G.R. No.

220400, March 20, 2019 On March 2, 1994, Great Harvest, through counsel, sent Tan a letter demanding full payment
for the missing bags of soya beans. On April 26, 1994, it sent her another demand letter. Still,
ANNIE TAN, PETITIONER, v. GREAT HARVEST ENTERPRISES, INC., RESPONDENT. she refused to pay for the missing shipment or settle the matter with Great Harvest. 15 Thus,
on June 2, 1994, Great Harvest filed a Complaint for sum of money against Tan.16
DECISION
In her Answer, Tan denied that she entered into a hauling contract with Great Harvest,
insisting that she merely accommodated it. Tan also pointed out that since Great Harvest
LEONEN, J.:
instructed her driver to change the point of delivery without her consent, it should bear the
loss brought about by its deviation from the original unloading point.17
Common carriers are obligated to exercise extraordinary diligence over the goods entrusted
to their care. This is due to the nature of their business, with the public policy behind it geared
In its August 4, 2000 Decision,18 the Regional Trial Court of Manila found Karamihan guilty as
toward achieving allocative efficiency and minimizing the inherently inequitable dynamics
an accessory after the fact of theft, and sentenced him to serve a prison sentence between
between the parties to the transaction.
six (6) months of arresto mayor maximum to one (1) year of prision correccional minimum. He
was also ordered to indemnify Tan P75,000.00, the amount he had paid Cabugatan for the
This resolves a Petition for Review on Certiorari1 filed under Rule 45 of the Rules of Civil 430 bags of soya beans.19
Procedure by Annie Tan (Tan), assailing the Court of Appeals March 13, 2015 Decision2 and
September 15, 2015 Resolution3 in CA-G.R. CV No. 100412. The assailed judgments upheld the
In its January 3, 2012 Decision,20 the Regional Trial Court of Quezon City granted Great
Regional Trial Court January 3, 2012 Decision4 in Civil Case No. Q-94-20745, which granted
Harvest's Complaint for sum of money. It found that Tan entered into a verbal contract of
Great Harvest Enterprises, Inc.'s (Great Harvest) Complaint for sum of money against Tan.
hauling with Great Harvest, and held her responsible for her driver's failure to deliver the soya
beans to Great Harvest.21 The dispositive portion of the Decision read:
On February 3, 1994, Great Harvest hired Tan to transport 430 bags of soya beans worth
P230,000.00 from Tacoma Integrated Port Services, Inc. (Tacoma) in Port Area, Manila to
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant,
Selecta Feeds in Camarin, Novaliches, Quezon City.5
ordering the latter:

That same day, the bags of soya beans were loaded into Tan's hauling truck. Her employee,
1. To pay the sum of P230,000.00 with interest thereon at the rate of 12% per
Rannie Sultan Cabugatan (Cabugatan), then delivered the goods to Selecta Feeds.6
annum starting from June 2, 1994 (when the case was filed) and until paid;

At Selecta Feeds, however, the shipment was rejected. Upon learning of the rejection, Great 2. To pay the sum of P50,000.00 as Attorney's fees; and
Harvest instructed Cabugatan to deliver and unload the soya beans at its warehouse in
Malabon. Yet, the truck and its shipment never reached Great Harvest's warehouse.7 3. Costs against the defendant.

On February 7, 1994, Great Harvest asked Tan about the missing delivery. At first, Tan assured SO ORDERED.22
Great Harvest that she would verify the whereabouts of its shipment, but after a series of
follow-ups, she eventually admitted that she could not locate both her truck and Great
Harvest's goods.8 She reported her missing truck to the Western Police District Anti- Tan moved for reconsideration of the January 3, 2012 Decision, but her Motion was denied by
Carnapping Unit and the National Bureau of Investigation.9 the trial court in its November 21, 2012 Order.23

On February 19, 1994, the National Bureau of Investigation informed Tan that her missing Tan filed an Appeal, but the Court of Appeals dismissed it in its March 13, 2015 Decision.24
truck had been found in Cavite. However, the truck had been cannibalized and had no cargo
in it.10 Tan spent over P200,000.00 to have it fixed.11 In affirming the January 3, 2012 Decision, the Court of Appeals found that the parties'
standard business practice when the recipient would reject the cargo was to deliver it to
Tan filed a Complaint against Cabugatan and Rody Karamihan (Karamihan), whom she Great Harvest's warehouse. Thus, contrary to Tan's claim, there was no deviation from the
accused of conspiring with each other to steal the shipment entrusted to her.12 An original destination.25
Information13 for theft was filed against Karamihan, while Cabugatan was charged with
qualified theft.14
1
The Court of Appeals also held that the cargo loss was due to Tan's failure to exercise the
extraordinary level of diligence required of her as a common carrier, as she did not provide
security for the cargo or take out insurance on it.26
The dispositive portion of the Court of Appeals Decision read:
WHEREFORE, the premises considered, the instant appeal is hereby DISMISSED and the
assailed Decision dated January 3, 2012 [is] AFFIRMED in toto.
IT IS SO ORDERED.27 (Emphasis in the original)
Tan moved for reconsideration, but her Motion was denied by the Court of Appeals in its
September 15, 2015 Resolution.28
Thus, Tan filed her Petition for Review on Certiorari,29 maintaining that her Petition falls under
the exceptions to a Rule 45 petition since the assailed Court of Appeals Decision was based
on a misapprehension of facts.30
Petitioner contends that she is not liable for the loss of the soya beans and points out that the
agreement with respondent Great Harvest was to deliver them to Selecta Feeds, an
obligation with which she complied. She claims that what happened after that was beyond
her control. When Selecta Feeds rejected the soya beans and respondent directed Cabugatan
to deliver the goods to its warehouse, respondent superseded her previous instruction to
Cabugatan to return the goods to Tacoma, the loading point. Hence, she was no longer
required to exercise the extraordinary diligence demanded of her as a common carrier.31
Tan opines that she is not liable for the value of the lost soya beans since the truck hijacking
was a fortuitous event and because "the carrier is not an insurer against all risks of travel."32
She prayed for: (1) P500,000.00 in actual damages to compensate for the expenses she
incurred in looking for and fixing her truck; (2) P500,000.00 in moral damages for the stress
and mental anguish she experienced in searching for her truck and the missing soya beans;
(3) P500,000.00 in exemplary damages to deter respondent from filing a similar baseless
complaint in the future; and (4) P200,000.00 as attorney's fees. On the other hand, if she is
found liable to respondent, petitioner concedes that her liability should only be pegged at
P75,000.00, the actual price Karamihan paid for respondent's shipment.33
On January 25, 2016,34 respondent was directed to comment on the petition but it
manifested35 that it was waiving its right to file a comment.
The sole issue for this Court's resolution is whether or not petitioner Annie Tan should be held
liable for the value of the stolen soya beans.
The Petition must fail.
2
The Rules of Court is categorical that only questions of law may be raised in petitions filed
under Rule 45, as this Court is not a trier of facts. Further, factual findings of appellate courts,
when supported by substantial evidence, are binding upon this Court.36
However, these rules do admit of exceptions.37 In particular, petitioner referred to the
exception "[w]hen the judgment is based on a misapprehension of facts"38 to justify the
questions of fact in her Petition for Review on Certiorari.
A careful review of the records of this case convinces us that the assailed judgments of the
Court of Appeals are supported by substantial evidence.
Article 1732 of the Civil Code defines common carriers 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." The Civil Code
outlines the degree of diligence required of common carriers in Articles 1733, 1755, and 1756:
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.
Law and economics provide the policy justification of our existing jurisprudence. The
extraordinary diligence required by the law of common carriers is primarily due to the nature
of their business, with the public policy behind it geared toward achieving allocative efficiency
between the parties to the transaction.
Allocative efficiency is an economic term that describes an optimal market where customers
are willing to pay for the goods produced.39 Thus, both consumers and producers benefit and
stability is achieved.
The notion of common carriers is synonymous with public service under Commonwealth Act
No. 146 or the Public Service Act.40 Due to the public nature of their business, common
carriers are compelled to exercise extraordinary diligence since they will be burdened with
the externalities or the cost of the consequences of their contract of carriage if they fail to
take the precautions expected of them.
Common carriers are mandated to internalize or shoulder the costs under the contracts of
carriage. This is so because a contract of carriage is structured in such a way that passengers
or shippers surrender total control over their persons or goods to common carriers, fully
trusting that the latter will safely and timely deliver them to their destination. In light of this
inherently inequitable dynamics— and the potential harm that might befall passengers or
shippers if common carriers exercise less than extraordinary diligence— the law is
constrained to intervene and impose sanctions on common carriers for the parties to achieve
allocative efficiency.41
Here, petitioner is a common carrier obligated to exercise extraordinary diligence42 over the
goods entrusted to her. Her responsibility began from the time she received the soya beans
from respondent's broker and would only cease after she has delivered them to the
consignee or any person with the right to receive them.43
Petitioner's argument is that her contract of carriage with respondent was limited to
delivering the soya beans to Selecta Feeds. Thus, when Selecta Feeds refused to accept the
delivery, she directed her driver to return the shipment to the loading point. Respondent
refutes petitioner's claims and asserts that their standing agreement was to deliver the
shipment to respondent's nearest warehouse in case the consignee refused the delivery.
After listening to the testimonies of both parties, the trial court found that respondent was
able to prove its contract of carriage with petitioner. It also found the testimony of
respondent's witness, Cynthia Chua (Chua), to be more believable over that of petitioner
when it came to the details of their contract of carriage:
Defendant's assertion that the diversion of the goods was done without her consent and
knowledge is self-serving and is effectively belied by the positive testimony of witness Cynthia
Chua, Account Officer of plaintiff corporation (page 23, TSN, March 26, 1996). Equally self-
serving is defendant's claim that she is not liable for the loss of the soyabeans (sic)
considering that the plaintiff has no existing contract with her. Such a sweeping submission is
also belied by the testimony of plaintiff's witness Cynthia Chua who categorically confirmed
the existing business relationship of plaintiff and defendant for hauling and delivery of goods
as well as the arrangement to deliver the rejected goods to the plaintiff's nearest warehouse
in the event that goods are rejected by the consignee with prior approval of the consignor
(page 11, TSN, March 26, 1996).44
The trial court's appreciation of Chua's testimony was upheld by the Court of Appeals:
Verily, the testimony alone of appellee's Account Officer, Cynthia Chua, dispels the contrary
allegations made by appellant in so far as the nature of their business relationship is
concerned. Consistently and without qualms, said witness narrated the details respecting the
company's relations with the appellant and the events that transpired before, during and
3
after the perfection of the contract and the subsequent loss of the subject cargo. Said
testimony and the documentary exhibits, i.e., the Tacoma waybill and the appellee's waybill,
prove the perfection and existence of the disputed verbal contract.
Emphatically, from the aforesaid waybills, it was duly established that while verbal, the
parties herein has (sic) agreed for the hauling and delivery of the soya beans from the
company's broker to the intended recipient. It was further proven by evidence that appellant
had agreed and consented to the delivery of the soya beans to the company's nearest
warehouse in case the cargo goods had been rejected by the recipient as it had been the
practice between the parties.45 (Citation omitted)
This Court accords the highest respect to the trial court's assessment of a witness' credibility,
as it was in a better position to observe the witness' demeanor while testifying.46 We see no
reason to disturb the factual findings of the lower courts, especially since they were
supported by substantial evidence.
Furthermore, Article 1734 of the Civil Code holds a common carrier fully responsible for the
goods entrusted to him or her, unless there is enough evidence to show that the loss,
destruction, or deterioration of the goods falls under any of the enumerated exceptions:
ARTICLE 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:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Nothing in the records shows that any of these exceptions caused the loss of the soya beans.
Petitioner failed to deliver the soya beans to respondent because her driver absconded with
them. She cannot shift the blame for the loss to respondent's supposed diversion of the soya
beans from the loading point to respondent's warehouse, as the evidence has conclusively
shown that she had agreed beforehand to deliver the cargo to respondent's warehouse if the
consignee refused to accept it.47
Finally, petitioner's reliance on De Guzman v. Court of Appeals48 is misplaced. There, the
common carrier was absolved of liability because the goods were stolen by robbers who used
"grave or irresistible threat, violence[,] or force"49 to hijack the goods. De Guzman viewed the
armed hijack as a fortuitous event:
Under Article 1745 (6) above, a common carrier is held responsible — and will not be allowed
to divest or to diminish such responsibility — even for acts of strangers like thieves or
robbers, except where such thieves or robbers in fact acted "with grave or irresistible threat,
violence or force." We believe and so hold that the limits of the duty of extraordinary
diligence in the vigilance over the goods carried are reached where the goods are lost as a
result of a robbery which is attended by "grave or irresistible threat, violence[,] or force."50
In contrast to De Guzman, the loss of the soya beans here was not attended by grave or
irresistible threat, violence, or force. Instead, it was brought about by petitioner's failure to
exercise extraordinary diligence when she neglected vetting her driver or providing security
for the cargo and failing to take out insurance on the shipment's value. As the Court of
Appeals held:
Besides, as the records would show, appellant did not observe extra-ordinary (sic) diligence in
the conduct of her business as a common carrier. In breach of their agreement, appellant did
not provide security while the goods were in transit and she also did not pay for the insurance
coverage of said goods. These measures could have prevented the hijacking (sic) or could
have ensured the payment of the damages sustained by the appellee.51
WHEREFORE, the Petition is DENIED. Petitioner Annie Tan is directed to pay respondent Great
Harvest Enterprises, Inc. the sum of Two Hundred Thirty Thousand Pesos (P230,000.00) with
interest at the rate of twelve percent (12%) per annum from June 2, 1994 until June 30, 2013,
and at the rate of six percent (6%) per annum from July 1, 2013 until its full satisfaction. She is
further directed to pay Fifty Thousand Pesos (P50,000.00) as attorney's fees and the costs of
suit.
SO ORDERED.
Peralta (Chairperson), A. Reyes, Jr., Hernando, and Carandang,* JJ., concur.
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
Decision2 dated September 30, 2013 of the Court of Appeals (CA) in CA-G.R. CEB-CV No. 01889.
4
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
5
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.
6
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
Claim32and 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. Vizcara38:
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.
7
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 259 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
8
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.
G.R. No. 199455, June 27, 2018
FEDERAL EXPRESS CORPORATION, Petitioner, v. LUWALHATI R. ANTONINO AND ELIZA
BETTINA RICASA ANTONINO, Respondents.
DECISION
LEONEN, J.:
The duty of common carriers to observe extraordinary diligence in shipping goods does not
terminate until delivery to the consignee or to the specific person authorized to receive the
shipped goods. Failure to deliver to the person authorized to receive the goods is tantamount
to loss of the goods, thereby engendering the common carrier's liability for loss. Ambiguities
in contracts of carriage, which are contracts of adhesion, must be interpreted against the
common carrier that prepared these contracts.
This resolves a Petition for Review on Certiorari1 under Rule 45 of the 1997 Rules of Civil
Procedure praying that the assailed Court of Appeals August 31, 2011 Decision2 and November
21, 2011 Resolution3 in CA-G.R. CV No. 91216 be reversed and set aside and that Luwalhati R.
Antonino (Luwalhati) and Eliza Bettina Ricasa Antonino (Eliza) be held liable on Federal
Express Corporation's (FedEx) counterclaim.
The assailed Court of Appeals August 31, 2011 Decision denied the appeal filed by FedEx and
affirmed the May 8, 2008 Decision4 of Branch 217, Regional Trial Court, Quezon City, awarding
moral and exemplary damages, and attorney's fees to Luwalhati and Eliza.5 In its assailed
November 21, 2011 Resolution, the Court of Appeals denied FedEx's Motion for
Reconsideration.6
Eliza was the owner of Unit 22-A (the Unit) in Allegro Condominium, located at 62 West
62nd St., New York, United States.7 In November 2003, monthly common charges on the Unit
became due. These charges were for the period of July 2003 to November 2003, and were for
a total amount of US$9,742.81.8
On December 15, 2003, Luwalhati and Eliza were in the Philippines. As the monthly common
charges on the Unit had become due, they decided to send several Citibank checks to
Veronica Z. Sison (Sison), who was based in New York. Citibank checks allegedly amounting to
US$17,726.18 for the payment of monthly charges and US$11,619.35 for the payment of real
estate taxes were sent by Luwalhati through FedEx with Account No. x2546-4948-1 and
Tracking No. 8442 4588 4268. The package was addressed to Sison who was tasked to deliver
the checks payable to Maxwell-Kates, Inc. and to the New York County Department of
Finance. Sison allegedly did not receive the package, resulting in the non-payment of
Luwalhati and Eliza's obligations and the foreclosure of the Unit. 9
Upon learning that the checks were sent on December 15, 2003, Sison contacted FedEx on
February 9, 2004 to inquire about the non-delivery. She was informed that the package was
delivered to her neighbor but there was no signed receipt.10
On March 14, 2004, Luwalhati and Eliza, through their counsel, sent a demand letter to FedEx
for payment of damages due to the non-delivery of the package, but FedEx refused to heed
their demand.11 Hence, on April 5, 2004, they filed their Complaint12 for damages.
FedEx claimed that Luwalhati and Eliza "ha[d] no cause of action against it because [they]
failed to comply with a condition precedent, that of filing a written notice of claim within the
45 calendar days from the acceptance of the shipment."13 It added that it was absolved of
liability as Luwalhati and Eliza shipped prohibited items and misdeclared these items as
"documents."14 It pointed to conditions under its Air Waybill prohibiting the "transportation
of money (including but not limited to coins or negotiable instruments equivalent to cash
such as endorsed stocks and bonds)."15
In its May 8, 2008 Decision,16 the Regional Trial Court ruled for Luwalhati and Eliza, awarding
them moral and exemplary damages, and attorney's fees.17
The Regional Trial Court found that Luwalhati failed to accurately declare the contents of the
package as "checks."18 However, it ruled that a check is not legal tender or a "negotiable
instrument equivalent to cash," as prohibited by the Air Waybill.19 It explained that common
carriers are presumed to be at fault whenever goods are lost.20 Luwalhati testified on the
non-delivery of the package. FedEx, on the other hand, claimed that the shipment was
released without the signature of the actual recipient, as authorized by the shipper or
recipient. However, it failed to show that this authorization was made; thus, it was still liable
for the loss of the package.21
9
On non-compliance with a condition precedent, it ruled that under the Air Waybill, the
prescriptive period for filing an action was "within two (2) years from the date of delivery of
the shipment or from the date on which the shipment should have been
delivered."22 Luwalhati and Eliza's demand letter made on March 11, 2004 was within the two
(2)-year period sanctioned by the Air Waybill.23 The trial court also noted that they were given
a "run-around" by FedEx employees, and thus, were deemed to have complied with the filing
of the formal claim.24
The dispositive portion of the Regional Trial Court May 8, 2008 Decision read:
WHEREFORE, judgment is hereby rendered in favor of plaintiffs Luwalhati R. Antonino and
Eliza Bettina Ricasa Antonino ordering the following:
1) The amount of P200,000.00 by way of moral damages;
2) The amount of P100,000.00 by way of exemplary damages; and
[3]) The amount of P150,000.00 as and for attorney's fees. Costs against defendant.
The counterclaim is ordered dismissed.
SO ORDERED.25
In its assailed August 31, 2011 Decision,26 the Court of Appeals affirmed the ruling of the
Regional Trial Court.27 According to it, by accepting the package despite its supposed defect,
FedEx was deemed to have acquiesced to the transaction. Thus, it must deliver the package
in good condition and could not subsequently deny liability for loss.28 The Court of Appeals
sustained the Regional Trial Court's conclusion that checks are not legal tender, and thus, not
covered by the Air Waybill's prohibition.29 It further noted that an Air Waybill is a contract of
adhesion and should be construed against the party that drafted it.30
The dispositive portion of the Court of Appeals August 31, 2011 Decision read:
WHEREFORE, premises considered, the present appeal is hereby DENIED. The assailed May
08, 2008 Decision of the Regional Trial Court, Branch 217, Quezon City in Civil case No. Q-04-
52325 is AFFIRMED. Costs against the herein appellant.
SO ORDERED.31
Following the Court of Appeals' denial32 of its Motion for Reconsideration, FedEx filed the
present Petition.
For resolution of this Court is the sole issue of whether or not petitioner Federal Express
Corporation may be held liable for damages on account of its failure to deliver the checks
shipped by respondents Luwalhati R. Antonino and Eliza Bettina Ricasa Antonino to the
consignee Veronica Sison.
 I In appraising respondents' compliance with the first condition, this Court is guided by settled
Petitioner disclaims liability because of respondents' failure to comply with a condition
precedent, that is, the filing of a written notice of a claim for non-delivery or misdelivery
within 45 days from acceptance of the shipment.33 The Regional Trial Court found the
condition precedent to have been substantially complied with and attributed respondents'
noncompliance to FedEx for giving them a run-around.34 This Court affirms this finding.
A provision in a contract of carriage requiring the filing of a formal claim within a specified
period is a valid stipulation. Jurisprudence maintains that compliance with this provision is a
legitimate condition precedent to an action for damages arising from loss of the shipment:
More particularly, where the contract of shipment contains a reasonable requirement of
giving notice of loss of or injury to the goods, the giving of such notice is a condition
precedent to the action for loss or injury or the right to enforce the carrier's liability. Such
requirement is not an empty formalism. The fundamental reason or purpose of such a
stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the
shipment has been damaged and that it is charged with liability therefor, and to give it an
opportunity to examine the nature and extent of the injury. This protects the carrier by
affording it an opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims.35 (Citation
omitted)
Petitioner's Air Waybill stipulates the following on filing of claims:
Claims for Loss, Damage, or Delay. All claims must be made in writing and within strict time
limits. See any applicable tariff, our service guide or our standard conditions for carriage for
details.
The right to damages against us shall be extinguished unless an action is brought within two
(2) years from the date of delivery of the shipment or from the date on which the shipment
should have been delivered.
Within forty-five (45) days after notification of the claim, it must be documented by sending
to us [all the] relevant information about it.36
For their claim to prosper, respondents must, thus, surpass two (2) hurdles: first, the filing of
their formal claim within 45 days; and second, the subsequent filing of the action within two
(2) years.
There is no dispute on respondents' compliance with the second period as their Complaint
was filed on April 5, 2004.37
10
standards in jurisprudence.
In Philippine Airlines, Inc. v. Court of Appeals,38 Philippine Airlines alleged that shipper Gilda
Mejia (Mejia) failed to file a formal claim within the period stated in the Air Waybill. 39 This
Court ruled that there was substantial compliance with the period because of the zealous
efforts demonstrated by Mejia in following up her claim.40 These efforts coupled with
Philippine Airlines' "tossing around the claim and leaving it unresolved for an indefinite period
of time" led this Court to deem the requisite period satisfied.41 This is pursuant to Article 1186
of the New Civil Code which provides that "[t]he condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfillment":42
Considering the abovementioned incident and private respondent Mejia's own zealous
efforts in following up the claim, it was clearly not her fault that the letter of demand for
damages could only be filed, after months of exasperating follow-up of the claim, on August
13, 1990. If there was any failure at all to file the formal claim within the prescriptive period
contemplated in the air waybill, this was largely because of PAL's own doing, the
consequences of which cannot, in all fairness, be attributed to private respondent.
Even if the claim for damages was conditioned on the timely filing of a formal claim, 'under
Article 1186 of the Civil Code that condition was deemed fulfilled, considering that the
collective action of PAL's personnel in tossing around the claim and leaving it unresolved for
an indefinite period of time was tantamount to "voluntarily preventing its fulfillment." On
grounds of equity, the filing of the baggage freight claim, which sufficiently informed PAL of
the damage sustained by private respondent's cargo, constituted substantial compliance with
the requirement in the contract for the filing of a formal claim.43 (Citations omitted)
Here, the Court of Appeals detailed the efforts made by respondent Luwalhati and consignee
Sison. It also noted petitioner's ambiguous and evasive responses, nonchalant handling of
respondents' concerns, and how these bogged down respondents' actions and impaired their
compliance with the required 45-day period:
Anent the issues concerning lack of cause of action and their so-called "run-around" matter,
We uphold the lower court's finding that the herein appellees complied with the requirement
for the immediate filing of a formal claim for damages as required in the Air Waybill or, at
least, We find that there was substantial compliance therewith. Luwalhati testified that the
addressee, Veronica Z. Sison promptly traced the whereabouts of the said package, but to no
avail. Her testimony narrated what happened thereafter, thus:
". . .
"COURT: All right. She was informed that it was lost. What steps did you take to find out
or to recover back this package?
"ATTY. ALENTAJAN: "Q What did she report to you?

