beneath the semantic surface for clues to meaning. A court's purpose in
examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them. The
process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract
before it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative
interpretations. Where the written terms of the contract are not ambiguous and can only be read one
way, the court will interpret the contract as a matter of law. If the contract is determined to be ambiguous,
then the interpretation of the contract is left to the court, to resolve the ambiguity in the light of the intrinsic
evidence.17 [Emphases supplied]
After a closer persual of the the Bill of Lading, the Court finds that its provisions are clear and unequivocal
leaving no room for interpretation.

In the Bill of Lading, it was categorically stated that the carrier shall in any event be discharged from all liability
whatsoever in respect of the goods, unless suit is brought in the proper forum within nine (9) months after
delivery of the goods or the date when they should have been delivered. The same, however, is qualified in
that when the said nine-month period is contrary to any law compulsory applicable, the period prescribed by
the said law shall apply.

The present case involves lost or damaged cargo. It has long been settled that in case of loss or damage of
cargoes, the one-year prescriptive period under the COOSA applies.18 It is at this juncture where the parties
are at odds, with Pioneer Insurance claiming that the one-year prescriptive period under the COOSA governs;
whereas APL insists that the nine-month prescriptive period under the Bill of Lading applies.

A reading of the Bill of Lading between the parties reveals that the nine-month prescriptive period is not
applicable in all actions or claims.1âwphi1 As an exception, the nine-month period is inapplicable when there is
a different period provided by a law for a particular claim or action-unlike in Philippine American where the Bill
of Lading stipulated a prescriptive period for actions without exceptions. Thus, it is readily apparent that the
exception under the Bill of Lading became operative because there was a compulsory law applicable which
provides for a different prescriptive period. Hence, strictly applying the terms of the Bill of Lading, the one-year
prescriptive period under the COOSA should govern because the present case involves loss of goods or
cargo. In finding so, the Court does not construe the Bill of Lading any further but merely applies its terms
according to its plain and literal meaning.

WHEREFORE, the petition is GRANTED. The November 3, 2015 Decision of the Regional Trial Court, Branch
137, Makati City in Civil Case No. 15-403 is REINSTATED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 171591 25 June 2012

ACE NAVIGATION CO., INC., petitioner,

vs.
FGU INSURANCE CORPORATION and PIONEER INSURANCE AND SURETY
CORPORATION, Respondents.

DECISION

PERLAS-BERNABE, J.:

This is an appeal under Rule 45 of the Rules of Court seeking to reverse the June 22, 2004 Decision 1 and
February 17, 2006 Resolution2 of the Court of Appeals (CA) ordering petitioner Ace Navigation Co., Inc., jointly
and severally with Cardia Limited, to pay respondents FGU Insurance Corp. and Pioneer Insurance and Surety
Corp. the sum of P213,518.20 plus interest at the rate of six percentum (6%) from the filing of the complaint
until paid.

The Facts

On July 19, 1990, Cardia Limited (CARDIA) shipped on board the vessel M/V Pakarti Tiga at Shanghai Port
China, 8,260 metric tons or 165,200 bags of Grey Portland Cement to be discharged at the Port of Manila and
delivered to its consignee, Heindrich Trading Corp. (HEINDRICH). The subject shipment was insured with
respondents, FGU Insurance Corp. (FGU) and Pioneer Insurance and Surety Corp. (PIONEER), against all
risks under Marine Open Policy No. 062890275 for the amount of P18,048,421.00. 3

The subject vessel is owned by P.T. Pakarti Tata (PAKARTI) which it chartered to Shinwa Kaiun Kaisha Ltd.
(SHINWA). 4 Representing itself as owner of the vessel, SHINWA entered into a charter party contract with Sky
International, Inc. (SKY), an agent of Kee Yeh Maritime Co. (KEE YEH), 5 which further chartered it to Regency
Express Lines S.A. (REGENCY). Thus, it was REGENCY that directly dealt with consignee HEINDRICH, and
accordingly, issued Clean Bill of Lading No. SM-1. 6

On July 23, 1990, the vessel arrived at the Port of Manila and the shipment was discharged. However, upon
inspection of HEINDRICH and petitioner Ace Navigation Co., Inc. (ACENAV), agent of CARDIA, it was found
that out of the 165,200 bags of cement, 43,905 bags were in bad order and condition. Unable to collect the
sustained damages in the amount of P1,423,454.60 from the shipper, CARDIA, and the charterer, REGENCY,
the respondents, as co-insurers of the cargo, each paid the consignee, HEINDRICH, the amounts of
P427,036.40 and P284,690.94, respectively, 7 and consequently became subrogated to all the rights and
causes of action accruing to HEINDRICH.

Thus, on August 8, 1991, respondents filed a complaint for damages against the following defendants:
"REGENCY EXPRESS LINES, S.A./ UNKNOWN CHARTERER OF THE VESSEL 'PAKARTI TIGA'/
UNKNOWN OWNER and/or DEMIFE (sic) CHARTERER OF THE VESSEL 'PAKARTI TIGA', SKY
INTERNATIONAL, INC. and/or ACE NAVIGATION COMPANY, INC." 8 which was docketed as Civil Case No.
90-2016.

In their answer with counterclaim and cross-claim, PAKARTI and SHINWA alleged that the suits against them
cannot prosper because they were not named as parties in the bill of lading. 9
Similarly, ACENAV claimed that, not being privy to the bill of lading, it was not a real party-in-interest from
whom the respondents can demand compensation. It further denied being the local ship agent of the vessel or
REGENCY and claimed to be the agent of the shipper, CARDIA. 10

For its part, SKY denied having acted as agent of the charterer, KEE YEH, which chartered the vessel from
SHINWA, which originally chartered the vessel from PAKARTI. SKY also averred that it cannot be sued as an
agent without impleading its alleged principal, KEE YEH. 11

On September 30, 1991, HEINDRICH filed a similar complaint against the same parties and Commercial Union
Assurance Co. (COMMERCIAL), docketed as Civil Case No. 91-2415, which was later consolidated with Civil
Case No. 91-2016. However, the suit against COMMERCIAL was subsequently dismissed on joint motion by
the respondents and COMMERCIAL. 12

Proceedings Before the RTC and the CA

In its November 26, 2001 Decision, 13 the RTC dismissed the complaint, the fallo of which reads:

WHEREFORE, premises considered, plaintiffs’ complaint is DISMISSED. Defendants’ counter-claim against

the plaintiffs are likewise dismissed, it appearing that plaintiff[s] did not act in evident bad faith in filing the
present complaint against them.

Defendant Pakarti and Shinwa’s cross-claims against their co-defendants are likewise dismissed for lack of
sufficient evidence.

No costs.

SO ORDERED.

Dissatisfied, the respondents appealed to the CA which, in its assailed June 22, 2004 Decision, 14 found
PAKARTI, SHINWA, KEE YEH and its agent, SKY, solidarily liable for 70% of the respondents' claim, with the
remaining 30% to be shouldered solidarily by CARDIA and its agent, ACENAV, thus:

WHEREFORE, premises considered, the Decision dated November 26, 2001 is hereby MODIFIED in the
sense that:

a) defendant-appellees P.T. Pakarti Tata, Shinwa Kaiun Kaisha, Ltd., Kee Yeh Maritime Co., Ltd. and
the latter’s agent Sky International, Inc. are hereby declared jointly and severally liable, and are
DIRECTED to pay FGU Insurance Corporation the amount of Two Hundred Ninety Eight Thousand
Nine Hundred Twenty Five and 45/100 (P298,925.45) Pesos and Pioneer Insurance and Surety Corp.
the sum of One Hundred Ninety Nine Thousand Two Hundred Eighty Three and 66/100 (P199,283.66)
Pesos representing Seventy (70%) percentum of their respective claims as actual damages plus
interest at the rate of six (6%) percentum from the date of the filing of the complaint; and

b) defendant Cardia Ltd. and defendant-appellee Ace Navigation Co., Inc. are DECLARED jointly and
severally liable and are hereby DIRECTED to pay FGU Insurance Corporation One Hundred Twenty
Eight Thousand One Hundred Ten and 92/100 (P128,110.92) Pesos and Pioneer Insurance and Surety
Corp. Eighty Five Thousand Four Hundred Seven and 28/100 (P85,407.28) Pesos representing thirty
(30%) percentum of their respective claims as actual damages, plus interest at the rate of six (6%)
percentum from the date of the filing of the complaint.

SO ORDERED.

Finding that the parties entered into a time charter party, not a demise or bareboat charter where the owner
completely and exclusively relinquishes possession, command and navigation to the charterer, the CA held
PAKARTI, SHINWA, KEE YEH and its agent, SKY, solidarily liable for 70% of the damages sustained by the
cargo. This solidarity liability was borne by their failure to prove that they exercised extraordinary diligence in
the vigilance over the bags of cement entrusted to them for transport. On the other hand, the CA passed on the
remaining 30% of the amount claimed to the shipper, CARDIA, and its agent, ACENAV, upon a finding that the
damage was partly due to the cargo's inferior packing.

With respect to REGENCY, the CA affirmed the findings of the RTC that it did not acquire jurisdiction over its
person for defective service of summons.

PAKARTI's, SHINWA's, SKY's and ACENAV's respective motions for reconsideration were subsequently
denied in the CA's assailed February 17, 2006 Resolution.

Issues Before the Court

PAKARTI, SHINWA, SKY and ACENAV filed separate petitions for review on certiorari before the Court,
docketed as G.R. Nos. 171591, 171614, and 171663, which were ordered consolidated in the Court’s
Resolution dated July 31, 2006. 15

On April 21, 2006, SKY manifested 16 that it will no longer pursue its petition in G.R. No. 171614 and has
preferred to await the resolution in G.R. No. 171663 filed by PAKARTI and SHINWA. Accordingly, an entry of
judgment 17 against it was made on August 18, 2006. Likewise, on November 29, 2007, PAKARTI and
SHINWA moved 18 for the withdrawal of their petitions for lack of interest, which the Court granted in its
January 21, 2008 Resolution. 19 The corresponding entry of judgment 20 against them was made on March 17,
2008.

Thus, only the petition of ACENAV remained for the Court's resolution, with the lone issue of whether or not it
may be held liable to the respondents for 30% of their claim.