"Q What did you do to Fedex?

". . . "A She reported to me that first, she checked with the Fedex and the first answer
was they were going to trace it. The second answer was that, it was delivered to
the lady, her neighbor and the neighbor completely denied it and as they show a
signature that is not my signature, so the next time she called again, another
WITNESS: First, I asked the secretary here to call Fedex Manila and they said, the record person answered. She called to say that the neighbor did not receive and the
show that it was sent to New York, Your Honor. person on the other line I think she got his name, said that, it is because it is
December and we usually do that just leave it and then they cut the line and so I
asked my friend to issue a sworn statement in the form of affidavit and have it
notarized in the Philippine Embassy or Consulate, Sir. That is what she did.
". . .

ATTY. ALENTAJAN:
"Q On your part here in the Philippines after doing that, after instructing Veronica
"Q After calling Fedex, what did Fedex do? Sison, what else did you do because of this violation?

"A None, sir. They washed their hands because according to them it is New York "A I think the next step was to issue a demand letter because any way I do not want
because they have sent it. Their records show that New York received it, Sir. to go to Court, it is so hard, Sir."

The foregoing event show Luwalhati's own ardent campaign in following up the claim. To the
"Q New York Fedex? Court's mind, it is beyond her control why the demand letter for damages was only sent
subsequent to her infuriating follow-ups regarding the whereabouts of the said package. We
can surmise that if there was any omission at all to file the said claim within the prescriptive
period provided for under the Air Waybill it was mostly due to herein appellant's own
"A Yes, Sir. behavior, the outcome thereof cannot, by any chance, be imputed to the herein
appellees.44 (Grammatical errors in the original)

Petitioner has been unable to persuasively refute Luwalhati's recollection of the efforts that
"Q Now what else did you do after that? she and Sison exerted, and of the responses it gave them. It instead insists that the 45-day
period stated in its Air Waybill is sacrosanct. This Court is unable to bring itself to sustaining
petitioner's appeal to a convenient reprieve. It is one with the Regional Trial Court and the
Court of Appeals in stressing that respondents' inability to expediently file a formal claim can
"A And then I asked my friend Mrs. Veronica Sison to trace it, Sir. only be attributed to petitioner hampering its fulfillment. Thus, respondents must be deemed
to have substantially complied with the requisite 45-day period for filing a formal claim.

II
". . .