Maintaining that it was not a party to the bill of lading, ACENAV asserts that it cannot be held liable for the
damages sought to be collected by the respondents. It also alleged that since its principal, CARDIA, was not
impleaded as a party-defendant/respondent in the instant suit, no liability can therefore attach to it as a mere
agent. Moreover, there is dearth of evidence showing that it was responsible for the supposed defective
packing of the goods upon which the award was based.

The Court's Ruling

A bill of lading is defined as "an instrument in writing, signed by a carrier or his agent, describing the freight so
as to identify it, stating the name of the consignor, the terms of the contract for carriage, and agreeing or
directing that the freight to be delivered to the order or assigns of a specified person at a specified place." 21

It operates both as a receipt and as a contract. As a receipt, it recites the date and place of shipment,
describes the goods as to quantity, weight, dimensions, identification marks and condition, quality, and value.
As a contract, it names the contracting parties, which include the consignee, fixes the route, destination, and
freight rates or charges, and stipulates the rights and obligations assumed by the parties. 22 As such, it shall
only be binding upon the parties who make them, their assigns and heirs. 23

In this case, the original parties to the bill of lading are: (a) the shipper CARDIA; (b) the carrier PAKARTI; and
(c) the consignee HEINDRICH. However, by virtue of their relationship with PAKARTI under separate charter
arrangements, SHINWA, KEE YEH and its agent SKY likewise became parties to the bill of lading. In the same
vein, ACENAV, as admitted agent of CARDIA, also became a party to the said contract of carriage.

The respondents, however, maintain 24 that ACENAV is a ship agent and not a mere agent of CARDIA, as
found by both the CA 25 and the RTC. 26

The Court disagrees.

Article 586 of the Code of Commerce provides:

ART. 586. The shipowner and the ship agent shall be civilly liable for the acts of the captain and for the
obligations contracted by the latter to repair, equip, and provision the vessel, provided the creditor proves that
the amount claimed was invested therein.

By ship agent is understood the person entrusted with the provisioning of a vessel, or who represents her in
the port in which she may be found. (Emphasis supplied)

Records show that the obligation of ACENAV was limited to informing the consignee HEINDRICH of the arrival
of the vessel in order for the latter to immediately take possession of the goods. No evidence was offered to
establish that ACENAV had a hand in the provisioning of the vessel or that it represented the carrier, its
charterers, or the vessel at any time during the unloading of the goods. Clearly, ACENAV's participation was
simply to assume responsibility over the cargo when they were unloaded from the vessel. Hence, no reversible
error was committed by the courts a quo in holding that ACENAV was not a ship agent within the meaning and
context of Article 586 of the Code of Commerce, but a mere agent of CARDIA, the shipper.

On this score, Article 1868 of the Civil Code states:

ART. 1868. By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.

Corollarily, Article 1897 of the same Code provides that an agent is not personally liable to the party with whom
he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers.

Both exceptions do not obtain in this case. Records are bereft of any showing that ACENAV exceeded its
authority in the discharge of its duties as a mere agent of CARDIA. Neither was it alleged, much less proved,
that ACENAV's limited obligation as agent of the shipper, CARDIA, was not known to HEINDRICH.

Furthermore, since CARDIA was not impleaded as a party in the instant suit, the liability attributed upon it by
the CA 27 on the basis of its finding that the damage sustained by the cargo was due to improper packing
cannot be borne by ACENAV. As mere agent, ACENAV cannot be made responsible or held accountable for
the damage supposedly caused by its principal. 28

Accordingly, the Court finds that the CA erred in ordering ACENAV jointly and severally liable with CARDIA to
pay 30o/o of the respondents' claim.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby
REVERSED.1awp++i1 The complaint against petitioner Ace Navigation Co., Inc. is hereby DISMISSED.

SO ORDERED.
 SECOND DIVISION

G.R. No. 210621, April 04, 2016

ALFREDO MANAY, JR., FIDELINO SAN LUIS, ADRIAN SAN LUIS, ANNALEE SAN LUIS, MARK
ANDREW JOSE, MELISSA JOSE, CHARLOTTE JOSE, DAN JOHN DE GUZMAN, PAUL MARK
BALUYOT, AND CARLOS S. JOSE, Petitioners, v. CEBU AIR,INC, Respondent.

DECISION

LEONEN, J.:

The Air Passenger Bill of Rights1 mandates that the airline must inform the passenger in writing of all the
conditions and restrictions in the contract of carriage. 2 Purchase of the contract of carriage binds the passenger
and imposes reciprocal obligations on both the airline and the passenger. The airline must exercise extraordinary
diligence in the fulfillment of the terms and conditions of the contract of carriage. The passenger, however, has
the correlative obligation to exercise ordinary diligence in the conduct of his or her affairs.

This resolves a Petition for Review on Certiorari3 assailing the Court of Appeals Decision 4 dated December 13,
2013 in CA-G.R. SP. No. 129817. In the assailed Decision, the Court of Appeals reversed the Metropolitan Trial
Court Decision5 dated December 15, 2011 and the Regional Trial Court Decision 6 dated November 6, 2012 and
dismissed the Complaint for Damages filed by petitioners Alfredo Manay, Jr., Fidelino San Luis, Adrian San Luis,
Annalee San Luis, Mark Andrew Jose, Melissa Jose, Charlotte Jose, Dan John De Guzman, Paul Mark Baluyot,
and Carlos S. Jose against respondent Cebu Air, Incorporated (Cebu Pacific). 7

On June 13, 2008, Carlos S. Jose (Jose) purchased 20 Cebu Pacific round-trip tickets from Manila to Palawan
for himself and on behalf of his relatives and friends. 8 He made the purchase at Cebu Pacific's branch office in
Robinsons Galleria.9

Jose alleged that he specified to "Alou," the Cebu Pacific ticketing agent, that his preferred date and time of
departure from Manila to Palawan should be on July 20, 2008 at 0820 (or 8:20 a.m.) and that his preferred date
and time for their flight back to Manila should be on July 22, 2008 at 1615 (or 4:15 p.m.). 10 He paid a total amount
of P42,957.00 using his credit card.11 He alleged that after paying for the tickets, Alou printed the tickets, 12 which
consisted of three (3) pages, and recapped only the first page to him.13 Since the first page contained the details
he specified to Alou, he no longer read the other pages of the flight information. 14

On July 20, 2008, Jose and his 19 companions boarded the 0820 Cebu Pacific flight to Palawan and had an
enjoyable stay.15

On the afternoon of July 22, 2008, the group proceeded to the airport for their flight back to Manila.16 During the
processing of their boarding passes, they were informed by Cebu Pacific personnel that nine (9) 17 of them could
not be admitted because their tickets were for the 1005 (or 10:05 a.m.) 18 flight earlier that day.19 Jose informed
the ground personnel that he personally purchased the tickets and specifically instructed the ticketing agent that
all 20 of them should be on the 4:15 p.m. flight to Manila. 20

Upon checking the tickets, they learned that only the first two (2) pages had the schedule Jose specified.21 They
were left with no other option but to rebook their tickets. 22 They then learned that their return tickets had been
purchased as part of the promo sales of the airline, and the cost to rebook the flight wou ld be P7,000.00 more
expensive than the promo tickets.23 The sum of the new tickets amounted to P65,000.00. 24

They offered to pay the amount by credit card but were informed by the ground personnel that they only accepted
cash.25 They then offered to pay in dollars, since most of them were balikbayans and had the amount on hand,
but the airline personnel still refused. 26

Eventually, they pooled enough cash to be able to buy tickets for five (5) of their companions. 27 The other four
(4) were left behind in Palawan and had to spend the night at an inn, incurring additional expenses. 28 Upon his
arrival in Manila, Jose immediately purchased four (4) tickets for the companions they left behind, which
amounted to P5,205.29

Later in July 2008, Jose went to Cebu Pacific's ticketing office in Robinsons Galleria to complain about the
allegedly erroneous booking and the rude treatment that his group encountered from the ground personnel in
Palawan.30 He alleged that instead of being assured by the airline that someone would address the issues he
raised, he was merely "given a run around." 31

Jose and his companions were frustrated and annoyed by Cebu Pacific's handling of the incident so they sent
the airline demand letters dated September 3, 2008 32 and January 20, 200933 asking for a reimbursement of
P42,955.00, representing the additional amounts spent to purchase the nine (9) tickets, the accommodation, and
meals of the four (4) that were left behind. 34 They also filed a complaint35 before the Department of Trade and
Industry.36

On February 24, 2009, Cebu Pacific, through its Guest Services Department, sent petitioners' counsel an
email37 explaining that "ticketing agents, like Alou, recap [the] flight details to the purchaser to avoid erroneous
booking[s]."38 The recap is given one other time by the cashier.39 Cebu Pacific stated that according to its
records, Jose was given a full recap and was made aware of the flight restriction of promo tickets, 40 "which
included [the] promo fare being non-refundable."41

Jose and his companions were unsatisfied with Cebu Pacific's response so they filed a Complaint 42 for Damages
against Cebu Pacific before Branch 59 of the Metropolitan Trial Court of Mandaluyong. 43 The Complaint prayed
for actual damages in the amount of P42,955.00, moral damages in the amount of P45,000.00, exemplary
damages in the amount of P50,000.00, and attorney's fees.44

In its Answer,45 Cebu Pacific essentially denied all the allegations in the Complaint and insisted that Jose was
given a full recap of the tickets.46 It also argued that Jose had possession of the tickets 37 days before the
scheduled flight; hence, he had sufficient time and opportunity to check the flight information and itinerary. 47 It
also placed a counterclaim of PI00,000.00 by reason that it was constrained to litigate and it incurred expenses
for litigation.48

On December 15, 2011, the Metropolitan Trial Court rendered its Decision ordering Cebu Pacific to pay Jose
and his companions P41,044.50 in actual damages and P20,000.00 in attorney's fees with costs of suit.49 The
Metropolitan Trial Court found that as a common carrier, Cebu Pacific should have exercised extraordinary
diligence in performing its contractual obligations. 50 According to the Metropolitan Trial Court, Cebu Pacific's
ticketing agent "should have placed markings or underlined the time of the departure of the nine
passengers"51 who were not in the afternoon flight since it was only logical for Jose to expect that all of them
would be on the same flight.52 It did not find merit, however, in the allegation that the airline's ground personnel
treated Jose and his companions rudely since this allegation was unsubstantiated by evidence. 53