11
The Civil Code mandates common carriers to observe extraordinary diligence in caring for the
goods they are transporting:
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.
"Extraordinary diligence is that extreme measure of care and caution which persons of
unusual prudence and circumspection use for securing and preserving their own property or
rights."45 Consistent with the mandate of extraordinary diligence, the Civil Code stipulates
that in case of loss or damage to goods, common carriers are presumed to be negligent or at
fault,46 except in the following instances:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act or competent public authority.47
In all other cases, common carriers must prove that they exercised extraordinary diligence in
the performance of their duties, if they are to be absolved of liability. 48
The responsibility of common carriers to exercise extraordinary diligence lasts from the time
the goods are unconditionally placed in their possession until they are delivered "to the
consignee, or to the person who has a right to receive them."49 Thus, part of the
extraordinary responsibility of common carriers is the duty to ensure that shipments are
received by none but "the person who has a right to receive them."50 Common carriers must
ascertain the identity of the recipient. Failing to deliver shipment to the designated recipient
amounts to a failure to deliver. The shipment shall then be considered lost, and liability for
this loss ensues.
Petitioner is unable to prove that it exercised extraordinary diligence in ensuring delivery of
the package to its designated consignee. It claims to have made a delivery but it even admits
that it was not to the designated consignee. It asserts instead that it was authorized to
release the package without the signature of the designated recipient and that the neighbor
of the consignee, one identified only as "LGAA 385507," received it.51 This fails to impress.
12
The assertion that receipt was made by "LGAA 385507" amounts to little, if any, value in
proving petitioner's successful discharge of its duty. "LGAA 385507" is nothing but an
alphanumeric code that outside of petitioner's personnel and internal systems signifies
nothing. This code does not represent a definite, readily identifiable person, contrary to how
commonly accepted identifiers, such as numbers attached to official, public, or professional
identifications like social security numbers and professional license numbers, function.
Reliance on this code is tantamount to reliance on nothing more than petitioner's bare, self-
serving allegations. Certainly, this cannot satisfy the requisite of extraordinary diligence
consummated through delivery to none but "the person who has a right to receive"52 the
package.
Given the circumstances in this case, the more reasonable conclusion is that the package was
not delivered. The package shipped by respondents should then be considered lost, thereby
engendering the liability of a common carrier for this loss.
Petitioner cannot but be liable for this loss. It failed to ensure that the package was delivered
to the named consignee. It admitted to delivering to a mere neighbor. Even as it claimed this,
it failed to identify that neighbor.
III
Petitioner further asserts that respondents violated the terms of the Air Waybill by shipping
checks. It adds that this violation exempts it from liability.53
This is untenable.
Petitioner's International Air Waybill states:
Items Not Acceptable for Transportation. We do not accept transportation of money
(including but not limited to coins or negotiable instruments equivalent to cash such as
endorsed stocks and bonds). We exclude all liability for shipments of such items accepted by
mistake. Other items may be accepted for carriage only to limited destinations or under
restricted conditions. We reserve the right to reject packages based upon these limitations or
for reasons of safety or security. You may consult our Service Guide, Standard Conditions of
Carriage, or any applicable tariff for specific details.54 (Emphasis in the original)
The prohibition has a singular object: money. What follows the phrase "transportation
of money" is a phrase enclosed in parentheses, and commencing with the words "including
but not limited to." The additional phrase, enclosed as it is in parentheses, is not the object of
the prohibition, but merely a postscript to the word "money." Moreover, its introductory
words "including but not limited to" signify that the items that follow are illustrative
examples; they are not qualifiers that are integral to or inseverable from "money." Despite
the utterance of the enclosed phrase, the singular prohibition remains: money.
Money is "what is generally acceptable in exchange for goods." 55 It can take many forms,
most commonly as coins and banknotes. Despite its myriad forms, its key element is its
general acceptability.56 Laws usually define what can be considered as a generally acceptable
medium of exchange.57 In the Philippines, Republic Act No. 7653, otherwise known as The
New Central Bank Act, defines "legal tender" as follows:
All notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government
of the Republic of the Philippines and shall be legal tender in the Philippines for all debts,
both public and private: Provided, however, That, unless otherwise fixed by the Monetary
Board, coins shall be legal tender in amounts not exceeding Fifty pesos (P50.00) for
denomination of Twenty-five centavos and above, and in amounts not exceeding Twenty
pesos (P20.00) for denominations of Ten centavos or less.58
It is settled in jurisprudence that checks, being only negotiable instruments, are only
substitutes for money and are not legal tender; more so when the check has a named payee
and is not payable to bearer. In Philippine Airlines, Inc. v. Court of Appeals,59 this Court ruled
that the payment of a check to the sheriff did not satisfy the judgment debt as checks are not
considered legal tender. This has been maintained in other cases decided by this Court.
In Cebu International Finance Corporation v. Court of Appeals,60 this Court held that the debts
paid in a money market transaction through the use of a check is not a valid tender of
payment as a check is not legal tender in the Philippines. Further, in Bank of the Philippine
Islands v. Court of Appeals,61 this Court held that "a check, whether a manager's check or
ordinary check, is not legal tender."62
The Air Waybill's prohibition mentions "negotiable instruments" only in the course of making
an example. Thus, they are not prohibited items themselves. Moreover, the illustrative
example does not even pertain to negotiable instruments per se but to "negotiable
instruments equivalent to cash."63
The checks involved here are payable to specific payees, Maxwell-Kates, Inc. and the New
York County Department of Finance.64 Thus, they are order instruments. They are not payable
to their bearer, i.e., bearer instruments. Order instruments differ from bearer instruments in
their manner of negotiation:
Under Section 30 of the [Negotiable Instruments Law], an order instrument requires an
indorsement from the payee or holder before it may be validly negotiated. A bearer
instrument, on the other hand, does not require an indorsement to be validly negotiated.65
There is no question that checks, whether payable to order or to bearer, so long as they
comply with the requirements under Section 1 of the Negotiable Instruments Law, are
negotiable instruments.66 The more relevant consideration is whether checks with a specified
payee are negotiable instruments equivalent to cash, as contemplated in the example added to
the Air Waybill's prohibition.
13
This Court thinks not. An order instrument, which has to be endorsed by the payee before it
may be negotiated,67 cannot be a negotiable instrument equivalent to cash. It is worth
emphasizing that the instruments given as further examples under the Air Waybill must be
endorsed to be considered equivalent to cash:68
Items Not Acceptable for Transportation. We do not accept transportation of money
(including but not limited to coins or negotiable instruments equivalent to cash such
as endorsed stocks and bonds). ... (Emphasis in the original)69
What this Court's protracted discussion reveals is that petitioner's Air Waybill lends itself to a
great deal of confusion. The clarity of its terms leaves much to be desired. This lack of clarity
can only militate against petitioner's cause.
The contract between petitioner and respondents is a contract of adhesion; it was prepared
solely by petitioner for respondents to conform to.70 Although not automatically void, any
ambiguity in a contract of adhesion is construed strictly against the party that prepared
it.71 Accordingly, the prohibition against transporting money must be restrictively construed
against petitioner and liberally for respondents. Viewed through this lens, with greater reason
should respondents be exculpated from liability for shipping documents or instruments,
which are reasonably understood as not being money, and for being unable to declare them
as such.
Ultimately, in shipping checks, respondents were not violating petitioner's Air Waybill. From
this, it follows that they committed no breach of warranty that would absolve petitioner of
liability.
WHEREFORE, the Petition for Review on Certiorari is DENIED. The assailed August 31, 2011
Decision and November 21, 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 91216
are AFFIRMED.
SO ORDERED.
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,
20011 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 Replying, respondent, by letter dated November 7, 2000,5 denied any responsibility for the
to Batangas from Puerto Galera, Oriental Mindoro where the couple had stayed at Coco incident which it considered to be a fortuitous event. It nevertheless offered, as an act of
Beach Island Resort (Resort) owned and operated by respondent. commiseration, the amount of ₱10,000 to petitioners upon their signing of a waiver.

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.
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

The waves got more unwieldy. After getting hit by two big waves which came one after the
By Decision of February 16, 2005,11 Branch 267 of the Pasig RTC dismissed petitioners’
other, M/B Coco Beach III capsized putting all passengers underwater.
Complaint and respondent’s Counterclaim.

The passengers, who had put on their life jackets, struggled to get out of the boat. Upon
Petitioners’ Motion for Reconsideration having been denied by Order dated September 2,
seeing the captain, Matute and the other passengers who reached the surface asked him
2005,12 they appealed to the Court of Appeals.
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).
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
Help came after about 45 minutes when two boats owned by Asia Divers in Sabang, Puerto
which is only required to observe ordinary diligence; that respondent in fact observed
Galera passed by the capsized M/B Coco Beach III. Boarded on those two boats were 22
extraordinary diligence in transporting its guests on board M/B Coco Beach III; and that the
persons, consisting of 18 passengers and four crew members, who were brought to Pisa
proximate cause of the incident was a squall, a fortuitous event.
Island. Eight passengers, including petitioners’ son and his wife, died during the incident.

Petitioners’ Motion for Reconsideration having been denied by Resolution dated January 16,
At the time of Ruelito’s death, he was 28 years old and employed as a contractual worker for
2009,14 they filed the present Petition for Review.15
Mitsui Engineering & Shipbuilding Arabia, Ltd. in Saudi Arabia, with a basic monthly salary of
$900.3
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
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.
14
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 Appeals17 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
15
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:
16
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
$90035 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
Capacity necessary living 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.
Appeals40
Finally, Eastern Shipping Lines, Inc. v. Court of 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,
17
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.
G.R. No. 212038, February 8, 2017
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 Resolution2 dated March 31, 2014 of
the Court of Appeals (CA) in CA-G.R. CV No. 93496 which affirmed the Decision3 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
18
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
19
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 offer18 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 petition24 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
Resolution25 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:
I
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN RULING THAT NORTHWEST
COMMITTED A BREACH OF CONTRACT OF CARRIAGE;
II
20
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
21
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
22
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
23
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 Answer66 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.
24
SO ORDERED.
G.R. No. 182864 January 12, 2015
EASTERN SHIPPING LINES, INC., Petitioner, vs. BPI/MS INSURANCE CORP., & MITSUI
SUMITOMO INSURANCE CO., LTD., Respondents.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review on Certiorari1 of the Decision2 of the Second Division
of the Court of Appeals in CA-G.R. CV No. 88744 dated 31 January 2008, modifying the
Decision of the Regional Trial Court (RTC) by upholding the liability of Eastern Shipping Lines,
Inc. (ESLI) but absolving Asian Terminals, Inc. (ATI) from liability and deleting the award of
attorney's fees.
The facts gathered from the records follow:
On 29 December 2004, BPI/MS Insurance Corporation (BPI/MS) and Mitsui Sumitomo
Insurance Company Limited (Mitsui) filed a Complaint3 before the RTC of Makati City against
ESLI and ATI to recover actual damages amounting to US$17,560.48 with legal interest,
attorney’s fees and costs of suit.
In their complaint, BPI/MS and Mitsui alleged that on 2 February 2004 at Yokohama, Japan,
Sumitomo Corporation shipped on board ESLI’s vessel M/V "Eastern Venus 22" 22 coils of
various Steel Sheet weighing 159,534 kilograms in good order and condition for
transportation to and delivery at the port of Manila, Philippines in favor of consignee Calamba
Steel Center, Inc. (Calamba Steel) located in Saimsim, Calamba, Laguna as evidenced by a Bill
of Lading with Nos. ESLIYMA001. The declared value of the shipment was US$83,857.59 as
shown by an Invoice with Nos. KJGE-03-1228-NT/KE3. The shipment was insured with the
respondents BPI/MS and Mitsui against all risks under Marine Policy No. 103-GG03448834.
On 11 February 2004, the complaint alleged that the shipment arrived at the port of Manila in
an unknown condition and was turned over to ATI for safekeeping. Upon withdrawal of the
shipment by the Calamba Steel’s representative, it was found out that part of the shipment
was damaged and was in bad order condition such that there was a Request for Bad Order
Survey. It was found out that the damage amounted to US$4,598.85 prompting Calamba
Steel to reject the damaged shipment for being unfit for the intended purpose.
On 12 May 2004 at Kashima, Japan, Sumitomo Corporation again shipped on board ESLI’s
vessel M/V "Eastern Venus 25" 50 coils in various Steel Sheet weighing 383,532 kilograms in
good order and condition for transportation to and delivery at the port of Manila, Philippines
in favor of the same consignee Calamba Steel asevidenced by a Bill of Lading with Nos.
ESLIKSMA002. The declared value of the shipment was US$221,455.58 as evidenced by Invoice
Nos. KJGE-04-1327-NT/KE2. The shipment was insured with the respondents BPI/MS and
Mitsui against all risks under Marine Policy No. 104-GG04457785.
On 21 May 2004, ESLI’s vessel withthe second shipment arrived at the port of Manila partly
damaged and in bad order. The coils sustained further damage during the discharge from
vessel to shore until its turnover to ATI’s custody for safekeeping.
Upon withdrawal from ATI and delivery to Calamba Steel, it was found out that the damage
amounted to US$12,961.63. As it did before, Calamba Steel rejected the damaged shipment
for being unfit for the intended purpose.
Calamba Steel attributed the damages on both shipments to ESLI as the carrier and ATI as the
arrastre operator in charge of the handling and discharge of the coils and filed a claim against
them. When ESLI and ATI refused to pay, Calamba Steel filed an insurance claim for the total
amount of the cargo against BPI/MS and Mitsuias cargo insurers. As a result, BPI/MS and
Mitsui became subrogated in place of and with all the rights and defenses accorded by law in
favor of Calamba Steel.
Opposing the complaint, ATI, in itsAnswer, denied the allegations and insisted that the coils in
two shipments were already damaged upon receipt from ESLI’s vessels. It likewise insisted
that it exercised due diligence in the handling of the shipments and invoked that in case of
adverse decision, its liability should not exceed ₱5,000.00 pursuant to Section 7.01, Article
VII4 of the Contract for Cargo Handling Services between Philippine Ports Authority (PPA) and
ATI.5 A cross-claim was also filed against ESLI.
On its part, ESLI denied the allegations of the complainants and averred that the damage to
both shipments was incurred while the same were in the possession and custody of ATI
and/or of the consignee or its representatives. It also filed a cross-claim against ATI for
indemnification in case of liability.6
To expedite settlement, the case was referred to mediation but it was returned to the trial
court for further proceedings due tothe parties’ failure to resolve the legal issues as noted
inthe Mediator’s Report dated 28 June 2005.7
On 10 January 2006, the court issued a Pre-Trial Order wherein the following stipulations
wereagreed upon by the parties:
1. Parties admitted the capacity of the parties to sue and be sued;
2. Parties likewise admitted the existence and due execution of the Bill of Lading
covering various steel sheets in coil attached to the Complaint as Annex A;
25
3. Parties admitted the existence of the Invoiceissued by Sumitomo Corporation, a
true and faithful copy of which was attached to the Complaint as Annex B;
4. Parties likewise admitted the existence of the Marine Cargo Policy issued by the
Mitsui Sumitomo Insurance Company, Limited, copy of which was attached to the
Complaint as Annex C;
5. [ATI] admitted the existence and due execution of the Request for Bad Order
Survey dated February 13, 2004, attached to the Complaint as Annex D;
6. Insofar as the second cause of action, [ESLI] admitted the existence and due
execution of the document [Bill of Lading Nos. ESLIKSMA002, Invoice with Nos.
KJGE-04-1327-NT/KE2 and Marine Cargo Policy against all risks on the second
shipment] attachedto the Complaint as Annexes E, F and G;
7. [ATI] admitted the existence of the Bill of Lading together with the Invoices and
Marine Cargo Policy. [It] likewise admitted by [ATI] are the Turn Over Survey of Bad
Order Cargoes attached to the Complaint as Annexes H, H-1 and J.8
The parties agreed that the procedural issue was whether there was a valid subrogation in
favor of BPI/MS and Mitsui; and that the substantive issues were, whether the shipments
suffered damages, the cause of damage, and the entity liable for reparation of the damages
caused.9 Due to the limited factual mattersof the case, the parties were required to present
their evidence through affidavits and documents. Upon submission of these evidence, the
case was submitted for resolution.10
BPI/MS and Mitsui, to substantiate their claims, submitted the Affidavits of (1) Mario A.
Manuel (Manuel),11 the Cargo Surveyor of Philippine Japan Marine Surveyors and Sworn
Measurers Corporation who personally examined and conducted the surveys on the two
shipments; (2) Richatto P. Almeda,12 the General Manager of Calamba Steel who oversaw and
examined the condition, quantity, and quality of the shipped steel coils, and who thereafter
filed formal notices and claims against ESLI and ATI; and (3) Virgilio G. Tiangco, Jr., 13 the
Marine Claims Supervisor of BPI/MS who processed the insurance claims of Calamba Steel.
Along with the Affidavits were the Bills of Lading14 covering the two shipments,
Invoices,15 Notices of Loss of Calamba Steel,16 Subrogation Form,17 Insurance Claims,18 Survey
Reports,19 Turn Over Survey of Bad Order Cargoes20 and Request for Bad Order Survey.21
ESLI, in turn, submitted the Affidavits of Captain Hermelo M. Eduarte,22 Manager of the
Operations Department of ESLI, who monitored in coordination with ATI the discharge of the
two shipments, and Rodrigo Victoria (Rodrigo),23 the Cargo Surveyor of R & R Industrial and
Marine Services, Inc., who personally surveyed the subject cargoes on board the vessel as
well as the manner the ATI employees discharged the coils. The documents presented were
the Bills of Lading, Secretary’s Certificate24 of PPA, granting ATI the duty and privilege to
provide arrastre and stevedoring services at South Harbor, Port of Manila, Contract for Cargo
Handling Services,25 Damage Report26 and Turn Over Report made by Rodrigo.27 ESLI also
adopted the Survey Reports submitted by BPI/MS and Mitsui.28
Lastly, ATI submitted the Affidavits of its Bad Order Inspector Ramon Garcia (Garcia)29 and
Claims Officer Ramiro De Vera.30 The documents attached to the submissions were the Turn
Over Surveys of Bad Cargo Order,31 Requests for Bad Order Survey,32 Cargo Gatepasses issued
by ATI,33 Notices of Loss/Claims of Calamba Steel34 and Contract for Cargo Handling
Services.35
On 17 September 2006, RTC Makati City rendered a decision finding both the ESLI and ATI
liable for the damages sustained by the two shipments. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of [BPI/MS and Mitsui] and against [ESLI
Inc.] and [ATI], jointly and severally ordering the latter to pay [BPI/MS and Mitsui] the
following: 1. Actual damages amounting to US$17,560.48 plus 6% legal interest per annum
commencing from the filing of this complaint, until the same is fully paid;
2. Attorney’s fees in a sum equivalent to 20% of the amount claimed;
3. Costs of suit.36
Aggrieved, ESLI and ATI filed their respective appeals before the Court of Appeals on both
questions of fact and law.37
Before the appellate court, ESLI argued that the trial court erred when it found BPI/MS has
the capacity to sue and when it assumed jurisdiction over the case. It also questioned the
ruling on its liability since the Survey Reports indicated that the cause ofloss and damage was
due to the "rough handling of ATI’s stevedores during discharge from vessel to shore and
during loading operation onto the trucks."It invoked the limitation of liability of US$500.00
per package asprovided in Commonwealth Act No. 65 or the Carriage of Goods by Sea Act
(COGSA).38 On the other hand, ATI questioned the capacity to sue of BPI/MS and Mitsui and
the award of attorney’s fees despite its lack of justification in the body of the decision. ATI
also imputed error on the part of the trial court when it ruled that ATI’s employees were
negligent in the ruling of the shipments. It also insisted on the applicability of the provision of
COGSA on limitation of liability.39
In its Decision,40 the Court of Appeals absolved ATI from liability thereby modifying the
decision of the trial court. The dispositive portions reads:
WHEREFORE, the appeal of ESLI is DENIED, while that of ATI is GRANTED. The assailed
Judgment dated September 17, 2006 of Branch 138, RTC of Makati City inCivil Case No. 05-108
is hereby MODIFIED absolving ATI from liability and deleting the award of attorney’s fees. The
rest of the decision is affirmed.41
Before this Court, ESLI seeks the reversal of the ruling on its liability.
26
At the outset, and notably, ESLI included among its arguments the attribution of liability to
ATI but it failed to implead the latter as a party to the present petition. This non-inclusion was
raised by BPI/MS and Mitsui as an issue42 in its Comment/Opposition43 and
Memorandum:44 For reasons known only to [ESLI],it did not implead ATI as a party
respondent in this case when it could have easily done so. Considering the nature of the
arguments raised by petitioner pointing to ATI as solely responsible for the damages
sustained by the subject shipments, it is respectfully submitted that ATI is an indispensable
party in this case. Without ATI being impleaded, the issue of whether ATI is solely responsible
for the damages could not be determined with finality by this Honorable Court. ATI certainly
deserves to be heard on the issue but it could not defend itself because it was not impleaded
before this Court. Perhaps, this is the reason why [ESLI] left out ATI in this case so that it
could not rebut while petitioner puts it at fault.45
ESLI in its Reply46 put the blame for the non-exclusion of ATI to BPI/MS and Mitsui:
[BPI/MS and Mitsui] claim that herein [ESLI] did not implead [ATI] as a party respondent in
the Petition for Review on Certiorari it had filed. Herein Petitioner submits that it is not the
obligation of [ESLI] to implead ATI as the same isalready the look out of [BPI/MS and Mitsui].
If [BPI/MS and Mitsui] believe that ATI should be made liable, they should have filed a Motion
for Reconsideration with the Honorable Court of Appeals. The fact that [BPI/MS and Mitsui]
did not even lift a finger to question the decision of the Honorable Court of Appeals goes to
show that [BPI/MS and Mitsui] are not interested as to whether or not ATI is indeed liable.47
It is clear from the exchange that both [ESLI] and [BPI/MS and Mitsui] are aware of the non-
inclusion of ATI, the arrastre operator, as a party to this review of the Decision of the Court of
Appeals. By blaming each other for the exclusion of ATI, [ESLI] and [BPI/MS and Mitsui]
impliedly agree that the absolution of ATI from liability isfinal and beyond review. Clearly,
[ESLI] is the consequential loser. It alone must bear the proven liability for the loss of the
shipment. It cannot shift the blame to ATI, the arrastreoperator, which has been cleared by
the Court of Appeals. Neither can it argue that the consignee should bear the loss.
Thus confined, we go to the merits of the arguments of ESLI.
First Issue: Liability of ESLI
ESLI bases of its non-liability onthe survey reports prepared by BPI/MS and Mitsui’s witness
Manuel which found that the cause of damage was the rough handling on the shipment by
the stevedores of ATI during the discharging operations.48 However, Manuel does not
absolve ESLI of liability. The witness in fact includes ESLI in the findings of negligence.
Paragraphs 3 and 11 of the affidavit of witness Manuel attribute fault to both ESLI and ATI.
3. The vessel M.V. "EASTERN VENUS" V 22-S carrying the said shipment of 22 coils of various
steel sheets arrived at the port of Manila and discharged the said shipment on or about 11
February 2004 to the arrastre operator [ATI]. I personally noticed that the 22 coils were
roughly handled during their discharging from the vessel to the pier of [ATI] and even during
the loading operations of these coils from the pier to the trucks that will transport the coils to
the consignees’s warehouse. During the aforesaid operations, the employees and forklift
operators of [ESLI] and [ATI] were very negligent in the handling of the subject cargoes.
xxxx
11. The vessel M.V. "EASTERN VENUS" V 25-S carrying the said shipment of 50 coils of various
steel sheets arrived at the port of Manila and discharged the said shipment on or about 21
May 2004 to the arrastre operator [ATI]. I personally noticed that the 50 coils were roughly
handled during their discharging from the vessel to the pier of [ATI] and even during the
loading operations of these coils from the pier to the trucks that will transport the coils to the
consignees’s warehouse. During the aforesaid operations, the employees and forklift
operators of [ESLI] and [ATI] were very negligent in the handling of the subject
cargoes.49 (Emphasis supplied).
ESLI cannot rely only on parts it chooses. The entire body of evidence should determine the
liability of the parties. From the statements of Manuel, [ESLI] was negligent, whether solely
or together with ATI.
To further press its cause, ESLI cites the affidavit of its witness Rodrigo who stated that the
cause of the damage was the rough mishandling by ATI’s stevedores.
The affidavit of Rodrigo states that his functions as a cargo surveyor are, (1) getting hold of a
copy of the bill of lading and cargo manifest; (2) inspection and monitoring of the cargo on-
board, during discharging and after unloading from the vessel; and (3) making a necessary
report of his findings. Thus, upon arrival at the South Harbor of Manila of the two vessels of
ESLI on 11 February 2004 and on 21 May 2004, Rodrigo immediately boarded the vessels to
inspect and monitor the unloading of the cargoes. In both instances, it was his finding that
there was mishandling on the part of ATI’s stevedores which he reported as the cause of the
damage.50 Easily seen, however, is the absence of a crucial point in determining liability of
either or both ESLI and ATI – lack of determination whether the cargo was in a good order
condition as described in the bills of lading at the time of his boarding. As Rodrigo admits, it
was also his duty to inspect and monitor the cargo on-board upon arrival of the vessel. ESLI
cannot invoke its non-liability solely on the manner the cargo was discharged and unloaded.
The actual condition of the cargoes upon arrival prior to discharge is equally important and
cannot be disregarded. Proof is needed that the cargo arrived at the port of Manila in good
order condition and remained as such prior to its handling by ATI.
Common carriers, from the nature of their business and on public policy considerations, are
bound to observe extra ordinary diligence in the vigilance over the goods transported by
them. Subject to certain exceptions enumerated under Article 173451 of the Civil Code,
common carriers are responsible for the loss, destruction, or deterioration of the goods. The
extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation
27
until the same are delivered, actually or constructively, by the carrier to the consignee, or to
the person who has a right to receive them.52
In maritime transportation, a bill of lading is issued by a common carrier as a contract, receipt
and symbol of the goods covered by it.1âwphi1 If it has no notation of any defect ordamage in
the goods, it is considered as a "clean bill of lading." A clean bill of lading constitutes prima
facie evidence of the receipt by the carrier of the goods as therein described. 53
Based on the bills of lading issued, it is undisputed that ESLI received the two shipments of
coils from shipper Sumitomo Corporation in good condition at the ports of Yokohama and
Kashima, Japan. However, upon arrival at the port of Manila, some coils from the two
shipments were partly dented and crumpled as evidenced by the Turn Over Survey of Bad
Order Cargoes No. 67982 dated 13 February 200454 and Turn Over Survey of Bad Order
Cargoes Nos. 6836355 and 6836556 both dated 24 May 2004 signed by ESLI’s representatives,
a certain Tabanao and Rodrigo together with ATI’s representative Garcia. According toTurn
Over Survey of Bad Order Cargoes No. 67982, four coils and one skid were partly dented and
crumpled prior to turnover by ESLI to ATI’s possession while a total of eleven coils were partly
dented and crumpled prior to turnover based on Turn Over Survey Bad Order Cargoes Nos.
68363 and 68365.
Calamba Steel requested for a re-examination of the damages sustained by the two
shipments. Based on the Requests for Bad Order Survey Nos. 5826757 and 5825458 covering
the first shipment dated 13 and 17 February 2004, four coils were damaged prior to turnover.
The second Request for Bad Order Survey No. 5865859 dated 25 May 2004 also affirmed the
earlier findings that elevencoils on the second shipment were damaged prior to turnover.
In Asian Terminals, Inc., v. Philam Insurance Co., Inc.,60 the Court based its ruling on liability on
the Bad Order Cargo and Turn Over of Bad Order. The Receipt bore a notation "B.O. not yet
over to ATI," while the Survey stated that the said steel case was not opened at the time of
survey and was accepted by the arrastre in good order. Based on these documents, packages
in the Asian Terminals, Inc. case were found damaged while in the custody of the carrier
Westwind Shipping Corporation.
Mere proof of delivery of the goods in good order to a common carrier and of their arrival in
bad order at their destination constitutes a prima faciecase of fault or negligence against the
carrier. If no adequate explanation is given as to how the deterioration, loss, or destruction of
the goods happened, the transporter shall be held responsible.61 From the foregoing, the
fault is attributable to ESLI. While no longer an issue, it may be nonetheless state that ATI was
correctly absolved of liability for the damage.
Second Issue: Limitation of Liability
ESLI assigns as error the appellate court’s finding and reasoning that the package limitation
under the COGSA62 is inapplicable even if the bills of lading covering the shipments only made
reference to the corresponding invoices. Noticeably, the invoices specified among others the
weight, quantity, description and value of the cargoes, and bore the notation "Freight