Cebu Pacific appealed to the Regional Trial Court, reiterating that its ticketing agent gave Jose a full recap of
the tickets he purchased.54

On November 6, 2012, Branch 212 of the Regional Trial Court of Mandaluyong rendered the Decision dismissing
the appeal.55 The Regional Trial Court affirmed the findings of the Metropolitan Trial Court but deleted the award
of attorney's fees on the ground that this was granted without stating any ground under Article 2208 of the Civil
Code to justify its grant.56

Cebu Pacific appealed to the Court of Appeals, arguing that it was not at fault for the damages caused to the
passengers.57

On December 13, 2013, the Court of Appeals rendered the Decision granting the appeal and reversing the
Decisions of the Metropolitan Trial Court and the Regional Trial Court. 58 According to the Court of Appeals, the
extraordinary diligence expected of common carriers only applies to the carriage of passengers and not to the
act of encoding the requested flight schedule.59 It was incumbent upon the passenger to exercise ordinary care
in reviewing flight details and checking schedules.60 Cebu Pacific's counterclaim, however, was denied since
there was no evidence that Jose and his companions filed their Complaint in bad faith and with malice. 61

Aggrieved, Alfredo Manay, Jr., Fidelino San Luis, Adrian San Luis, Annalee San Luis, Mark Andrew Jose, Melissa
Jose, Charlotte Jose, Dan John De Guzman, Paul Mark Baluyot, and Carlos S. Jose (Jose, et al.) filed before
this Court a Petition for Review on Certiorari 62 assailing the Court of Appeals' December 13, 2013 Decision.63

Cebu Pacific was ordered to comment on the Petition. Upon compliance, 65 Jose, et al. submitted their
Reply.66 The parties were then directed 67 to submit their respective memoranda.68

Jose, et al. argue that Cebu Pacific is a common carrier obligated to exercise extraordinary diligence to carry
Jose, et al. to their destination at the time clearly instructed to its ticketing agent. 69 They argue that they have
the decision to choose flight schedules and that Cebu Pacific should not choose it for them.70 They insist that
they have made their intended flight schedule clear to the ticketing agent and it would have been within normal
human behavior for them to expect that their entire group would all be on the same flight. 71 They argue that they
should not have to ask for a full recap of the tickets since they are under no obligation, as passengers, to remind
Cebu Pacific's ticketing agent of her duties.72

Jose, et al. further pray that they be awarded actual damages in the amount of P43,136.52 since the Metropolitan
Trial Court erroneously failed to add the costs of accommodations and dinner spent on by four (4) of the
petitioners who were left behind in Palawan.73 They also pray for PI00,000.00 in moral damages and
P100,000.00 in exemplary damages for the "profound distress and anxiety" 74 they have undergone from the
experience, with PI00,000.00 in attorney's fees to represent the reasonable expenses incurred from "engaging
the services of their counsel."75

Cebu Pacific, on the other hand, argues that the damage in this case was caused by Jose, et al.'s "gross and
inexplicable [negligence.]" 76 It maintains that Jose, et al. should have read the details of their flight, and if there
were errors in the encoded flight details, Jose, et al. would still have ample time to have the error corrected. 77 It
argues further that its ticketing agent did not neglect giving Jose a full recap of his purchase since the tickets
clearly indicated in the "Comments" section: "FULL RECAP GVN TO CARLOS JOSE."78

Cebu Pacific further posits that according to the Parol Evidence Rule, the plane tickets issued to Jose, et al.
contain all the terms the parties agreed on, and it was agreed that nine (9) of the passengers would be on the
July 22, 2008, 1005 flight to Manila.79 It argues that Jose, et al. have not been able to present any evidence to
substantiate their allegation that their intent was to be on the July 22, 2008 1615 flight to Manila. 80

From the arguments in the parties' pleadings, the sole issue before this Court is whether respondent Cebu Air,
Inc. is liable to petitioners Alfredo Manay, Jr., Fidelino San Luis, Adrian San Luis, Annalee San Luis, Mark Andrew
Jose, Melissa Jose, Charlotte Jose, Dan John De Guzman, Paul Mark Baluyot, and Carlos S. Jose for damages
for the issuance of a plane ticket with an allegedly erroneous flight schedule.

Although it was not mentioned by the parties, a procedural issue must first be addressed before delving into
the merits of the case.

Petitioners received the assailed Court of Appeals Decision on December 27, 2013. 81 They chose to forego the
filing of a motion for reconsideration. Instead, petitioners filed before this Court a Motion for Extension of
Time82 on January 13, 2014.

Under Rule 45, Section 2 of the Rules of Court,83 petitioners only had 15 days or until January 11, 2014 to file
their petition. Since January 11, 2014 fell on a Saturday, petitioners could have filed their pleading on the
following Monday, or on January 13, 2014.

In their Motion for Extension of Time, however, petitioners requested an additional 30 days from January 13,
2014 within which to file their petition for review on certiorari. 84
This Court already clarified the periods of extension in A.M. No. 00-2-14-SC:85

Whereas, Section 1, Rule 22 of the 1997 Rules of Civil Procedure provides:

chanRoblesvirtualLawlibrary
Section 1. How to compute time. - In computing any period of time prescribed or allowed by these Rules, or by
order of the court, or by any applicable statute, the day of the act or event from which the designated period of
time begins to run is to be excluded and the date of performance included. If the last day of the period, as thus
computed, falls on a Saturday, a Sunday, or a legal holiday in the place where the court sits, the time shall not
run until the next working day.
Whereas, the aforecited provision applies in the matter of filing of pleadings in courts when the due date falls on
a Saturday, Sunday or legal holiday, in which case, the filing of the said pleading on the next working day is
deemed on time;

Whereas, the question has been raised if the period is extended ipso jure to the next working day immediately
following where the last day of the period is a Saturday, Sunday or a legal holiday, so that when a motion for
extension of time is filed, the period of extension is to be reckoned from the next working day and not from the
original expiration of the period.

NOW THEREFORE, the Court Resolves, for the guidance of the Bench and the Bar, to declare that Section 1,
Rule 22 speaks only of "the last day of the period" so that when a party seeks an extension and the same is
granted, the due date ceases to be the last day and hence, the provision no longer applies. Any extension of
time to file the required pleading should therefore be counted from the expiration of the period regardless of the
fact that said due date is a Saturday, Sunday or legal holiday. (Emphasis supplied)

Thus, petitioners' request for extension of time should have been reckoned from the original due date on
January 11, 2014, even if this day fell on a Saturday. A request for extension of 30 days would have ended on
February 10, 2014.86

Petitioners subsequently filed their Petition for Review on Certiorari on February 12, 2014.87 Pursuant to A.M.
No. 00-2-14-SC,88 this Petition would have been filed out of time.

We are not, however, precluded from granting the period of extension requested and addressing the Petition
filed on its merits, instead of outright dismissing it. After all, "[l]itigations should, as much as possible, be
decided on the merits and not on technicalities."89

However, it does not follow that in the relaxation of the procedural rules, this Court automatically rules in favor
of petitioners. Their case must still stand on its own merits for this Court to grant the relief petitioners pray for.

II

Common carriers are required to exercise extraordinary diligence in the performance of its obligations under
the contract of carriage. This extraordinary diligence must be observed not only in the transportation of goods
and services but also in the issuance of the contract of carriage, including its ticketing operations.

Article 1732 of the Civil Code defines a common carrier as "persons, corporations or 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." Articles 1733, 1755, and 1756 of the Civil Code outline the
degree of diligence required of common carriers:
. . . .

ARTICLE 1733. 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 and for the safety of the passengers
transported by them, according to all the circumstances of each case.
ARTICLE 1755. A common carrier is bound to carry the passengers safely as far as human care and foresight
can provide, using the utmost diligence of very cautious persons, with a due regard for all the circumstances.

ARTICLE 1756. In case of death of or injuries to passengers, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed extraordinary diligence as prescribed in
articles 1733 and 1755.

Respondent, as one of the four domestic airlines in the country, 90 is a common carrier required by law to
exercise extraordinary diligence. Extraordinary diligence requires that the common carrier must transport
goods and passengers "safely as far as human care and foresight can provide," and it must exercise the
"utmost diligence of very cautious persons . . . with due regard for all the circumstances." 91

When a common carrier, through its ticketing agent, has not yet issued a ticket to the prospective passenger,
the transaction between them is still that of a seller and a buyer. The obligation of the airline to exercise
extraordinary diligence commences upon the issuance of the contract of carriage.92 Ticketing, as the act of
issuing the contract of carriage, is necessarily included in the exercise of extraordinary diligence.

A contract of carriage is defined as "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." 93 In Cathay
Pacific Airways v. Reyes:94

[W]hen an airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of
carriage arises, and the passenger has every right to expect that he would fly on that flight and on that date. If
he does not, then the carrier opens itself to a suit for breach of contract of carriage.95 (Emphasis supplied)

Once a plane ticket is issued, the common carrier binds itself to deliver the passenger safely on the date and
time stated in the ticket. The contractual obligation of the common carrier to the passenger is governed
principally by what is written on the contract of carriage.

In this case, both parties stipulated96 that the flight schedule stated on the nine (9) disputed tickets was the
10:05 a.m. flight of July 22, 2008. According to the contract of carriage, respondent's obligation as a common
carrier was to transport nine (9) of the petitioners safely on the 10:05 a.m. flight of July 22, 2008.

Petitioners, however, argue that respondent was negligent in the issuance of the contract of carriage since the
contract did not embody their intention. They insist that the nine (9) disputed tickets should have been
scheduled for the 4:15 p.m. flight of July 22, 2008. Respondent, on the other hand, denies this and states that
petitioner Jose was fully informed of the schedules of the purchased tickets and petitioners were negligent
when they failed to correct their ticket schedule.

Respondent relies on the Parol Evidence Rule in arguing that a written document is considered the best
evidence of the terms agreed on by the parties. Petitioners, however, invoke the exception in Rule 130,
Section 9(b) of the Rules of Court that evidence may be introduced if the written document fails to express the
true intent of the parties:97

Section 9. Evidence of written agreements. When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be, between the parties and their successors
in interest, no evidence of such terms other than the contents of the written agreement.

However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts
in issue in his pleading:

(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;

(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the
written agreement.

In ACI Philippines, Inc. v. Coquia:98

It is a cardinal rule of evidence, not just one of technicality but of substance, that the written document is the best
evidence of its own contents. It is also a matter of both principle and policy that when the written contract is
established as the repository of the parties stipulations, any other evidence is excluded and the same cannot be
used as a substitute for such contract, nor even to alter or contradict them. This rule, however, is not without
exception. Section 9, Rule 130 of the Rules of Court states that a party may present evidence to modify, explain
or add to the terms of the agreement if he puts in issue in his pleading the failure of the written agreement to
express the true intent and agreement of the parties.99

It is not disputed that on June 13, 2008, petitioner Jose purchased 20 Manila-Palawan-Manila tickets from
respondent's ticketing agent. Since all 20 tickets were part of a single transaction made by a single purchaser,
it is logical to presume that all 20 passengers would prefer the same flight schedule, unless the purchaser
stated otherwise.

In petitioners' Position Paper before the Metropolitan Trial Court, they maintain that respondent's ticketing
agent was negligent when she failed to inform or explain to petitioner Jose that nine (9) members of their group
had been booked for the 10:05 a.m. flight, and not the 4:15 p.m. flight.100

The first page of the tickets contained the names of eight (8) passengers. 101 In the Information box on the left
side of the ticket, it reads:

Sunday, July 20, 2008 HK PHP999.00 PHP

5J 637 MNL-PPS 08:20- 09:35
Tuesday, July 22, 2008 HK PHP999.00 PH
5J 640 PPS-MNL 16:15- 17:30102

In the Comments box, it reads:

R - FULL RECAP GVN TO CARLOS JOSE//AWRE

I - FULL RECAP GVN TO CARLOS JOSE//AWRE
M - FULL RECAP GVN TO CARLOS JOSE//AWRI103

The second page contained the names of three (3) passengers. 104 In the Information box, it reads:

Sunday, July 20, 2008 HK PHP1,998.00 PH

5J 637 MNL-PPS 08:20- 09:35
Tuesday, July 22, 2008 HK PHP999.00 PH
5J 640 PPS-MNL 16:15- 17:30105

Under the caption "Comments," it reads:

R - FULL RECAP GVN TO CARLOS JOSE//AWRE
I - FULL RECAP GVN TO CARLOS JOSE//AWRE
M - FULL RECAP GVN TO CARLOS JOSE//AWRI106

The third page contained the names of nine (9) passengers.107 In the Information box, it reads:

Sunday, July 20, 2008 HK PHP999.00 PHP

5J637MNL-PPS 08:20-09:35
Tuesday, July 22, 2008 HK PHP999.00 PH
5J638PPS-MNL 10:05-11:20108ChanRoblesVirtualawlibrary

In the Comments box, it reads:

R - FULL RECAP GVNT O JOSE//CARLOS AWRE

R - NON-REFUNDBLE//VALID TIL 15 OCT08 O109

Respondent explained that as a matter of protocol, flight information is recapped to the purchaser twice: first by
the ticketing agent before payment, and second by the cashier during payment. The tickets were comprised of
three (3) pages. Petitioners argue that only the first page was recapped to petitioner Jose when he made the
purchase.

The common carrier's obligation to exercise extraordinary diligence in the issuance of the contract of carriage
is fulfilled by requiring a full review of the flight schedules to be given to a prospective passenger before
payment. Based on the information stated on the contract of carriage, all three (3) pages were recapped to
petitioner Jose.

The only evidence petitioners have in order to prove their true intent of having the entire group on the 4:15 p.m.
flight is petitioner Jose's self-serving testimony that the airline failed to recap the last page of the tickets to him.
They have neither shown nor introduced any other evidence before the Metropolitan Trial Court, Regional Trial
Court, Court of Appeals, or this Court.

Even assuming that the ticketing agent encoded the incorrect flight information, it is incumbent upon the
purchaser of the tickets to at least check if all the information is correct before making the purchase. Once the
ticket is paid for and printed, the purchaser is presumed to have agreed to all its terms and conditions. In Ong
Yiu v. Court of Appeals:110

While it may be true that petitioner had not signed the plane ticket, he is nevertheless bound by the provisions
thereof. "Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the
passenger regardless of the latter's lack of knowledge or assent to the regulation." It is what is known as a
contract of "adhesion," in regards which it has been said that contracts of adhesion wherein one party imposes
a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his
consent.111ChanRoblesVirtualawlibrary

One of the terms stated in petitioners' tickets stipulates that the photo identification of the passenger must
match the name entered upon booking:

Guests should present a valid photo ID to airport security and upon check-in. Valid IDs for this purpose are
Company ID, Driver's License, Passport, School ID, SSS Card, TIN Card. The name in the photo-ID should
match the guest name that was entered upon booking. Failure to present a valid photo ID will result in your being
refused check-in.112
Considering that respondent was entitled to deny check-in to passengers whose names do not match their
photo identification, it would have been prudent for petitioner Jose to check if all the names of his companions
were encoded correctly. Since the tickets were for 20 passengers, he was expected to have checked each
name on each page of the tickets in order to see if all the passengers' names were encoded and correctly
spelled. Had he done this, he would have noticed that there was a different flight schedule encoded on the
third page of the tickets since the flight schedule was stated directly above the passengers' names.

Petitioners' flight information was not written in fine print. It was clearly stated on the left portion of the ticket
above the passengers' names. If petitioners had exercised even the slightest bit of prudence, they would have
been able to remedy any erroneous booking.

This is not the first time that this Court has explained that an air passenger has the correlative duty to exercise
ordinary care in the conduct of his or her affairs.

In Crisostomo v. Court of Appeals,113 Estela Crisostomo booked a European tour with Caravan Travel and
Tours, a travel agency. She was informed by Caravan's travel agent to be at the airport on Saturday, two (2)
hours before her flight. Without checking her travel documents, she proceeded to the airport as planned, only
to find out that her flight was actually scheduled the day before. She subsequently filed a suit for damages
against Caravan Travel and Tours based on the alleged negligence of their travel agent in informing her of the
wrong flight details.114

This Court, while ruling that a travel agency was not a common carrier and was not bound to exercise
extraordinary diligence in the performance of its obligations, also laid down the degree of diligence
concurrently required of passengers:

Contrary to petitioner's 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 petitioner clearly reflected the
departure date and time, contrary to petitioner's 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 petitioner's 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.115 (Emphasis supplied)

Most of the petitioners were balikbayans.116 It is reasonable to presume that they were adequately versed with
the procedures of air travel, including familiarizing themselves with the itinerary before departure. Moreover,
the tickets were issued 37 days before their departure from Manila and 39 days from their departure from
Palawan. There was more than enough time to correct any alleged mistake in the flight schedule.

Petitioners, in failing to exercise the necessary care in the conduct of their affairs, were without a doubt
negligent. Thus, they are not entitled to damages.

Before damages may be awarded, "the claimant should satisfactorily show the existence of the factual basis of
damages and its causal connection to defendant's acts." 117 The cause of petitioners' injury was their own
negligence; hence, there is no reason to award moral damages. Since the basis for moral damages has not
been established, there is no basis to recover exemplary damages118 and attorney's fees119 as well.
 III

Traveling by air for leisure is a fairly new concept to the average Filipino. From 1974, there was only one local
airline commanding a monopoly on domestic air travel.120 In 1996, respondent introduced the concept of a
budget airline in the Philippines, touting "low-cost services to more destinations and routes with higher flight
frequency within the Philippines than any other airline." 121 In its inception, respondent offered plane fares that
were "40% to 50% lower than [Philippine Airlines]." 122

On March 1, 2007, to celebrate its new fleet of aircraft, respondent offered a promo of P1.00 base fare for all
their domestic and international destinations.123 The fare was non-refundable and exclusive of taxes and
surcharges.124

Despite the conditions imposed on these "piso fares," more people were enticed to travel by air. From January
to June 2007, respondent had a total number of 2,256,289 passengers while Philippines Airlines had a total of
1,981,267 passengers.125 The domestic air travel market also had a 24% increase in the first half of 2007. 126

Promotional fares encouraged more Filipinos to travel by air as the number of fliers in the country increased
from 7.2 million in 2005 to 16.5 million in 2010.127 The emergence of low-cost carriers "liberalized [the]
aviation regime"128 and contributed to an "unprecedented and consistent double digit growth rates of domestic
and international travel"129 from 2007 to 2012.

This development, however, came with its own set of problems. Numerous complaints were filed before the
Department of Trade and Industry and the Department of Transportation and Communications, alleging
"unsatisfactory airline service"130 as a result of flight overbooking, delays, and cancellations.131

This prompted concerned government agencies to issue Department of Transportation and Communications-
Department of Trade and Industry Joint Administrative Order No. 1, Series of 2012, otherwise known as the Air
Passenger Bill of Rights.

Section 4 of the Joint Administrative Order requires airlines to provide the passenger with accurate information
before the purchase of the ticket:

Section 4. Right to Full, Fair, and Clear Disclosure of the Service Offered and All the Terms and
Conditions of the Contract of Carriage. Every passenger shall, before purchasing any ticket for a contract of
carriage by the air carrier or its agents, be entitled to the full, fair, and clear disclosure of all the terms and
conditions of the contract of carriage about to be purchased. The disclosure shall include, among others,
documents required to be presented at check-in, provisions on check-in deadlines, refund and rebooking
policies, and procedures and responsibility for delayed and/or cancelled flights. These terms and conditions may
include liability limitations, claim-filing deadlines, and other crucial conditions.

4.1 An air carrier shall cause the disclosure under this Section to be printed on or attached to the passenger
ticket and/or boarding pass, or the incorporation of such terms and conditions of carriage by reference.
Incorporation by reference means that the ticket and/or boarding pass shall clearly state that the complete terms
and conditions of carriage are available for perusal and/or review on the air carrier's website, or in some other
document that may be sent to or delivered by post or electronic mail to the passenger upon his/her request.
....

4.3 Aside from the printing and/or publication of the above disclosures, the same shall likewise be verbally
explained to the passenger by the air carrier and/or its agent/s in English and Filipino, or in a language that is
easily understood by the purchaser, placing emphasis on the limitations and/or restrictions attached to the ticket.
.....