Prepaid" and "As Arranged."63 ESLI argues that the value of the cargoes was not incorporated
in the bills of lading64 and that there was no evidence that the shipper had presented to the
carrier in writing prior to the loading of the actual value of the cargo, and, that there was a no
payment of corresponding freight.65 Finally, despite the fact that ESLI admits the existence of
the invoices, it denies any knowledge either of the value declared or of any information
contained therein.66
According to the New Civil Code, the law of the country to which the goods are to be
transported shall govern the liability of the common carrier for their loss, destruction or
deterioration.67 The Code takes precedence as the primary law over the rights and obligations
of common carriers with the Code of Commerce and COGSA applying suppletorily.68
The New Civil Code provides that a stipulation limiting a common carrier’s liability to the value
of the goods appearing in the bill of lading is binding, unless the shipper or owner declares a
greater value.69 In addition, a contract fixing the sum that may be recovered by the owner or
shipper for the loss, destruction, or deterioration of the goods is valid, if it is reasonable and
just under the circumstances, and has been fairly and freely agreed upon.70
COGSA, on the other hand, provides under Section 4, Subsection 5 that an amount
recoverable in case ofloss or damage shall not exceed US$500.00 per package or per
customary freight unless the nature and value of such goods have been declared by the
shipper before shipment and inserted in the bill of lading.
In line with these maritime law provisions, paragraph 13 of bills of lading issued by ESLI to the
shipper specifically provides a similar restriction:
The value of the goods, in calculating and adjusting any claims for which the Carrier may be
liable shall, to avoid uncertainties and difficulties in fixing value, be deemed to the invoice
value of the goods plus ocean freight and insurance, if paid, Irrespective of whether any other
value is greater or less, and any partial loss or damage shall be adjusted pro rataon the basis
of such value; provided, however, that neither the Carrier nor the ship shall in any event be or
become liable for any loss, non-delivery or misdelivery of or damage or delay to, or in
connection with the custody or transportation of the goods in an amount exceeding $500.00
per package lawful money of the United States, or in case of goods not shipped in packages,
per customary freight unit, unless the nature of the goods and a valuation higher than
$500.00 is declared in writing by the shipper on delivery to the Carrier and inserted in the bill
of lading and extra freight is paid therein as required by applicable tariffs to obtain the
benefit of such higher valuation. In which case even if the actual value of the goods per
package orunit exceeds such declared value, the value shall nevertheless be deemed to be
the declared value and any Carrier’s liability shall not exceed such declared value and any
partial loss or damage shall be adjusted pro-rata on the basis thereof. The Carrier shall not be
liable for any loss or profit or any consequential or special damage and shall have the option
of replacing any lost goods and replacing o reconditioning any damage goods. No oral
declaration or agreement shall be evidence of a value different from that provided therein.71
28
xxxx
Accordingly, the issue whether or not ESLI has limited liability as a carrier is determined by
either absence or presence of proof that the nature and value of the goods have been
declared by Sumitomo Corporation and inserted in the bills of lading.
ESLI contends that the invoices specifying the weight, quantity, description and value of the
cargo in reference to the bills of lading do not prove the fact that the shipper complied with
the requirements mandated by the COGSA. It contends that there must be an insertion of this
declaration in the bill of lading itself to fall outside the statutory limitation of liability.
ESLI asserts that the appellate court erred when it ruled that there was compliance with the
declaration requirement even if the value of the shipment and fact of payment were
indicated on the invoice and not on the bill of lading itself.
There is no question about the declaration of the nature, weight and description of the goods
on the first bill of lading.
The bills of lading represent the formal expression of the parties’ rights, duties and
obligations. It is the best evidence of the intention of the parties which is to be deciphered
from the language used in the contract, not from the unilateral post facto assertions of one
of the parties, or of third parties who are strangers to the contract. 72 Thus, when the terms of
an agreement have been reduced to writing, it is deemed to contain 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.73
As to the non-declaration of the value of the goods on the second bill of lading, we see no
error on the part of the appellate court when it ruled that there was a compliance of the
requirement provided by COGSA. The declaration requirement does not require that all the
details must be written down on the very bill of lading itself. It must be emphasized that all
the needed details are in the invoice, which "contains the itemized list of goods shipped to a
buyer, stating quantities, prices, shipping charges," and other details which may contain
numerous sheets.74 Compliance can be attained by incorporating the invoice, by way of
reference, to the bill of lading provided that the former containing the description of the
nature, value and/or payment of freight charges isas in this case duly admitted as evidence.
In Unsworth Transport International(Phils.), Inc. v. Court of Appeals,75 the Court held that the
insertion of an invoice number does not in itself sufficiently and convincingly show that
petitioner had knowledge of the value of the cargo. However, the same interpretation does
not squarely apply if the carrier had been advised of the value of the goods as evidenced by
the invoice and payment of corresponding freight charges. It would be unfair for ESLI to
invoke the limitation under COGSA when the shipper in fact paid the freight charges based on
the value of the goods. In Adams Express Company v. Croninger,76 it was said: "Neither is it
conformable to plain principles of justice that a shipper may understate the value of his
property for the purpose of reducing the rate, and then recover a larger value in case of loss.
Nor does a limitation based upon an agreed value for the purpose of adjusting the rate
conflict with any sound principle of public policy." Conversely, but for the same reason, it is
unjust for ESLI to invoke the limitation when it is informed that the shipper paid the freight
charges corresponding to the value of the goods.
Also, ESLI admitted the existence and due execution of the Bills of Lading and the Invoice
containing the nature and value of the goods on the second shipment. As written in the Pre-
Trial Order,77 the parties, including ESLI, admitted the existence and due execution of the two
Bills of Lading78 together with the Invoice on the second shipment with Nos. KJGE-04-1327-
NT/KE279 dated 12 May 2004. On the first shipment, ESLI admitted the existence of the Invoice
with Nos. KJGE-031228-NT/KE380 dated 2 February 2004.
The effect of admission of the genuineness and due execution of a document means that the
party whose signature it bears admits that he voluntarily signed the document or itwas
signed by another for him and with his authority.81
A review of the bill of ladings and invoice on the second shipment indicates that the shipper
declared the nature and value of the goods with the corresponding payment of the freight on
the bills of lading. Further, under the caption "description of packages and goods," it states
that the description of the goods to be transported as "various steel sheet in coil" with a
gross weight of 383,532 kilograms (89.510 M3).On the other hand, the amount of the goods is
referred in the invoice, the due execution and genuineness of which has already been
admitted by ESLI, is US$186,906.35 as freight on board with payment of ocean freight of
US$32,736.06 and insurance premium of US$1,813.17. From the foregoing, we rule that the
non-limitation of liability applies in the present case.
We likewise accord the same binding effect on the contents of the invoice on the first
shipment.1âwphi1 ESLI contends that what was admitted and written on the pre-trial order
was only the existence of the first shipment’ invoice but not its contents and due execution. It
invokes admission of existence but renounces any knowledge of the contents written on it. 82
Judicial admissions are legally binding on the party making the admissions. Pre-trial admission
in civil cases is one of the instances of judicial admissions explicitly provided for under Section
7,Rule 18 of the Rules of Court, which mandates that the contents of the pre-trial order shall
control the subsequent course of the action, thereby, defining and limiting the issues to be
tried. In Bayas v. Sandiganbayan,83 this Court emphasized that:
Once the stipulations are reduced into writing and signed by the parties and their counsels,
they become binding on the parties who made them. They become judicial admissions of the
fact or facts stipulated. Even if placed at a disadvantageous position, a party may not be
allowed to rescind them unilaterally, it must assume the consequences of the disadvantage.84
Moreover, in Alfelor v. Halasan,85 this Court declared that:
29
A party who judicially admits a fact cannot later challenge that fact as judicial admissions are a
waiver of proof; production of evidence is dispensed with. A judicial admission also removes
an admitted fact from the field of controversy. Consequently, an admission made in the
pleadings cannot be controverted by the party making such admission and are conclusive as
to such party, and all proofs to the contrary or inconsistent there with should be ignored,
whether objection is interposed by the party or not. The allegations, statements or
admissions contained in a pleading are conclusive as against the pleader. A party cannot
subsequently take a position contrary of or inconsistent with what was pleaded.86 (Citations
omitted)
The admission having been made in a stipulation of facts at pre-trial by the parties, it must be
treated as a judicial admission. Under Section 4, of Rule 129 of the Rules of Court, a judicial
admission requires no proof.87
It is inconceivable that a shipping company with maritime experience and resource like the
ESLI will admit the existence of a maritime document like an invoice even if it has no
knowledge of its contents or without having any copy thereof.
ESLI also asserts that the notation "Freight Prepaid" and "As Arranged," does not prove that
there was an actual declaration made in writing of the payment of freight as required by
COGSA. ESLI did not as it could not deny payment of freight in the amount indicated in the
documents. Indeed, the earlier discussions on ESLI's admission of the existence and due
execution of the invoices, cover and disprove the argument regarding actual declaration of
payment. The bills of lading bore a notation on the manner of payment which was "Freight
Prepaid" and "As Arranged" while the invoices indicated the amount exactly paid by the
shipper to ESLI.
WHEREFORE, we DENY the Petition for Review on Certiorari. The Decision dated 31 January
2008 and Resolution dated 5 May 2008 of the Second Division of the Court of Appeals in CA-
G.R. CV. No. 88744 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 182208, October 14, 2015
ASIAN TERMINALS, INC., Petitioner vs. ALLIED GUARANTEE INSURANCE CO., INC.,
Respondent
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking to annul and set aside the Court of Appeals Decision1 dated November 9, 2007 and
Resolution2 dated March 26, 2008 in CA-G.R. CV. No. 48661, which affirmed the trial court's
finding that petitioner is liable for the damage to certain goods within its custody.
The facts of the case follow.
Marina Port Services, Inc. (Marina), the predecessor of herein petitioner Asian Terminals, Inc.
(petitioner ATI), is an arrastre operator based in the South Harbor, Port Area, Manila.3 0n
February 5, 1989, a shipment was made of 72,322 lbs. of kraft linear board (a type of
paperboard) loaded and received from the ports of Lake Charles, LA, and Mobile, AL, U.S.A.,
for transport and delivery to San Miguel Corporation (San Miguel) in Manila, Philippines.4 The
vessel used was the M/V Nicole, operated by Transocean Marine, Inc. (Transocean), a foreign
corporation, whose Philippine representative is Philippine Transmarine Carrier, Inc. (Philippine
Transmarine).5
The M/V Nicole arrived in Manila on April 8, 1989 and, shortly thereafter, the subject shipment
was offloaded from the vessel to the arrastre Marina until April 13, 1989.6 Thereafter, it was
assessed that a total of 158 rolls of the goods were "damaged" during shipping.7 Further,
upon the goods' withdrawal from the arrastre and their delivery, first, to San Miguel'.s
customs broker, Dynamic Brokerage Co. Inc. (Dynamic), and, eventually, to the consignee San
Miguel, another 54 rolls were found to have been damaged, for a total of 212 rolls of damaged
shipment worth P755,666.84.8
Herein respondent Allied Guarantee Insurance, Co., Inc., (respondent Allied), was the insurer
of the shipment. Thus, it paid San Miguel P755,666.84 and was subrogated in the latter's
rights.9
On March 8, 1990, Allied filed a Complaint10 (and later, an Amended Complaint) for maritime
damages against Transocean, Philippine Transmarine, Dynamic and Marina seeking to be
indemnified for the F755,666.84 it lost in paying the consignee San Miguel. The suit alleged
that the shipment was loaded from the ports of origin "in good and complete order
condition," and all lo.sses were due to the fault of the named defendants.11 In addition, the
suit sought legal interest, 25% of the indemnity as attorney's fees, and costs of the suit.12
In its Amended Answer with Compulsory Counterclaim and Crossclaim,13 Marina denied the
complaint's allegations and maintained that 158 rolls in the shipment were already in "bad
order condition" when it turned over the same to the consignee's representative/broker. It
claimed due care and diligence in the handling of the goods and that no damage was
sustained by the same while in its custody or care.14 It alleged that whatever damage incured
was attributable to its co-defendants who should reimburse it for whatever amount the latter
may be adjudged liable.15
The other co-defendants Transocean and Philippine Transmarine also denied most of the
complaint's allegations and counter-alleged that a large portion of "the shipment was already
in torn/scuffed condition prior to loading" in their vessel.16 In addition, they attributed the
damage to the nature, vice or defect of the goods, the perils and accidents of the sea, to pre-
30
shipment loss and insufficiency of packing.17 They claimed to have exercised the diligence
required by law so that the damage incurred was Jaot their fault.18
The case underwent trial and, thereafter, the Regional Trial Court (RTC) of Makati City, Branch
148, found all the defendants, including the predecessor of herein petitioner, liable for the
losses. The dispositive portion of the trial court's Decision dated September 9, 1993 states:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants, thereby ordering the latter to pay the obligation in the following
manner:
a) the amount of P.623,935.76 plus interest corresponding to the 158 rolls of kraft
linear board that was damaged while in the custody of defendant Transocean Inc. to
be paid by the latter to the plaintiff with legal rate of interest from the time when it
was due and until fully paid;
b) the amount of P131,731.08 plus interest corresponding to the additional 54 rolls of
kraft linear board that was damaged, to be paid jointly and severally by defendants
Marina Port Services Inc. and Dynamic Brokerage Co. Inc. to the plaintiff with legal
rate of interest from the time when it was due until fully paid;
c) 25% of the aforesaid principal amounts as attorney's fees to be paid jointly and
severally by all the defendants.
d) plus costs of suit.
SO ORDERED.19
The RTC found the defendant shipping company Transocean liable for the 158 rolls of
damaged goods due to the latter's failure to observe the necessary precautions and
extraordinary diligence as common carrier to
prevent such damage.20 Then, the additional 54 rolls of the goods that were lost were found
to have been damages while in the possession of Marina, the arrastre operator and Dynamic,
the broker.21 It found Marina and Dynamic solidarily liable for the said damaged goods.22 Thus,
the trial court found all the defendants liable for portions of the cargo that were damaged in
their respective custody. It dismissed the parties' counterclaims and crossclaims.
Marina, which changed its name to Asian Terminals Inc. (ATI), elevated the case to the Court
of Appeals.23 The lone assignment of error it attributes to the RTC decision is:
THE COURT A QUO ERRED IN RENDERING
ATI LIABLE FOR THE ADDITIONAL DAMAGES
SUSTAINED BY THE SUBJECT SHIPMENT.
ATI maintained that the goods were withdrawn by the broker in the same condition as they
were discharged from the vessel.24 It argued that it is not liable for the damage to the
additional 54 rolls as these were discovered only at the warehouse of San Miguel and these
were the broker's responsibility after
they were released from ATI's custody until delivery to the consignee.25 It accused the trial
court of merely speculating when it held ATI and Dynamic to be jointly and severally liable for
the the additional damage.26
In its assailed Decision, the Court of Appeals did not sustain ATI's appeal and affirmed the
decision of the RTC, as follows:
WHEREFORE, premises considered, the assailed September 9, 1993 Decision of the Regional
Trial Court of Makati City, Branch 148, in Civil Case No. 904661, is hereby AFFIRMED.
SO ORDERED.27
Like the trial court, the appellate court found the carriers Transocean and Philippine
Transmarine liable to the plaintiff insurer, the subrogee of the consignee, for the 158 rolls of
kraft linear board that were lost or damaged while in the former's custody during
shipping.28 The common carriers were held liable because they were found unable to
overcome the presumption of negligence while in custody of the goods.29 Then: the arrastre
ATI and the broker Dynamic were likewise found liable for the additional 54 rolls of the same
goods destroyed as both failed to prove the exercise of the amount of diligence required in-
the safekeeping of said goods.30 In particular, the appellate court stated that A TI failed to
present the Turn Over Inspector and Bad Order Inspector as witnesses who could have
testified that no additional goods were damaged during its custody.31
A TI filed a motion for reconsideration of the above decision, but the same was denied by the
appellate court.32
From the said decision, ATI filed the instant' petition for review.
Petitioner ATI argues that the appellate court erroneously failed to note the so-called Turn
Over Survey of Bad Order Cargoes and the Requests for Bad Order Survey which supposedly
could absolve it from liability for the damaged shipment.33 The reports were allegedly made
prior to the shipment's turnover from ATI to Dynamic and they purportedly show that no
additional loss or damage happened while the shipment was in ATI's custody as the reports
only mention the 158 rolls that were damaged during shipping or prior to ATI's
possession.34 ATI also assails the award of attorney's fees, stating that no findings of fact or
law mas made to justify the grant of such an award.35
31
Hence, the Court resolves the issues of whether or hot petitioner has been proven liable for
the additional 54 rolls of damaged goods to respondent and, if so, whether it is also liable for
attorney's fees.
The court denies the petition with respect to the additional 54 rolls of damaged goods, as
petitioner's liability thereon was duly proven and well established during trial. The rulings of
both the trial and appellate courts in this respect are upheld.
At the outset, it is fairly evident that the petition prays for this Court to re-examine the factual
findings of the lower courts.1âwphi1 But well-settled is the rule that an appeal to the Court via
a petition for review on certiorari under Rule 45 should raise or involve only pure questions of
law.36 The distinction between questions of law and questions of fact are explained
in Microsoft Corporation v. Maxicorp, Inc.37 as follows:
x x x A question of law exists when the doubt or difference centers on what the law is on a
certain state of facts. A question of fact exists if the doubt centers on the truth or falsity of
the alleged facts. Though this delineation seems simple, determining the true nature and
extent of the distinction is sometimes problematic. For example, it is incorrect to presume
that all cases where the facts are not in dispute automatically involve purely questions of law.
There is a question of law if the issue raised is capable of being resolved without need of
reviewing the probative value of the evidence. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. 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. x x x
A perusal of the current petition would show that it is disputing the facts as found by the
courts below. Verily, the nexus of the petition is the allegation that the trial court did not
appreciate the Turn Over Survey of Bad Order Cargoes and the Requests for Bad Order
Survey which were supposedly proof that the goods suffered no additional damage while in
petitioner's custody. Plainly, the petition requests this Court to re-examine these particular
evidence and again weigh the same in relation to all other evidence in the case in the hope
that a conclusion different from those arrived at by the trial court and appellate court may be
reached. Such, however, is a resolution of a question of fact which is outside the office of a
petition for review on certiorari under Rule 45 Verily, there are exceptions to this rule that
only questions of law may be entertained by this Court in a petition for review on certiorari,