4.5 Any violation of the afore-stated provisions shall be a ground for the denial of subsequent applications for
approval of promotional fare, or for the suspension or recall of the approval made on the advertised fare/rate .
(Emphasis in the original)

The Air Passenger Bill of Rights recognizes that a contract of carriage is a contract of adhesion, and thus, all
conditions and restrictions must be fully explained to the passenger before the purchase of the ticket:

WHEREAS, such a contract of carriage creates an asymmetrical relationship between an air carrier and a
passenger, considering that, while a passenger has the option to buy or not to buy the service, the decision of
the passenger to buy the ticket binds such passenger, by adhesion, to all the conditions and/or restrictions
attached to the air carrier ticket on an all-or-nothing basis, without any say, whatsoever, with regard to the
reasonableness of the individual conditions and restrictions attached to the air carrier
ticket;132ChanRoblesVirtualawlibrary

Section 4.4 of the Air Passenger Bill of Rights requires that "all rebooking, refunding, baggage allowance and
check-in policies" must be stated in the tickets:

4.4 The key terms of a contract of carriage, which should include, among others, the rebooking, refunding,
baggage allowance and check-in policies, must be provided to a passenger and shall substantially be stated in
the following manner and, if done in print, must be in bold letters:
(English)

"NOTICE:

The ticket that you are purchasing is subject to the following conditions/restrictions:

1. _______________
2. _______________
3. _______________

Your purchase of this ticket becomes a binding contract on your part to follow the terms and conditions
of the ticket and of the flight. Depending on the fare rules applicable to your ticket, non-use of the same
may result in forfeiture of the fare or may subject you to the payment of penalties and additional charges
if you wish to change or cancel your booking.

For more choices and/or control in your flight plans, please consider other fare types."

(Filipino)

"PAALALA:

Ang tiket na ito ay binibili ninyo nang may mga kondisyon/ restriksyon:

1. _______________
2. _______________
3. _______________

Sa pagpili at pagbili ng tiket na ito, kayo ay sumasang-ayon sa mga kondisyon at restriksyon na

nakalakip dito, bilang kontrata ninyo sa air carrier. Depende sa patakarang angkop sa iyong tiket, ang
hindi paggamit nito ay maaaring magresulta sa pagwawalang bisa sa inyong tiket o sa paniningil ng
karagdagang bayad kung nais ninyong baguhin o kanselahin ang inyong tiket.

Para sa mas maraming pagpipilian at malawak na control sa inyong flight, inaanyayahan kayong bumili
ng iba pang klase ng tiket galing sa air carrier." (Emphasis in the original)
The Air Passenger Bill of Rights acknowledges that "while a passenger has the option to buy or not to buy the
service, the decision of the passenger to buy the ticket binds such passenger[.]"133 Thus, the airline is
mandated to place in writing all the conditions it will impose on the passenger.

However, the duty of an airline to disclose all the necessary information in the contract of carriage does not
remove the correlative obligation of the passenger to exercise ordinary diligence in the conduct of his or her
affairs. The passenger is still expected to read through the flight information in the contract of carriage before
making his or her purchase. If he or she fails to exercise the ordinary diligence expected of passengers, any
resulting damage should be borne by the passenger.chanrobleslaw

WHEREFORE, the Petition is DENIED.

SO ORDERED.
 SECOND DIVISION

February 8, 2017

G.R. No. 212038

SPOUSES JESUS FERNANDO and ELIZABETH S. FERNANDO, Petitioners

vs.
NORTHWEST AIRLINES, INC., Respondent

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

G.R. No. 212043

NORTHWEST AIRLINES, INC., Petitioner,

vs.
SPOUSES JESUS FERNANDO and ELIZABETH S. FERNANDO, Respondents.

DECISION

PERALTA, J.:

Before us are consolidated petitions for review on certiorari under Rule 45 of the Rules of Court assailing the
Decision1 dated August 30, 2013, and Resolution 2 dated March 31, 2014 of the Court of Appeals (CA) in CA-
G.R. CV No. 93496 which affirmed the Decision 3 dated September 9, 2008 of the Regional Trial
Court (RTC), Branch 97, Quezon City in Civil Case No. Q-N-02-46727 finding Northwest Airlines,
Inc. (Northwest) liable for breach of contract of carriage.

The spouses Jesus and Elizabeth S. Fernando (Fernandos) are frequent flyers of Northwest Airlines, Inc. and
are holders of Elite Platinum World Perks Card, the highest category given to frequent flyers of the
carrier.4 They are known in the musical instruments and sports equipments industry in the Philippines being
the owners of JB Music and JB Sports with outlets all over the country. They likewise own the five (5) star
Hotel Elizabeth in Baguio City and Cebu City, and the chain of Fersal Hotels and Apartelles in the country.5

The Fernandos initiated the filing of the instant case which arose from two (2) separate incidents: first, when
Jesus Fernando arrived at Los Angeles (LA) Airport on December 20, 2001; second, when the Fernandos
were to depart from the LA Airport on January 29, 2002. The factual antecedents are as follows:

Version of Spouses Jesus and Elizabeth S. Fernando:

a.) The arrival at Los Angeles Airport on December 20, 2001

Sometime on December 20, 2001, Jesus Fernando arrived at the LA Airport via Northwest Airlines Flight No.
NW02 to join his family who flew earlier to the said place for a reunion for the Christmas holidays. 6

When Jesus Fernando presented his documents at the immigration counter, he was asked by the Immigration
Officer to have his return ticket verified and validated since the date reflected thereon is August 2001. So he
approached a Northwest personnel who was later identified as Linda Puntawongdaycha, but the latter merely
glanced at his ticket without checking its status with the computer and peremptorily said that the ticket has
been used and could not be considered as valid. He then explained to the personnel that he was about to use
the said ticket on August 20 or 21, 2001 on his way back to Manila from LA but he could not book any seat
because of some ticket restrictions so he, instead, purchased new business class ticket on the said
date.7 Hence, the ticket remains unused and perfectly valid.
To avoid further arguments, Jesus Fernando gave the personnel the number of his Elite Platinum World Perks
Card for the latter to access the ticket control record with the airline's computer and for her to see that the
ticket is still valid. But Linda Puntawongdaycha refused to check the validity of the ticket in the computer but,
instead, looked at Jesus Fernando with contempt, then informed the Immigration Officer that the ticket is not
valid because it had been used.8

The Immigration Officer brought Jesus Fernando to the interrogation room of the Immigration and
Naturalization Services (INS) where he was asked humiliating questions for more than two (2) hours. When he
was finally cleared by the Immigration Officer, he was granted only a twelve (12)-day stay in the United
States (US), instead of the usual six (6) months.9

When Jesus Fernando was finally able to get out of the airport, to the relief of his family, Elizabeth Fernando
proceeded to a Northwest Ticket counter to verify the status of the ticket. The personnel manning the counter
courteously assisted her and confirmed that the ticket remained unused and perfectly valid. To avoid any future
problems that may be encountered on the validity of the ticket, a new ticket was issued to Jesus Fernando. 10

Since Jesus Fernando was granted only a twelve (12)-day stay in the US, his scheduled plans with his family
as well as his business commitments were disrupted. He was supposed to stay with his family for the entire
duration of the Christmas season because his son and daughter were then studying at Pepperton University in
California. But he was forced to fly back to Manila before the twelve (12)-day stay expired and flew back to the
US on January 15, 2002. The Fernandos were, likewise, scheduled to attend the Musical Instrument Trade
Show in LA on January 1 7, 2002 and the Sports Equipment Trade Show in Las Vegas on January 21 to 23,
2002 which were both previously scheduled. Hence, Jesus Fernando had to spend additional expenses for
plane fares and other related expenses, and missed the chance to be with his family for the whole duration of
the Christmas holidays.11

b.) The departure from the Los Angeles Airport on January 29, 2002.

On January 29, 2002, the Fernandos were on their way back to the Philippines. They have confirmed bookings
on Northwest Airlines NW Flight No. 001 for Narita, Japan and NW 029 for Manila. They checked in with their
luggage at the LA Airport and were given their respective boarding passes for business class seats and claim
stubs for six (6) pieces of luggage. With boarding passes, tickets and other proper travel documents, they were
allowed entry to the departure area and joined their business associates from Japan and the Philippines who
attended the Musical Instrument Trade Show in LA on January 17, 2002 and the Sports Equipment Trade
Show in Las Vegas on January 21 to 23, 2002. When it was announced that the plane was ready for boarding,
the Fernandos joined the long queue of business class passengers along with their business associates.12

When the Fernandos reached the gate area where boarding passes need to be presented, Northwest
supervisor Linda Tang stopped them and demanded for the presentation of their paper tickets (coupon
type). They failed to present the same since, according to them, Northwest issued electronic tickets (attached
to the boarding passes) which they showed to the supervisor.13 In the presence of the other passengers, Linda
Tang rudely pulled them out of the queue. Elizabeth Fernando explained to Linda Tang that the matter could
be sorted out by simply verifying their electronic tickets in her computer and all she had to do was click and
punch in their Elite Platinum World Perks Card number. But Linda Tang arrogantly told them that if they wanted
to board the plane, they should produce their credit cards and pay for their new tickets, otherwise Northwest
would order their luggage off-loaded from the plane. Exasperated and pressed for time, the Fernandos rushed
to the Northwest Airline Ticket counter to clarify the matter. They were assisted by Northwest personnel
Jeanne Meyer who retrieved their control number from her computer and was able to ascertain that the
Fernandos' electronic tickets were valid and they were confirmed passengers on both NW Flight No. 001 for
Narita Japan and NW 029 for Manila on that day. To ensure that the Fernandos would no longer encounter any
problem with Linda Tang, Jeanne Meyer printed coupon tickets for them who were then advised to rush back
to the boarding gates since the plane was about to depart. But when the Fernandos reached the boarding
gate, the plane had already departed. They were able to depart, instead, the day after, or on January 30, 2002,
and arrived in the Philippines on January 31,2002. 14

Version of Northwest Airlines, Inc.:

a.) The arrival at the Los Angeles Airport on December 20, 2001.