such as when:
(1) the conclusion is grounded on speculations, surmises or conjectures;
(2) the inference is manifestly mistaken, absurd or impossible;
(3) there is giaye abuse of discretion;
(4) the judgment is based on a misapprehension of facts;
(5) the findings of fact are conflicting;
(6) there is no citation· of specific evidence on which the factual findings are based;
(7) the findings of absence of facts are contradicted by the presence of evidence on record;
(8) the findings of the Court of Appeals are contrary to those of the trial court;
(9) the Court of Appeals manifestly overlooked certain relevant and undisputed facts that, if
properly considered, would justify a different conclusion;
(10) the findings of the Court of Appeals are beyond the issues of the case; and
(11) such findings are contrary to the admissions of both parties.38
None of these, however, obtains in the case at bar. The petition fails to even explain or argue
if or why any of these apply to th'e present case. In fact, the petition cites only three (3) of
the said exceptions, namely:
(a) when the findings of facts of the appellate court are at variance with those of the trial
court;
(b) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by
the parties which, if properly considered, would justify a different conclusion; and
(c) when the judgment itself is based on misapprehension of facts.39
Still, none of the above applies in the present case. The first exception does not apply as it is
well established that the trial court and the Court of Appeals have made similar findings in-
this case as, in fact, the latter's decision fully affirms the former's. Then, as for the second and
third exceptions, petitioner could cite no undisputed fact that was "overlooked" by the Court
of Appeals and neither does it explain any "misapprehension" of established facts and even if
it is granted, for argument's sake, that by "misapprehension" is meant the trial court's alleged
failure to see the significance of the Turn Over Survey of Bad Order Cargoes and the Requests
for Bad Order Survey in absolving petitioner of liability over the additional damage, the trial
court had sufficiently explained why it gave 'little or no credence to these pieces of evidence.
The trial court narrated:
Similarly; defendant Dynamic Brokerage Co., Inc., points to the same facts. Its witness, Mr.
Robert Rosario, Head of defendant's trucking department, whose duties and functions
consist of monitoring and supervising the delivery of cargoes from the pier zone to the
32
consignee's warehouse, claimed that Dynamic received the subject cargoes in damaged
condition and when it was delivered to the consignee, San Miguel Corporation's warehouse,
the condition of the cargoes were the same as when it was received by Dynamic Brokerage.
He further claimed that the personnel of Marina Port Services loaded the cargoes to
Dynamic's truck. After the loading, their truck proceeded to the consignee's warehouse
which is lbcated in Tabacalera, at United Nations, Manila, and then they vnloaded said
cargoes with their equipments. He claimed that the Marina personnel used a "grabbed lift."
The consignee sometimes used forklift(s), depending on the availability of equipment. Before
they received the cargoes from Marina, the condition of the cargoes were already in
damaged condition (sic). He noted that there were some tearages due to the use of
equipment in loading to their truck. When tl1ey delivered the cargoes to the consignee's
warehouse, they issued delivery receipt(s). He does not know ifthere are·additional damages
(sic) sustained by the cargoes from the time that they withdrew the same from the pier zone
(Marina's custody) up to the consignee's warehouse.x x x40
xxxx
It is noteworthy to mention that "in general, the nature of the work of an arrastre operator
covers the handling of cargoes at piers and wharves," which was what exactly defendant
Marina's function entails in this case. "To carry out its duties, the arrastre is required to
provide cargo handling equipment which includes, among others, trailer, chassis for
containers." On the other hand, defendant Dynamic (which) in its capacity as broker,
withdrew the 357 rolls of kraft linear board from the custody of defendant Marina and
delivered the same to the consignee, San Miguel Corporation's warehouse in Tabacalera at
United Nations, Manila, is considered a common carrier.
Hence, the "legal relationship between the consignee and the arrastre operator is akin to that
of a depositor and the warehouseman. The relationship between the consignee and the
common carrier is similar to that of the consignee and the arrastre operator. Since it is the
duty of the arrastre to take good care of the goods that are in its custody and to deliver them
in good condition to the consignee, such responsibility also develops upon the carrier. Both
the arrastre and the carrier are, therefore, charged with and obligated to deliver the goods in
good condition to the consignee."41
The trial court correctly held that the broker, Dynamic, cannot alone be held liable for the
additional 54 rolls of damaged goods since such damage occurred during the following
instances: (1) while the goods were in the custody of the arrastre ATI; (2) when they were in
transition from ATI's custody to that of Dynamic (i.e., during loading to Dynamic's trucks); and
(3) during Dynamic's custody. While the trial court could not determine with pinpoint
accuracy who among the two caused which particular damage and in what proportion or
quantity, it was clear that both ATI and Dynamic failed to discharge the burden of proving
that da111age on the 54 rolls did not occur during their custody. As for petitioner ATI, in
particular, what worked against it was the testimony, as cited above, that its employees' use
of the wrong lifting equipment while loading the goods onto Dynamic's trucks had a role in
causing the damage. Such is a finding of fact made by the trial court which this Court, without
a justifiable ground, will not disturb.
As previously held by this Court, the arrastre operator's principal work is that of handling
cargo, so that its drivers/operators or employees should observe the standards and measures
necessary to prevent losses and damage to shipments under its custody.42 In the
performance of its obligations, an arrastre operator should observe the same degree of
diligence as that required of a common carrier and a warehouseman.43 Being the custodian of
the goods discharged from a vessel, an arrastre operator's duty is to take good care of the
goods and to Turn them over to the party entitled to their possession.44 With such a
responsibility, the arrastre operator must prove that the losses were not due to its negligence
or to that of its employees.45 And to prove the exercise of diligence in handling the subject
cargoes, petitioner must do more than merely show the possibility that some other party
could be responsible for the loss or the damage,46 It must prove that it exercised due care in
the handling thereof.47
But ATI submits that the Turn Over Survey of Bad Order Cargoes and the Requests for Bad
Order Survey help establish that damage to the additional 54 rolls of goods did not happen in
its custody. In particular, the Requests for Bad Order Survey was allegedly signed by Dynamic
representative stating that only 158 rolls were damaged as of the goods' transfer from ATI to
Dynamic. However, this Court has already held that a mere sign-off from the customs broker's
representative that he had received the subject shipment "in good order and condition
without exception" would not absolve the arrastre from liability, simply because the
representative's signature merely signifies that said person thereby frees the arrastre from
any liability for loss or damage to the cargo· so withdrawn while the same was in the custody
of such representative to whom the cargo was released, but it does not foreclose the remedy
or right of the consignee (or its subrogee) to prove that any loss or damage to the subject
shipment occurred while the same was under the custody, control and possession of th,e
.arrastre operator.48 Additionally, the finding of the trial court, as stated above, that at least
some of the damage occurred during ATl's custody cannot be ignored.
Certainly, ATI's reliance on the Turn Over Survey of Bad Order Cargoes as well as the Requests
for Bad Order Survey is misplaced. An examination of the documents would even reveal · that
the first set of documents, the Turn Over Survey of Bad Order Cargoes, pertain to the 158 rolls
of damaged goods which occurred during shipment and prior to ATl's custody.49 But
responsibility for the 158 rolls was already established to be that of the common carrier and is
no longer disputed by the parties. Thus, this fact has little or no more relevance to the issue
of liability over the additional 54 rolls of damaged goods. Anent the second set of documents,
the Requests for Bad Order Survey, which mention only 158 rolls of damaged goods and do
not mention any additional damage, the same do not result in an automatic exculpcition of
ATI from liability. As previously stated, jurisprudence states that the signature by acustoms
broker's representative of "receipt in good order" does not foreclose the consignee's or its
subrogee's right or remedy to prove that additional loss or darriage to the subject shipment
occurred while the same was under the custody, control and possession of the arrastre
operator.50 Further, it is unclear whether these Requests for Bad Order Survey were executed
prior to or after loading was done onto Dynamic's trucks. As earlier indi~ated, there is
33
testimony that it was during the loading to the trucks that some or all of the damage was
incurred.
Since the relationship of an arrastre operator and a consignee is akin to that between a
warehouseman and a depositor, then, in instances when the consignee claims any loss, the
burden of proof is on the arrastre operator to show that it complied with the obligation to
deliver the goods and that the losses were not due to its negligence or that of its
employees.51 ATI failed to dislodge this burden. As observed by the Court of Appeals, Marina,
the arrastre operator, from the above evidence, was not able to overcome the presumption
of negligence. The Bad Order Cargo Receipts, the Turn Over Survey of Bad Order Cargoes as
well as the Request for Bad Order Survey did not establish that the additional 54 rolls were in
good condition while in the custody of the arrastre. Said documents proved only that indeed
the 158 rolls were already damaged when they were discharged to the arrastre operator and
when it was subsequently withdrawn from the arrastre operator by [the] customs broker.
Further, the Turn Over Inspector and the Bad Order Inspector who conducted the inspections
and who signed the Turn Over Survey of Bad [Order] Cargoes and the Request for Bad Order
Survey, respectively, were not presented by Marina as witnesses to verify the correctness of
the document and to testify that only 158 rolls was reported and no others sustained damage
while the shipment was in its possession.52
The non-presentation of ATI of the so-called inspectors who prepared the Requests for Bad
Order Survey further proved detrimental to its case.1âwphi1 The inspectors could have
verified on direct and cross-examination when the additional damage was sustained and by
whose fault. They could have testified on whether the surveys on the 158 damaged rolls were
the only ones prepared by them or if there were others, pertaining to additional damage
during ATI's possession. Or they could have categorically stated whether all such additional
damage was sustained while in ATI's or Dynamic's custody alone. Instead, all that ATI
presented were the Requests for Bad Order Survey which, being private documents that had
not been authenticated by the inspectors who prepared them, were correctly disregarded by
the trial court and appellate court. Private documents whose authenticity and due execution
was not established may not be received in evidence and are hearsay.53
Failing to present the necessary evidence, ATI was unable to overcome the presumption of its
own negligence while in the custody of the goods.
As it is now established that there was negligence in both petitioner ATI's and Dynamic's
performance of their duties in the handling, storage and delivery of the subject shipment to
San Miguel, resulting in the loss of 54 rolls of kraft linear board, both shall be solidarily liable
for such loss.54
Anent the grant of attorney's fees, the Court sustains the petitioner's stance that the same is
unjustified. The Court has held, with respect to the award of attorney's fees, as follows:
We have consistently held that ai;i award of attorney's fees under Article 2208 demands
factual, legal, and equitable justification to avoid speculation and conjecture surrounding the
gi:ant thereof. Due to the special nature of the award of attorney's fees, a rigid standard is
imposed on the courts before these fees could be granted. Hence, it is imperative that they
clearly and distinctly set forth in their decisions the basis for the award thereof. It is not
enough that they merely state the amount of the grant in the dispasitive portion of their
decisions. It bears reiteration that the award of attorneyis fees is an exception rather than the
general rule; thus, there must be compelling legal reason to bring the case within the
exceptions provided under Article 2208 of the Civil Code to justify the award.55
The court must always state the basis for the grant of attorney's fees before such is justified,
because the principle that is generally observed is that no premium should be placed on the
right to litigate.56 Under Article 2208 of the New Civil Code, absent any stipulation from the
parties as to the award of attorney's fees, the instances under which the same may be
granted is restricted in the following manner:
Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than
judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the plaintiff to litigate with third
persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, jttst and demandable claim;
(6) Ip actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation and employer's liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial.costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney's fees and
expenses oflitigation should be recovered.
In all cases, the attorney's fees and expenses of litigation must be reasonable.
34
In the case at ·bar, other than a mere mention that "plaintiff was constrained to litigate to
enforce its valid claim" by the trial court,57 there is no other compelling reason cited that
would make the respondent entitled to attorney's fees as held in the trial court's as well as
the appellate court's decision. It has been previously held tl)at the mere fact of having been
forced to litigate to protect one's interest" does not amount to the compelling legal reason
that would make a case covered by any of the exceptions provided under Article
2208.58 Although attorney's fees may be awarded when a claimant is "compelled to litigate
with third persons or incur expenses to protect his interest" by reason of an unjustified act or
omission on the part of the party from whom it is sought, but wheh there is a lack of findings
on the amount to be awarded, and since there is no suffic~ent showing of bad faith in the
defendant's refusal to pay other than an erroneous assertion of the righteousness of its
cause, attorney's fees cannot be awarded against the latter.59
Hence, such an award in the case at bar is unjustified and must be deleted.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated November 9, 2007
in CA:..G.R .. CV. No. 48661 is AFFIRMED with the MODIFICATION that the award of attorney's
fees is DELETED.
SO ORDERED.
G.R. No. 208802, October 14, 2015
G.V. FLORIDA TRANSPORT, INC., Petitioner, v. HEIRS OF ROMEO L. BATTUNG, JR.,
REPRESENTED BY ROMEO BATTUNG, SR., Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated May 31, 2013 and the
Resolution3 dated August 23, 2013 of the Court of Appeals (CA) in CA-G.R. CV No. 97757, which
affirmed in toto the Decision4 dated August 29, 2011 of the Regional Trial Court of Cabagan,
Isabela, Branch 22 (RTC) in Civil Case No. 22-1103 finding petitioner G.V. Florida Transport, Inc.
(petitioner), Federico M. Duplio, Jr. (Duplio), and Christopher Daraoay (Daraoay) jointly and
severally liable to respondents heirs of Romeo L. Battung, Jr. (respondents) for damages
arising from culpa contractual.
The Facts
Respondents alleged that in the evening of March 22, 2003, Romeo L. Battung, Jr. (Battung)
boarded petitioner's bus with body number 037 and plate number BVJ-525 in Delfin Albano,
Isabela, bound for Manila.5 Battung was seated at the first row behind the driver and slept
during the ride. When the bus reached the Philippine Carabao Center in Muñoz, Nueva Ecija,
the bus driver, Duplio, stopped the bus and alighted to check the tires. At this point, a man
who was seated at the fourth row of the bus stood up, shot Battung at his head, and then left
with a companion. The bus conductor, Daraoay, notified Duplio of the incident and
thereafter, brought Romeo to the hospital, but the latter was pronounced dead on
arrival.6 Hence, respondents filed a complaint7 on July 15, 2008 for damages in the aggregate
amount of P1,826,000.008 based on a breach of contract of carriage against petitioner,
Duplio, and Baraoay (petitioner, et al.) before the RTC, docketed as Civil Case No. 22-1103.
Respondents contended that as a common carrier, petitioner and its employees are bound to
observe extraordinary diligence in ensuring the safety of passengers; and in case of injuries
and/or death on the part of a passenger, they are presumed to be at fault and, thus,
responsible therefor. As such, petitioner, et al. should be held civilly liable for Battung's
death.9
In their defense, petitioner, et al. maintained that they had exercised the extraordinary
diligence required by law from common carriers. In this relation, they claimed that a common
carrier is not an absolute insurer of its passengers and that Battung's death should be
properly deemed a fortuitous event. Thus, they prayed for the dismissal of the complaint, as
well as the payment of their counterclaims for damages and attorney's fees.10
The RTC Ruling
In a Decision11 dated August 29, 2011, the RTC ruled in respondents' favor and, accordingly,
ordered petitioner, et al. to pay respondent the amounts of: (a) P1,586,000.00 as
compensatory damages for unearned income; (b) P50,000.00 as actual damages; and (c)
P50,000.00 as moral damages.12
The RTC found that petitioner, et al. were unable to rebut the presumed liability of common
carriers in case of injuries/death to its passengers due to their failure to show that they
implemented the proper security measures to prevent passengers from carrying deadly
weapons inside the bus which, in this case, resulted in the killing of Battung. As such,
petitioner, et al. were held civilly liable for the latter's death based on culpa contractual.13
Dissatisfied, petitioner, et al. appealed to the CA.14
The CA Ruling
In a Decision15 dated May 31, 2013, the CA affirmed the ruling of the RTC in toto.16 It held that
the killing of Battung cannot be deemed as a fortuitous event, considering that such killing
happened right inside petitioner's bus and that petitioner, et al. did not take any safety
measures in ensuring that no deadly weapon would be smuggled inside the bus.17
Aggrieved, only petitioner moved for reconsideration18 which was, however, denied in a
Resolution19 dated August 23, 2013; hence, the instant petition.chanrobleslaw
The Issue Before the Court
35
The core issue for the Court's resolution is whether or not the CA correctly affirmed the ruling
of the RTC finding petitioner liable for damages to respondent arising from culpa contractual.
The Court's Ruling
The petition is meritorious.chanrobleslaw
I.
The law exacts from common carriers (i.e., those 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 public20) the highest degree of
diligence (i.e., extraordinary diligence) in ensuring the safety of its passengers. Articles 1733
and 1755 of the Civil Code state:
Art. 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.
Art. 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.
In this relation, Article 1756 of the Civil Code provides that "[i]n 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." This disputable presumption may also be overcome by a showing that
the accident was caused by a fortuitous event.21
The foregoing provisions notwithstanding, it should be pointed out that the law does not
make the common carrier an insurer of the absolute safety of its passengers. In Mariano, Jr. v.
Callejas,22 the Court explained that:
While the law requires the highest degree of diligence from common carriers in the safe
transport of their passengers and creates a presumption of negligence against them, it does
not, however, make the carrier an insurer of the absolute safety of its passengers.
Article 1755 of the Civil Code qualifies the duty of extraordinary care, vigilance[,] and
precaution in the carriage of passengers by common carriers to only such as human care
and foresight can provide. What constitutes compliance with said duty is adjudged with due
regard to all the circumstances.
Article 1756 of the Civil Code, in creating a presumption of fault or negligence on the part of
the common carrier when its passenger is injured, merely relieves the latter, for the time
being, from introducing evidence to fasten the negligence on the former, because the
presumption stands in the place of evidence. Being a mere presumption, however, the same
is rebuttable by proof that the common carrier had exercised extraordinary diligence as
required by law in the performance of its contractual obligation, or that the injury suffered
by the passenger was solely due to a fortuitous event.
passenger who, after consummating such crime, hurriedly alighted from the vehicle.25 Thus,
there is no proper issue on petitioner's duty to observe extraordinary diligence in ensuring
the safety of the passengers transported by it, and the presumption of fault/negligence
against petitioner under Article 1756 in relation to Articles 1733 and 1755 of the Civil Code
should not apply.