Northwest claimed that Jesus Fernando travelled from Manila to LA on Northwest Airlines on December 20,
2001. At the LA Airport, it was revealed that Jesus Fernando's return ticket was dated August 20 or 21, 2001
so he encountered a problem in the Immigration Service. About an hour after the aircraft had arrived, Linda
Puntawongdaycha, Northwest Customer Service Agent, was called by a US Immigration Officer named
"Nicholas" to help verify the ticket of Jesus Fernando. Linda Puntawongdaycha then asked Jesus Fernando to
"show" her "all the papers." Jesus Fernando only showed her the passenger receipt of his ticket without any
ticket coupon attached to it. The passenger receipt which was labelled "Passenger Receipt" or "Customer
Receipt" was dated August 2001. Linda Puntawongdaycha asked Jesus Fernando several times whether he
had any other ticket, but Jesus Fernando insisted that the "receipt" was "all he has", and the passenger receipt
was his ticket. He failed to show her any other document, and was not able to give any other relevant
information about his return ticket. Linda Puntawongdaycha then proceeded to the Interline Department and
checked Jesus Fernando's Passenger Name Record (PNR) and his itinerary. The itinerary only showed his
coming from Manila to Tokyo and Los Angeles; nothing would indicate about his flight back to Manila. She then
looked into his record and checked whether he might have had an electronic ticket but she could not find any.
For failure to find any other relevant information regarding Fernando's return ticket, she then printed out Jesus
Fernando's PNR and gave the document to the US Immigration Officer. Linda Puntawongdaycha insisted that
she did her best to help Jesus Fernando get through the US Immigration. 15

b.) The departure from the Los Angeles Airport on January 29, 2002.

On January 29, 2002, the Fernandos took Northwest for their flight back to Manila. In the trip, the Fernandos
used electronic tickets but the tickets were dated January 26, 2002 and August 21, 2001. They reached the
boarding gate few minutes before departure. Northwest personnel Linda Tang was then the one assigned at
the departure area. As a standard procedure, Linda Tang scanned the boarding passes and collected tickets
while the passengers went through the gate. When the Fernandos presented their boarding passes, Linda
Tang asked for their tickets because there were no tickets stapled on their boarding passes. She explained
that even though the Fernandos had electronic tickets, they had made "several changes on their ticket over
and over". And when they made the booking/reservation at Northwest, they never had any ticket number or
information on the reservation.16

When the Fernandos failed to show their tickets, Linda Tang called Yong who was a supervisor at the ticket
counter to verify whether the Fernandos had checked in, and whether there were any tickets found at the ticket
counter. Upon verification, no ticket was found at the ticket counter, so apparently when the Fernandos
checked in, there were no tickets presented. Linda Tang also checked with the computer the reservation of the
Fernandos, but again, she failed to see any electronic ticket number of any kind, and/or any ticket record. So
as the Fernandos would be able to get on with the flight considering the amount of time left, she told them that
they could purchase tickets with their credit cards and deal with the refund later when they are able to locate
the tickets and when they reach Manila. Linda Tang believed that she did the best she could under the
circumstances.17

However, the Fernandos did not agree with the solution offered by Linda Tang. Instead, they went back to the
Northwest ticket counter and were attended to by Jeanne Meyer who was "courteous" and "was very kind
enough" to assist them. Jeanne Meyer verified their bookings and "printed paper tickets" for them.
Unfortunately, when they went back to the boarding gate, the plane had departed. Northwest offered
alternative arrangements for them to be transported to Manila on the same day on another airline, either
through Philippine Airlines or Cathay Pacific Airways, but they refused. Northwest also offered them free hotel
accommodations but they, again, rejected the offer 18 Northwest then made arrangements for the transportation
of the Fernandos from the airport to their house in LA, and booked the Fernandos on a Northwest flight that
would leave the next day, January 30, 2002. On January 30, 2002, the Fernandos flew to Manila on business
class seats.19

On April 30, 2002, a complaint for damages20 was instituted by the Fernandos against Northwest before the
RTC, Branch 97, Quezon City. During the trial of the case, the Fernandos testified to prove their claim. On the
part of Northwest, Linda Tang-Mochizuki and Linda Puntawongdaycha testified through oral depositions taken
at the Office of the Consulate General, Los Angeles City. The Northwest Manager for HR-Legal Atty. Cesar
Veneracion was also presented and testified on the investigation conducted by Northwest as a result of the
letters sent by Elizabeth Fernando and her counsel prior to the filing of the complaint before the RTC. 21

On September 9, 2008, the RTC issued a Decision, the dispositive portion of which states, thus:

WHEREFORE, in view of the foregoing, this Court rendered judgment in favor of the plaintiffs and against
defendant ordering defendant to pay the plaintiffs, the following:

1. Moral damages in the amount of Two Hundred Thousand Pesos (₱200,000.00);

2. Actual or compensatory damages in the amount of Two Thousand US Dollars ($2,000.00) or its
corresponding Peso equivalent at the time the airline ticket was purchased;

3. Attorney's fees in the amount of Fifty Thousand pesos (₱50,000.00); and,

4. Cost of suit.

SO ORDERED.22

Both parties filed their respective appeals which were dismissed by the CA in a Decision dated August 30,
2013, and affirmed the RTC Decision.

The Fernandos and Northwest separately filed motions for a reconsideration of the Decision, both of which
were denied by the CA on March 31, 2014.

The Fernandos filed a petition for review on certiorari23before this court docketed as G.R. No. 212038.
Northwest followed suit and its petition 24 was docketed as G.R. No. 212043. Considering that both petitions
involved similar parties, emanated from the same Civil Case No. Q-N-02-46727 and assailed the same CA
judgment, they were ordered consolidated in a Resolution 25 dated June 18, 2014.

In G.R. No. 212038, the Fernandos raised the following issues:

WHETHER OR NOT THE ACTS OF THE PERSONNEL AND THAT OF DEFENDANT NORTHWEST ARE
WANTON, MALICIOUS, RECKLESS, DELIBERATE AND OPPRESSIVE IN CHARACTER, AMOUNTING TO
FRAUD AND BAD FAITH;

WHETHER OR NOT PETITIONER SPOUSES ARE ENTITLED TO MORAL DAMAGES IN AN AMOUNT

MORE THAN THAT AWARDED BY THE TRIAL COURT;

WHETHER OR NOT DEFENDANT NORTHWEST IS LIABLE TO PETITIONER SPOUSES FOR EXEMPLARY

DAMAGES; [AND]

WHETHER OR NOT THE PETITIONER SPOUSES ARE ENTITLED TO ATTORNEY'S FEES IN AN AMOUNT
MORE THAN THAT AWARDED BY THE TRIAL COURT.26

In G.R. No. 212043, Northwest anchored its petition on the following assigned errors:

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT NORTHWEST

COMMITTED A BREACH OF CONTRACT OF CARRIAGE;

II
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT NORTHWEST IS LIABLE
FOR DAMAGES AND THE AWARDS FOR MORAL DAMAGES AND ATTORNEY'S FEES ARE
APPROPRIATE;

III

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT NORTHWEST IS NOT
ENTITLED TO RECOVER ON ITS COUNTERCLAIMS.27

The Issues

The arguments proffered by the parties can be summed up into the following issues: (1) whether or not there
was breach of contract of carriage and whether it was done in a wanton, malevolent or reckless manner
amounting to bad faith; (2) whether or not Northwest is liable for the payment of moral damages and attorney's
fees and whether it is liable to pay more than that awarded by the RTC; (3) whether or not Northwest is liable
for the payment of exemplary damages; and (4) whether or not Northwest Airlines is entitled to recover on its
counterclaim.

In their petition, the Fernandos contended that it was the personal misconduct, gross negligence and the rude
and abusive attitude of Northwest employees Linda Puntawongdaycha and Linda Tang which subjected them
to indignities, humiliation and embarrassment. The attitude of the aforesaid employees was wanton and
malevolent allegedly amounting to fraud and bad faith. According to the Fernandos, if only Linda
Puntawongdaycha had taken the time to verify the validity of the ticket in the computer, she would have not
given the wrong information to the Immigration Officer because the August 2001 return ticket remained unused
and valid for a period of one (1) year, or until August 2002. The wrong information given by Linda
Puntawongdaycha aroused doubts and suspicions on Jesus Fernando's travel plans. The latter was then
subjected to two (2) hours of questioning which allegedly humiliated him. He was even suspected of being an
"illegal alien". The negligence of Linda Puntawongdaycha was allegedly so gross and reckless amounting to
malice or bad faith.

As to the second incident, the Fernandos belied the accusation of Northwest that they did not present any
tickets. They presented their electronic tickets which were attached to their boarding passes. If they had no
tickets, the personnel at the check-in counter would have not issued them their boarding passes and baggage
claim stubs. That's why they could not understand why the coupon-type ticket was still demanded by
Northwest.

On the award of moral damages, the Fernandos referred to the testimony of Elizabeth Fernando that she could
not sleep and had a fever the night after the second incident. Thus, the Fernandos demanded that they should
be given more than the "token amount" granted by the RTC which was affirmed by the CA. They stated that
their status in the society and in the business circle should also be considered as a factor in awarding moral
damages. They averred that they are well-known in the musical instruments and sports equipment industry in
the country being the owners of JB Music and JB Sports with outlets all over the country. They own hotels, a
chain of apartelles and a parking garage building in Indiana, USA. And since the breach of contract allegedly
amounted to fraud and bad faith, they likewise demanded for the payment of exemplary damages and
attorney's fees more than the amount awarded by the RTC.

On the other hand, Northwest stated in its petition that Linda Puntawongdaycha tried her best to help Jesus
Fernando get through the US Immigration. Notwithstanding that Linda Puntawongdaycha was not able to find
any relevant information on Jesus Fernando's return ticket, she still went an extra mile by printing the PNR of
Jesus Fernando and handling the same personally to the Immigration Officer. It pointed out that the
Immigration Officer "noticed in the ticket that it was dated sometime August 20 or 21, 2001, although it was
already December 2001."

As to the incident with Linda Tang, Northwest explained that she was only following Northwest standard
boarding procedures when she asked the Fernandos for their tickets even if they had boarding passes. Thus,
the conduct cannot be construed as bad faith. The dates indicated on the tickets did not match the booking.
Elizabeth Fernando was using an electronic ticket dated August 21, 2001, while the electronic ticket of Jesus
Fernando was dated January 26, 2002. According to Northwest, even if the Fernandos had electronic tickets,
the same did not discount the fact that, on the face of the tickets, they were for travel on past dates. Also, the
electronic tickets did not contain the ticket number or any information regarding the reservation. Hence, the
alleged negligence of the Fernandos resulted in the confusion in the procedure in boarding the plane and the
eventual failure to take their flight.

Northwest averred that the award of moral damages and attorney's fees were exorbitant because such must
be proportionate to the suffering inflicted. It argued that it is not obliged to give any "special treatment" to the
Fernandos just because they are good clients of Northwest, because the supposed obligation does not appear
in the contract of carriage. It further averred that it is entitled to its counterclaim in the amount of ₱500,000.00
because the Fernandos allegedly acted in bad faith in prosecuting the case which it believed are baseless and
unfounded.

In the Comment28 of Northwest, it insisted that assuming a mistake was committed by Linda Tang and Linda
Puntawongdaycha, such mistake alone, without malice or ill will, is not equivalent to fraud or bad faith that
would entitle the Fernandos to the payment of moral damages.

In the Reply29 of the Fernandos, they asserted that it was a lie on the part of Linda Puntawongdaycha to claim
that she checked the passenger name or PNR of Jesus Fernando from the computer and, as a result, she was
not allegedly able to find any return ticket for him. According to Jesus Fernando, Linda Puntawongdaycha
merely looked at his ticket and declared the same to be invalid. The Fernandos reiterated that after Jesus
Fernando was released by the US Immigration Service, Elizabeth Fernando proceeded to a Northwest Ticket
counter to verify the status of the ticket. The personnel manning the counter courteously assisted her and
confirmed that the ticket remained unused and perfectly valid. The personnel merely punched the Elite
Platinum World Perks Card number of Jesus Fernando and was able to verify the status of the ticket. The
Fernandos further argued that if there was a discrepancy with the tickets or reservations, they would not have
been allowed to check in, and since they were allowed to check in then they were properly booked and were
confirmed passengers of Northwest.

Our Ruling

We find merit in the petition of the Spouses Jesus and Elizabeth Fernando. The Fernandos' cause of action
against Northwest stemmed from a breach of contract of carriage. A contract is a meeting of minds between
two persons whereby one agrees to give something or render some service to another for a consideration.
There is no contract unless the following requisites concur: (1) consent of the contracting parties; (2) an object
certain which is the subject of the contract; and (3) the cause of the obligation which is established. 30

A contract of carriage is defined as one whereby a certain person or association of persons obligate
themselves to transport persons, things, or goods from one place to another for a fixed price. Under Article
1732 of the Civil Code, this "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" is called a common carrier.31 Undoubtedly, a contract of carriage existed between Northwest and
the Fernandos. They voluntarily and freely gave their consent to an agreement whose object was the
transportation of the Fernandos from LA to Manila, and whose cause or consideration was the fare paid by the
Fernandos to Northwest.32

In Alitalia Airways v. CA, et al.,33 We held that 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 would fly on that flight and on that date. If he does not, then the carrier. opens itself to a suit for breach
of contract of carriage.34

When Northwest confirmed the reservations of the Fernandos, it bound itself to transport the Fernandos on
their flight on 29 January 2002.
We note that the witness35 of Northwest admitted on cross-examination that based on the documents
submitted by the Fernandos, they were confirmed

passengers on the January 29, 2002 flight.36

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.37 As the aggrieved party, the Fernandos only had to prove the
existence of the contract and the fact of its non-performance by Northwest, as carrier, in order to be awarded
compensatory and actual damages.38

Therefore, having proven the existence of a contract of carriage between Northwest and the Fernandos, and
the fact of non-performance by Northwest of its obligation as a common carrier, it is clear that Northwest
breached its contract of carriage with the Fernandos. Thus, Northwest opened itself to claims for
compensatory, actual, moral and exemplary damages, attorney's fees and costs of suit.39

Moreover, Article 1733 of the New Civil Code provides that 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
and for the safety of the passengers transported by them, according to all the circumstances of each case.
Also, Article 1755 of the same Code states that a common carrier is 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.

We, thus, sustain the findings of the CA and the RTC that Northwest committed a breach of contract "in failing
to provide the spouses with the proper assistance to avoid any inconvenience" and that the actuations of
Northwest in both subject incidents "fall short of the utmost diligence of a very cautious person expected of it".
Both ruled that considering that the Fernandos are not just ordinary passengers but, in fact, frequent flyers of
Northwest, the latter should have been more courteous and accommodating to their needs so that the delay
and inconveniences they suffered could have been avoided. Northwest was remiss in its duty to provide the
proper and adequate assistance to them.

Nonetheless, We are not in accord with the common finding of the CA and the RTC when both ruled out bad
faith on the part of Northwest. While We agree that the discrepancy between the date of actual travel and the
date appearing on the tickets of the Fernandos called for some verification, however, the Northwest personnel
failed to exercise the utmost diligence in assisting the Fernandos. The actuations of Northwest personnel in
both subject incidents are constitutive of bad faith.

On the first incident, Jesus Fernando even gave the Northwest personnel the number of his Elite Platinum
World Perks Card for the latter to access the ticket control record with the airline's computer for her to see that
the ticket is still valid. But Linda Puntawongdaycha refused to check the validity of the ticket in the computer.
As a result, the Immigration Officer brought Jesus Fernando to the interrogation room of the INS where he was
interrogated for more than two (2) hours. When he was finally cleared by the Immigration Officer, he was
granted only a twelve (12)-day stay in the United States (US), instead of the usual six (6) months. 40

As in fact, the RTC awarded actual or compensatory damages because of the testimony of Jesus Fernando
that he had to go back to Manila and then return again to LA, USA, two (2) days after requiring him to purchase
another round trip ticket from Northwest in the amount of $2,000.00 which was not disputed by Northwest. 41 In
ignoring Jesus Fernando's pleas to check the validity of the tickets in the computer, the Northwest personnel
exhibited an indifferent attitude without due regard for the inconvenience and anxiety Jesus Fernando might
have experienced.

Passengers do not contract merely for transportation. They have a right to be treated by the carrier's
employees with kindness, respect, courtesy and due consideration. They are entitled to be protected against
personal misconduct, injurious language, indignities and abuses from such employees. So it is, that any rule or
discourteous conduct on the part of employees towards a passenger gives the latter an action for damages
against the carrier.42

In requiring compliance with the standard of extraordinary diligence, a standard which is, in fact, that of the
highest possible degree of diligence, from common carriers and in creating a presumption of negligence
against them, the law seeks to compel them to control their employees, to tame their reckless instincts and to
force them to take adequate care of human beings and their property. 43

Notably, after the incident, the Fernandos proceeded to a Northwest Ticket counter to verify the status of the
ticket and they were assured that the ticked remained unused and perfectly valid. And, to avoid any future
problems that may be encountered on the validity of the ticket, a new ticket was issued to Jesus Fernando.
The failure to promptly verify the validity of the ticket connotes bad faith on the part of Northwest.

Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong. It means breach of a known duty through some motive, interest or ill
will that partakes of the nature of fraud. A finding of bad faith entitles the offended party to moral damages. 44

As to the second incident, there was likewise fraud or bad faith on the part of Northwest when it did not allow
the Fernandos to board their flight for Manila on January 29, 2002, in spite of confirmed tickets. We need to
stress that they have confirmed bookings on Northwest Airlines NW Flight No. 001 for Narita, Japan and NW
029 for Manila. They checked in with their luggage at LA Airport and were given their respective boarding
passes for business class seats and claim stubs for six (6) pieces of luggage. With boarding passes and
electronic tickets, apparently, they were allowed entry to the departure area; and, they eventually joined the
long queue of business class passengers along with their business associates.

However, in the presence of the other passengers, Northwest personnel Linda Tang pulled the Fernandos out
of the queue and asked for paper tickets (coupon type). Elizabeth Fernando explained to Linda Tang that the
matter could be sorted out by simply verifying their electronic tickets in her computer and all she had to do was
click and punch in their Elite Platinum World Perks Card number. Again, the Northwest personnel refused to do
so; she, instead, told them to pay for new tickets so they could board the plane. Hence, the Fernandos rushed
to the Northwest Airline Ticket counter to clarify the matter. They were assisted by Northwest personnel
Jeanne Meyer who retrieved their control number from her computer and was able to ascertain that the
Fernandos' electronic tickets were valid, and they were confirmed passengers on both NW Flight No. 001 for
Narita Japan and NW 029 for Manila on that day.

In Ortigas, Jr. v. Lufthansa German Airlines,45 this Court declared that "(i)n contracts of common carriage, in
attention and lack of care on the part of the carrier resulting in the failure of the passenger to be
accommodated in the class contracted for amounts to bad faith or fraud which entitles the passengers to the
award of moral damages in accordance with Article 2220 of the Civil Code."

In Pan American World Airways, Inc. v. Intermediate Appellate Court, 46 where a would-be passenger had the
necessary ticket, baggage claim and clearance from immigration, all clearly and unmistakably showing that she
was, in fact, included in the passenger manifest of said flight, and yet was denied accommodation in said
flight, this Court did not hesitate to affirm the lower court's finding awarding her damages on the ground that
the breach of contract of carriage amounted to bad faith. 47 For the indignity and inconvenience of being refused
a confirmed seat on the last minute, said passenger is entitled to an award of moral damages. 48

In this case, We need to stress that the personnel who assisted the Fernandos even printed coupon tickets for
them and advised them to rush back to the boarding gates since the plane was about to depart. But when the
Fernandos reached the boarding gate, the plane had already departed. They were able to depart, instead, the
day after, or on January 30, 2002.

In Japan Airlines v. Jesus Simangan,49 this Court held that the acts committed by Japan Airlines against Jesus
Simangan amounted to bad faith, thus:
x x x JAL did not allow respondent to fly. It informed respondent that there was a need to first check the
authenticity of his travel documents with the U.S. Embassy. As admitted by JAL, "the flight could not wait
for Mr. Simangan because it was ready to depart."