In fine, we can only infer from the law the intention of the Code Commission and Congress to II.
curb the recklessness of drivers and operators of common carriers in the conduct of their
business. On the other hand, since Battung's death was caused by a co-passenger, the applicable
provision is Article 1763 of the Civil Code, which states that "a common carrier is responsible
Thus, it is clear that neither the law nor the nature of the business of a transportation for injuries suffered by a passenger on account of the willful acts or negligence of other
company makes it an insurer of the passenger's safety, but that its liability for personal passengers or of strangers, if the common carrier's employees through the exercise of the
injuries sustained by its passenger rests upon its negligence, its failure to exercise the diligence of a good father of a family could have prevented or stopped the act or omission."
degree of diligence that the law requires.23 (Emphases and underscoring Notably, for this obligation, the law provides a lesser degree of diligence, i.e., diligence of a
supplied)ChanRoblesVirtualawlibrary good father of a family, in assessing the existence of any culpability on the common carrier's
part.
Therefore, it is imperative for a party claiming against a common carrier under the above-said
provisions to show that the injury or death to the passenger/s arose from the negligence of Case law states that the concept of diligence of a good father of a family "connotes
the common carrier and/or its employees in providing safe transport to its passengers. 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
In Pilapil v. CA,24 the Court clarified that where the injury sustained by the passenger was in no attended the performance of an obligation is: did the defendant in doing the alleged
way due (1) to any defect in the means of transport or in the method of transporting, or (2) to negligent act use that reasonable care and caution which an ordinarily prudent person would
the negligent or willful acts of the common carrier's employees with respect to the foregoing have used in the same situation? If not, then he is guilty of negligence." 26
- such as when the injury arises wholly from causes created by strangers which the carrier had no
control of or prior knowledge to prevent — there would be no issue regarding the common In ruling on this case, the CA cited Fortune Express, Inc. v. Court of Appeals27 (Fortune) in
carrier's negligence in its duty to provide safe and suitable care, as well as competent ascribing negligence on the part of petitioner, ratiocinating that it failed to implement
employees in relation to its transport business; as such, the presumption of fault/negligence measures to detect if its passengers were carrying firearms or deadly weapons which would
foisted under Article 1756 of the Civil Code should not apply: pose a danger to the other passengers.28 However, the CA's reliance was plainly misplaced in
view of Fortune's factual variance with the case at bar.
First, as stated earlier, the presumption of fault or negligence against the carrier is only a
disputable presumption.[The presumption] gives in where contrary facts are established In Fortune, the common carrier had already received intelligence reports from law
proving either that the carrier had exercised the degree of diligence required by law or the enforcement agents that certain lawless elements were planning to hijack and burn some of
injury suffered by the passenger was due to a fortuitous event. Where, as in the instant case, its buses; and yet, it failed to implement the necessary precautions to ensure the safety of its
the injury sustained by the petitioner was in no way due to any defect in the means of buses and its passengers. A few days later, one of the company's buses was indeed hijacked
transport or in the method of transporting or to the negligent or wilful acts of [the common and burned by the lawless elements pretending as mere passengers, resulting in the death of
carrier'sl employees, and therefore involving no issue of negligence in its duty to provide one of the bus passengers. Accordingly, the Court held that the common carrier's failure to
safe and suitable [care] as well as competent employees, with the injury arising wholly from take precautionary measures to protect the safety of its passengers despite warnings from
causes created by strangers over which the carrier had no control or even knowledge or law enforcement agents showed that it failed to exercise the diligence of a good father of a
could not have prevented, the presumption is rebutted and the carrier is not and ought not family in preventing the attack against one of its buses; thus, the common carrier was
to be held liable. To rule otherwise would make the common carrier the insurer of the rightfully held liable for the death of the aforementioned passenger.
absolute safety of its passengers which is not the intention of the lawmakers. (Emphasis and
underscoring supplied) In contrast, no similar danger was shown to exist in this case so as to impel petitioner or its
employees to implement heightened security measures to ensure the safety of its
In this case, Battung's death was neither caused by any defect in the means of transport or in passengers. There was also no showing that during the course of the trip, Battung's killer
the method of transporting, or to the negligent or willful acts of petitioner's employees, made suspicious actions which would have forewarned petitioner's employees of the need to
namely, that of Duplio and Daraoay, in their capacities as driver and conductor, respectively. conduct thorough checks on him or any of the passengers. Relevantly, the Court, in Nocum v.
Instead, the case involves the death of Battung wholly caused by the surreptitious act of a co- Laguna Tayabas Bus Company,29 has held that common carriers should be given sufficient
36
leeway in assuming that the passengers they take in will not bring anything that would prove Resolution dated August 23, 2013 of the Court of Appeals in CA-G.R. CV No. 97757 are
dangerous to himself, as well as his co-passengers, unless there is something that will indicate hereby REVERSED and SET ASIDE. Accordingly, the complaint for damages filed by
that a more stringent inspection should be made, viz.: respondents heirs of Romeo L. Battung, Jr. is DISMISSED for lack of merit.