Since JAL definitely declared that the flight could not wait for respondent, it gave respondent no choice but to
be left behind. The latter was unceremoniously bumped off despite his protestations and valid travel
documents and notwithstanding his contract of carriage with JAL. Damage had already been done when
respondent was offered to fly the next day on July 30, 1992. Said offer did not cure JAL's default.50

Similarly, in Korean Airlines Co., Ltd. v. Court of Appeals,51 where private respondent was not allowed to board
the plane because her seat had already been given to another passenger even before the allowable period for
passengers to check in had lapsed despite the fact that she had a confirmed ticket and she had arrived on
time, this Court held that petitioner airline acted in bad faith in violating private respondent's rights under their
contract of carriage and is, therefore, liable for the injuries she has sustained as a result. 52

Under Article 222053 of the Civil Code of the Philippines, an award of moral damages, in breaches of contract,
is in order upon a showing that the defendant acted fraudulently or in bad faith. 54 Clearly, in this case, the
Fernandos are entitled to an award of moral damages. 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.55

We note that even if both the CA and the RTC ruled out bad faith on the part of Northwest, the award of "some
moral damages" was recognized. Both courts believed that considering that the Fernandos are good clients of
Northwest for almost ten (10) years being Elite Platinum World Perks Card holders, and are known in their
business circle, they should have been given by Northwest the corresponding special treatment. 56 They own
hotels and a chain of apartelles in the country, and a parking garage building in Indiana, USA. From this
perspective, We adopt the said view. We, thus, increase the award of moral damages to the Fernandos in the
amount of ₱3,000,000.00.

As held in Kierulf v. Court of Appeals,57 the social and financial standing of a claimant may be considered if he
or she was subjected to contemptuous conduct despite the offender's knowledge of his or her social and
financial standing.

In Trans World Airlines v. Court of Appeals,58 this Court considered the social standing of the aggrieved
passenger:

At the time of this unfortunate incident, the private respondent was a practicing lawyer, a senior partner of a
big law firm in Manila. He was a director of several companies and was active in civic and social
organizations in the Philippines. Considering the circumstances of this case and the social standing of
private respondent in the community, he is entitled to the award of moral and exemplary damages. x x x
This award should be reasonably sufficient to indemnify private respondent for the humiliation and
embarrassment that he suffered and to serve as an example to discourage the repetition of similar
oppressive and discriminatory acts.59

Exemplary damages, which are awarded by way of example or correction for the public good, may be
recovered in contractual obligations, if defendant acted in wanton, fraudulent, reckless, oppressive, or
malevolent manner.60 They are designed by our civil law to permit the courts to reshape behavior that is
socially deleterious in its consequence by creating negative incentives or deterrents against such
behavior.61 Hence, given the facts and circumstances of this case, We hold Northwest liable for the payment of
exemplary damages in the amount of ₱2,000,000.00.

In the case of Northwest Airlines, Inc. v. Chiong,62 Chiong was given the run-around at the Northwest check-in
counter, instructed to deal with a man in barong to obtain a boarding pass, and eventually barred from
boarding a Northwest flight to accommodate an American passenger whose name was merely inserted in the
Flight Manifest, and did not even personally check-in at the counter. Under the foregoing circumstances, the
award of moral and exemplary damages was given by this Court.

Time and again, We have declared that a contract of carriage, in this case, air transport, is primarily intended
to serve the traveling public and thus, imbued with public interest. The law governing common carriers
consequently imposes an exacting standard of conduct. 63 A contract to transport passengers is quite different
in kind and degree from any other contractual relation because of the relation which an air-carrier sustains with
the public. Its business is mainly with the travelling public. It invites people to avail of the comforts and
advantages it offers. The contract of air carriage, therefore, generates a relation attended with a public duty.
Neglect or malfeasance of the carrier's employees, naturally, could give ground for an action or damages.64

As to the payment of attorney's fees, We sustain the award thereof on the ground that the Fernandos were
ultimately compelled to litigate and incurred expenses to protect their rights and interests, and because the
Fernandos are entitled to an award for exemplary damages. Pursuant to Article 2208 of the Civil Code,
attorney's fees may be awarded when exemplary damages are awarded, or a party is compelled to litigate or
incur expenses to protect his interest, or where the defendant acted in gross and evident bad faith in refusing
to satisfy the plaintiff's plainly valid, just and demandable claim.

Records show that the Fernandos demanded payment for damages from Northwest even before the filing of
this case in court.1âwphi1 Clearly, the Fernandos were forced to obtain the services of counsel to enforce a
just claim, for which they should be awarded attorney's fees.65 We deem it just and equitable to grant an award
of attorney's fees equivalent to 10% of the damages awarded.

Lastly, the counterclaim of Northwest in its Answer 66 is a compulsory counterclaim for damages and attorney's
fees arising from the filing of the complaint. This compulsory counterclaim of Northwest arising from the filing of
the complaint may not be granted inasmuch as the complaint against it is obviously not malicious or
unfounded. It was filed by the Fernandos precisely to claim their right to damages against Northwest. Well-
settled is the rule that the commencement of an action does not per se make the action wrongful and subject
the action to damages, for the law could not have meant to impose a penalty on the right to litigate. 67

WHEREFORE, the Decision dated August 30, 2013 and the Resolution dated March 31, 2014 of the Court of
Appeals, in CA-G.R. CV No. 93496 are hereby AFFIRMED WITH MODIFICATION. The award of moral
damages and attorney's fees are hereby increased to ₱3,000,000.00 and ten percent (10%) of the damages
awarded, respectively. Exemplary damages in the amount of ₱2,000,000.00 is also awarded. Costs against
Northwest Airlines.

The total amount adjudged shall earn legal interest at the rate of twelve percent (12%) per annum computed
from judicial demand or from April 30, 2002 to June 30 2013, and six percent (6%) per annum from July 1,
2013 until their full satisfaction.

SO ORDERED.
 THIRD DIVISION

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 court’s Decision 1 of August 10, 2000 reversing and
setting aside the judgment of 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.2 The Femenal tablets were placed 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), 5 it was
discharged "without exception"6 and 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. 8 As its customs broker,
Sanchez 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. 016992,10 was issued. On the
receipt, another representative of Sanchez Brokerage, M. Sison,11 acknowledged that he 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 13 which were
thereupon stripped from the aluminum containers14 and loaded inside two transport vehicles hired by Sanchez
Brokerage.15

Among those who witnessed the release of the cargoes from the PSI warehouse were Ruben Alonso and Tony
Akas,16 employees of Elite Adjusters 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.17 The delivery 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.19 Upon inspection, however, he, together with Ruben Alonzo of
Elite Surveyors, discovered that 44 cartons containing Femenal and Nordiol tablets were in bad order. 20 He
thus placed a note above his signature on the 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 21 dated July 31, 1992 stating
that 41 cartons of Femenal tablets and 3 cartons of Nordiol tablets were "wetted" (sic).22

The Elite Surveyors later issued Certificate No. CS-0731-1538/9223 attached to which was an "Annexed
Schedule" whereon it was indicated that prior to the loading of the cargoes to the broker’s trucks at the NAIA,
they were inspected and found to be in "apparent good condition." 24 Also 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 26 confirming that 38 x 700 blister
packs of Femenal tablets, 3 x 700 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 27 of 38 cartons of Femenal and 3
cartons of Nordiol on the ground 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 29 of August 25, 1992, from 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 Receipt30 in favor of FGU Insurance.

On demand by FGU Insurance for payment of the amount of P181,431.49 it paid Wyeth-Suaco, Sanchez
Brokerage, by letter31 of January 7, 1993, 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,32 prompting its (Sanchez
Brokerage’s) representative 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 Decision34 of July 29, 1996, dismissed the complaint, 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 attorney’s fees; and

3. The counterclaims of the Appellee are DISMISSED.38

Sanchez Brokerage’s Motion for Reconsideration having been denied by the appellate court’s 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 court’s 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 court’s 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.41 The 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. 44 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.

In this light, petitioner as a common carrier is mandated to observe, under Article 1733 45 of the Civil Code,
extraordinary diligence in the vigilance over 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;49 and that upon delivery by petitioner to Hizon Laboratories Inc., some of the cargoes
were found to be in bad order, as noted in the Delivery Receipt 50 issued by petitioner, and as indicated in the
Survey Report of Elite Surveyors51 and the 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 goods53 ; and that it should not be faulted for following the instructions of 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 173455 of the Civil Code exempts a 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 petitioner’s 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.58 Or, petitioner would 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 PAGASA61 on request of Sanchez 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.
 FIRST DIVISION

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 petitioner’s niece, Meriam Menor, was
respondent company’s ticketing manager.

Pursuant to said contract, Menor went to her aunt’s residence on June 12, 1991 – a Wednesday – to deliver
petitioner’s 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 petitioner’s 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 petitioner’s 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.1 Petitioner was thus constrained to file a complaint
against respondent for 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,2 petitioner alleged that her failure to join "Jewels of Europe" was due to respondent’s 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 petitioner’s 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, 4 the dispositive 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 attorney’s fees;

3. Dismissing the defendant’s 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 petitioner’s 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 Menor’s 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 attorney’s fees is DELETED. Costs against
the plaintiff-appellee.

SO ORDERED.6

Upon denial of her motion for reconsideration,7 petitioner filed the instant 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,
petitioner’s 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 employee’s gross
negligence.

Petitioner’s 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.9 Such
person or association of persons are regarded as carriers and are classified as private or special carriers and
common or public carriers.10 A common 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. Respondent’s 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. Respondent’s 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 petitioner’s contractual relation with respondent is the latter’s service of arranging and facilitating
petitioner’s 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. Petitioner’s 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 latter’s 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.11 As earlier stated, 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. 12 This connotes reasonable
care 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. Petitioner’s testimony was accepted as indubitable evidence of Menor’s 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) 14 of the Rules of Court that evidence willfully suppressed would be
adverse if produced and thus considered petitioner’s uncontradicted testimony to be sufficient proof of her
claim.

On the other hand, respondent has consistently denied that Menor was negligent and maintains that
petitioner’s 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.

Respondent’s failure to present Menor as witness to rebut petitioner’s 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,15 thereby making it physically impossible for respondent to present her as a witness. Then too, even
if it were possible for respondent to secure Menor’s testimony, the presumption under Rule 131, Section 3(e)
would still not apply. The opportunity and possibility for obtaining Menor’s testimony belonged to both parties,
considering that Menor was not just respondent’s employee, but also petitioner’s 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 Menor’s negligence concurred with the
negligence of petitioner and resultantly caused damage to the latter. Menor’s negligence was not sufficiently
proved, considering that the only evidence presented on this score was petitioner’s 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.17 If the plaintiff, upon whom rests the burden of proving his cause 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 petitioner’s 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 19 issued to petitioner clearly reflected the
departure date and time, contrary to petitioner’s 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 petitioner’s 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. 20 There is
no fixed standard of diligence applicable to each and 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 1âwphi1

The lower court declared that respondent’s 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.