In this particular case before Us, it must be considered that while it is true the passengers of SO ORDERED.chanroblesvirtuallawlibrary
appellant's bus should not be made to suffer for something over which they had no control,
as enunciated in the decision of this Court cited by His Honor, fairness demands that in
measuring a common carrier's duty towards its passengers, allowance must be given to the [G.R. NO. 168151 : September 4, 2009]
reliance that should be reposed on the sense of responsibility of all the passengers in regard
to their common safety. It is to be presumed that a passenger will not take with him
REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA SHIPPING
anything dangerous to the lives and limbs of his co-passengers, not to speak of his own. Not
AGENCY, Petitioners, v. THE NETHERLANDS INSURANCE CO. (PHILIPPINES), INC., Respondent.
to be lightly considered must be the right to privacy to which each passenger is entitled. He
cannot be subjected to any unusual search, when he protests the innocuousness of his
baggage and nothing appears to indicate the contrary, as in the case at bar. In other words, DECISION
inquiry may be verbally made as to the nature of a passenger's baggage when such is not
outwardly perceptible, but beyond this, constitutional boundaries are already in danger of BRION, J.:
being transgressed. Calling a policeman to his aid, as suggested by the service manual
invoked by the trial judge, in compelling the passenger to submit to more rigid inspection, For our resolution is the Petition for Review on Certiorari filed by petitioners Regional
after the passenger had already declared that the box contained mere clothes and other Container Lines of Singapore (RCL) and EDSA Shipping Agency (EDSA Shipping) to annul and
miscellaneous, could not have justified invasion of a constitutionally protected domain. Police set aside the decision1 and resolution2 of the Court of Appeals (CA) dated May 26, 2004 and
officers acting without judicial authority secured in the manner provided by law are not May 10, 2005, respectively, in CA-G.R. CV No. 76690.
beyond the pale of constitutional inhibitions designed to protect individual human rights and
liberties. Withal, what must be importantly considered here is not so much the infringement
RCL is a foreign corporation based in Singapore. It does business in the Philippines through its
of the fundamental sacred rights of the particular passenger herein involved, but the
agent, EDSA Shipping, a domestic corporation organized and existing under Philippine laws.
constant threat any contrary ruling would pose on the right of privacy of all passengers of all
Respondent Netherlands Insurance Company (Philippines), Inc. (Netherlands Insurance) is
common carriers, considering how easily the duty to inspect can be made an excuse for
likewise a domestic corporation engaged in the marine underwriting business.
mischief and abuse. Of course, when there are sufficient indications that the representations
of the passenger regarding the nature of his baggage may not be true, in the interest of the
common safety of all, the assistance of the police authorities may be solicited, not FACTUAL ANTECEDENTS
necessarily to force the passenger to open his baggage, but to conduct the needed
investigation consistent with the rules of propriety and, above all, the constitutional rights The pertinent facts, based on the records are summarized below.
of the passenger. It is in this sense that the mentioned service manual issued by appellant to
its conductors must be understood.30 (Emphases and underscoring supplied) On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to be shipped
from Singapore to Manila for Temic Telefunken Microelectronics Philippines (Temic). U-
In this case, records reveal that when the bus stopped at San Jose City to let four (4) men ride Freight Singapore PTE Ltd.3 (U-Freight Singapore), a forwarding agent based in Singapore,
petitioner's bus (two [2] of which turned out to be Battung's murderers), the bus driver, contracted the services of Pacific Eagle Lines PTE. Ltd. (Pacific Eagle) to transport the subject
Duplio, saw them get on the bus and even took note of what they were wearing. Moreover, cargo. The cargo was packed, stored, and sealed by Pacific Eagle in its Refrigerated Container
Duplio made the bus conductor, Daraoay, approach these men and have them pay the No. 6105660 with Seal No. 13223. As the cargo was highly perishable, the inside of the
corresponding fare, which Daraoay did.31 During the foregoing, both Duplio and Daraoay container had to be kept at a temperature of 0' Celsius. Pacific Eagle then loaded the
observed nothing which would rouse their suspicion that the men were armed or were to refrigerated container on board the M/V Piya Bhum, a vessel owned by RCL, with which
carry out an unlawful activity. With no such indication, there was no need for them to Pacific Eagle had a slot charter agreement. RCL duly issued its own Bill of Lading in favor of
conduct a more stringent search (i.e., bodily search) on the aforesaid men. By all accounts, Pacific Eagle.
therefore, it cannot be concluded that petitioner or any of its employees failed to employ the
diligence of a good father of a family in relation to its responsibility under Article 1763 of the
Civil Code. As such, petitioner cannot altogether be held civilly liable. To insure the cargo against loss and damage, Netherlands Insurance issued a Marine Open
Policy in favor of Temic, as shown by MPO-21-05081-94 and Marine Risk Note MRN-21 14022, to
WHEREFORE, the petition is GRANTED. Accordingly, the Decision dated May 31, 2013 and the cover all losses/damages to the shipment.
37
On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the refrigerated
container, it was plugged to the power terminal of the pier to keep its temperature constant.
Fidel Rocha (Rocha), Vice-President for Operations of Marines Adjustment Corporation,
accompanied by two surveyors, conducted a protective survey of the cargo. They found that
based on the temperature chart, the temperature reading was constant from October 18,
1995 to October 25, 1995 at 0' Celsius. However, at midnight of October 25, 1995 - when the
cargo had already been unloaded from the ship - the temperature fluctuated with a reading
of 33' Celsius. Rocha believed the fluctuation was caused by the burnt condenser fan motor
of the refrigerated container.
On November 9, 1995, Temic received the shipment. It found the cargo completely damaged.
Temic filed a claim for cargo loss against Netherlands Insurance, with supporting claims
documents. The Netherlands Insurance paid Temic the sum of P1,036,497.00 under the terms
of the Marine Open Policy. Temic then executed a loss and subrogation receipt in favor of
Netherlands Insurance.
Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance filed a
complaint for subrogation of insurance settlement with the Regional Trial Court, Branch 5,
Manila, against "the unknown owner of M/V Piya Bhum" and TMS Ship Agencies (TMS), the
latter thought to be the local agent of M/V Piya Bhum's unknown owner.4 The complaint was
docketed as Civil Case No. 96-78612.
Netherlands Insurance amended the complaint on January 17, 1997 to implead EDSA Shipping,
RCL, Eagle Liner Shipping Agencies, U-Freight Singapore, and U-Ocean (Phils.), Inc. (U-Ocean),
as additional defendants. A third amended complaint was later made, impleading Pacific
Eagle in substitution of Eagle Liner Shipping Agencies.
TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their answers with
cross-claim and compulsory counterclaim to the second amended complaint. U-Ocean
likewise filed an answer with compulsory counterclaim and cross-claim. During the pendency
of the case, U-Ocean, jointly with U-Freight Singapore, filed another answer with compulsory
counterclaim. Only Pacific Eagle and TMS filed their answers to the third amended complaint.
The defendants all disclaimed liability for the damage caused to the cargo, citing several
reasons why Netherland Insurance's claims must be rejected. Specifically, RCL and EDSA
Shipping denied negligence in the transport of the cargo; they attributed any negligence that
may have caused the loss of the shipment to their co-defendants. They likewise asserted that
no valid subrogation exists, as the payment made by Netherlands Insurance to the consignee
was invalid. By way of affirmative defenses, RCL and EDSA Shipping averred that the
Netherlands Insurance has no cause of action, and is not the real party-in-interest, and that
the claim is barred by laches/prescription.
After Netherlands Insurance had made its formal offer of evidence, the defendants including
RCL and EDSA Shipping sought leave of court to file their respective motions to dismiss based
on demurrer to evidence.
38
RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had (1) failed to
prove any valid subrogation, and (2) failed to establish that any negligence on their part or
that the loss was sustained while the cargo was in their custody.
On May 22, 2002, the trial court handed down an Order dismissing Civil Case No. 96-78612 on
demurrer to evidence. The trial court ruled that while there was valid subrogation, the
defendants could not be held liable for the loss or damage, as their respective liabilities ended
at the time of the discharge of the cargo from the ship at the Port of Manila.
Netherlands Insurance seasonably appealed the order of dismissal to the CA.
On May 26, 2004, the CA disposed of the appeal as follows:
WHEREFORE, in view of the foregoing, the dismissal of the complaint against defendants
Regional Container Lines and Its local agent, EDSA Shipping Agency, is REVERSED and SET
ASIDE. The dismissal of the complaint against the other defendants is AFFIRMED. Pursuant to
Section 1, Rule 33 of the 1997 Rules of Civil Procedure, defendants Regional Container Lines
and EDSA Shipping Agency are deemed to have waived the right to present evidence.
As such, defendants Regional Container Lines and EDSA Shipping Agency are ordered to
reimburse plaintiff in the sum of P1,036,497.00 with interest from date hereof until fully paid.
No costs.
SO ORDERED. [Emphasis supplied.]
The CA dismissed Netherland Insurance's complaint against the other defendants after
finding that the claim had already been barred by prescription.5
Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed a motion
for reconsideration, but the CA maintained its original conclusions.
The sole issue for our resolution is whether the CA correctly held RCL and EDSA Shipping liable
as common carriers under the theory of presumption of negligence.
THE COURT'S RULING
The present case is governed by the following provisions of the Civil Code:
ART. 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.
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 articles1755 and 1756.
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:
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.
ART. 1735. In all cases other that those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed, or deteriorated, common carriers are presumed to
have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as required by article 1733.
ART. 1736. The extraordinary responsibility of the common carrier lasts from the time the
goods are unconditionally placed in the possession of, and received by the carrier for
transportation until the sane are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without prejudice to the
provisions of articles 1738.
ART. 1738. The extraordinary liability of the common carrier continues to be operative even
during the time the goods are stored in a warehouse of the carrier at the place of destination,
until the consignee has been advised of the arrival of the goods and has had reasonable
opportunity thereafter to remove them or otherwise dispose of them.
ART. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the
character of the goods, or the faulty nature of the packing or of the containers, the common
carrier must exercise due diligence to forestall or lessen the loss.
In Central Shipping Company, Inc. v. Insurance Company of North America,6 we reiterated the
rules for the liability of a common carrier for lost or damaged cargo as follows:
(1) Common carriers are bound to observe extraordinary diligence over the goods they
transport, according to all the circumstances of each case;
39
(2) In the event of loss, destruction, or deterioration of the insured goods, common carriers
are responsible, unless they can prove that such loss, destruction, or deterioration was
brought about by, among others, "flood, storm, earthquake, lightning, or other natural
disaster or calamity"; andcralawlibrary
(3) In all other cases not specified under Article 1734 of the Civil Code, common carriers are
presumed to have been at fault or to have acted negligently, unless they observed
extraordinary diligence.7
In the present case, RCL and EDSA Shipping disclaim any responsibility for the loss or damage
to the goods in question. They contend that the cause of the damage to the cargo was the
"fluctuation of the temperature in the reefer van," which fluctuation occurred after the cargo
had already been discharged from the vessel; no fluctuation, they point out, arose when the
cargo was still on board M/V Piya Bhum. As the cause of the damage to the cargo occurred
after the same was already discharged from the vessel and was under the custody of the
arrastre operator (International Container Terminal Services, Inc. or ICTSI), RCL and EDSA
Shipping posit that the presumption of negligence provided in Article 1735 of the Civil Code
should not apply. What applies in this case is Article 1734, particularly paragraphs 3 and 4
thereof, which exempts the carrier from liability for loss or damage to the cargo when it is
caused either by an act or omission of the shipper or by the character of the goods or defects
in the packing or in the containers. Thus, RCL and EDSA Shipping seek to lay the blame at the
feet of other parties.
We do not find the arguments of RCL and EDSA Shipping meritorious.
A common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported.8 When the goods shipped are either
lost or arrived in damaged condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of negligence to hold it
liable.9 ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
To overcome the presumption of negligence, the common carrier must establish by adequate
proof that it exercised extraordinary diligence over the goods. It must do more than merely
show that some other party could be responsible for the damage.10
In the present case, RCL and EDSA Shipping failed to prove that they did exercise that degree
of diligence required by law over the goods they transported. Indeed, there is sufficient
evidence showing that the fluctuation of the temperature in the refrigerated container van,
as recorded in the temperature chart, occurred after the cargo had been discharged from the
vessel and was already under the custody of the arrastre operator, ICTSI. This evidence,
however, does not disprove that the condenser fan - which caused the fluctuation of the
temperature in the refrigerated container - was not damaged while the cargo was being
unloaded from the ship. It is settled in maritime law jurisprudence that cargoes while being
unloaded generally remain under the custody of the carrier;11 RCL and EDSA Shipping failed to
dispute this.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
RCL and EDSA Shipping could have offered evidence before the trial court to show that the
damage to the condenser fan did not occur: (1) while the cargo was in transit; (2) while they
were in the act of discharging it from the vessel; or (3) while they were delivering it actually or
constructively to the consignee. They could have presented proof to show that they
exercised extraordinary care and diligence in the handling of the goods, but they opted to file
a demurrer to evidence. As the order granting their demurrer was reversed on appeal, the CA
correctly ruled that they are deemed to have waived their right to present evidence, 12 and the
presumption of negligence must stand.
It is for this reason as well that we find RCL and EDSA Shipping's claim that the loss or
damage to the cargo was caused by a defect in the packing or in the containers. To exculpate
itself from liability for the loss/damage to the cargo under any of the causes, the common
carrier is burdened to prove any of the causes in Article 1734 of the Civil Code claimed by it by
a preponderance of evidence. If the carrier succeeds, the burden of evidence is shifted to the
shipper to prove that the carrier is negligent.13 RCL and EDSA Shipping, however, failed to
satisfy this standard of evidence and in fact offered no evidence at all on this point; a reversal
of a dismissal based on a demurrer to evidence bars the defendant from presenting evidence
supporting its allegations.
WHEREFORE, we DENY the Petition for Review on Certiorari filed by the Regional Container
Lines of Singapore and EDSA Shipping Agency. The decision of the Court of Appeals dated
May 26, 2004 in CA-G.R. CV No. 76690 is AFFIRMED IN TOTO. Costs against the petitioners.
SO ORDERED.
G.R. No. 162104 September 15, 2009
R TRANSPORT CORPORATION, represented by its owner/President RIZALINA
LAMZON, Petitioner, vs. EDUARDO PANTE, Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari1 of the Decision dated October 7, 2003 of the Court
of Appeals in CA-G.R. CV No. 76170, and its Resolution dated February 5, 2004, denying
petitioner’s motion for reconsideration. The Court of Appeals affirmed the Decision of the
Regional Trial Court (RTC) of Gapan City, Branch 35, dated January 26, 2002, holding
petitioner liable to respondent for damages for physical injuries sustained by respondent due
to a vehicular accident.
The facts2 are as follows:
40
Petitioner R Transport Corporation, represented by its owner and president, Rizalina
Lamzon,3 is a common carrier engaged in operating a bus line transporting passengers to
Gapan, Nueva Ecija from Cubao, Quezon City and back.
At about 3:00 a.m. of January 27, 1995, respondent Eduardo Pante rode petitioner’s R. L. Bus
Liner with Plate Number CVW-635 and Body Number 94810 in Cubao, Quezon City bound for
Gapan, Nueva Ecija. Respondent paid the sum of ₱48.00 for his fare, and he was issued bus
ticket number 555401.4
While traveling along the Doña Remedios Trinidad Highway in Baliuag, Bulacan, the bus hit a
tree and a house due to the fast and reckless driving of the bus driver, Johnny Merdiquia.
Respondent sustained physical injuries as a result of the vehicular accident. He was brought
by an unidentified employee of petitioner to the Baliuag District Hospital, where respondent
was diagnosed to have sustained a "laceration frontal area, with fracture of the right
humerus,"5 or the bone that extends from the shoulder to the elbow of the right arm.
Respondent underwent an operation for the fracture of the right humerus per Certification
dated February 17, 1995 issued by Dr. Virginia C. Cabling of the Baliuag District Hospital. 6
The hospital's Statement of Account showed that respondent’s operation and confinement
cost ₱22,870.00.7 Respondent also spent ₱8,072.60 for his medication. He was informed that
he had to undergo a second operation after two years of rest.8 He was unemployed for
almost a year after his first operation because Goldilocks, where he worked as a production
crew, refused to accept him with his disability as he could not perform his usual job.9
By way of initial assistance, petitioner gave respondent's wife, Analiza P. Pante, the sum of
₱7,000.00, which was spent for the stainless steel instrument used in his fractured arm. 10
After the first operation, respondent demanded from petitioner, through its manager,
Michael Cando, the full payment or reimbursement of his medical and hospitalization
expenses, but petitioner refused payment.11
Four years later, respondent underwent a second operation. He spent ₱15,170.00 for medical
and hospitalization expenses.12
On March 14, 1995, respondent filed a Complaint13 for damages against petitioner with the
RTC of Gapan City, Branch 35 (trial court) for the injuries he sustained as a result of the
vehicular accident.
In its Answer,14 petitioner put up the defense that it had always exercised the diligence of a
good father of a family in the selection and supervision of its employees, and that the
accident was a force majeure for which it should not be held liable.
At the pre-trial on October 4, 1995, petitioner was declared in default,15 which was
reconsidered by the trial court on December 12, 199516 upon finding that petitioner had earlier
filed a Motion to Transfer Date of Hearing. Trial was first set on February 26, 1996, and from
then on trial was postponed several times on motion of petitioner.
Six years later, on October 24, 2001, respondent’s direct examination was concluded. His
cross-examination was reset to December 5, 2001 due to the absence of petitioner and its
counsel.17 It was again reset to January 23, 200218 upon petitioner’s motion. On January 23,
2002, petitioner, through its new counsel, asked for another postponement on the ground
that he was not ready. Hence, the cross-examination of respondent was reset to March 13,
2002.19
On March 13, 2002, petitioner was declared to have waived its right to cross-examine
respondent due to the absence of petitioner and its counsel, and respondent was allowed to
offer his exhibits within five days.20 Petitioner’s motion for reconsideration dated April 4,
200221 was denied on May 7, 2002.22
In the hearing of June 19, 2002, petitioner was declared to have waived its right to present
evidence on motion of respondent’s counsel in view of the unexplained absence of petitioner
and its counsel despite prior notice. The case was declared submitted for decision.23
On June 26, 2002, the trial court rendered a Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered finding the plaintiffs to be
entitled to damages and ordering defendants to [pay]:
1.) ₱39,112.60 as actual damages;
2.) ₱50,000.00 as moral damages;
3.) ₱50,000.00 as exemplary damages;
4.) Twenty-five percent (25%) of the total of which shall
constitute a lien as contingent fee of plaintiff’s counsel.24
SO ORDERED.
The trial court held that the provisions of the Civil Code on common carriers govern this case.
Article 1756 of the Civil Code states that "[i]n 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 by Articles 1733 and 1755." The
trial court ruled that since petitioner failed to dispute said presumption despite the many
opportunities given to it, such presumption of negligence stands.
41
Petitioner appealed the decision of the trial court to the Court of Appeals.
In its Decision dated October 7, 2003, the Court of Appeals affirmed the decision of the trial
court, the dispositive portion of which reads:
WHEREFORE, for lack of merit, the appeal is DENIED and the Decision appealed from is
AFFIRMED in toto. With double costs against the appellant.25
Petitioner’s motion for reconsideration was denied for lack of merit in the Resolution of the
Court of Appeals dated February 5, 2004.26
Hence, petitioner filed this petition raising the following issues:
I
THE HONORABLE COURT OF APPEALS, TENTH DIVISION GRAVELY ERRED IN NOT GIVING DUE
COURSE TO THE DEFENDANT-APPELLANT'S MOTION FOR RECONSIDERATION OF THE
DECISION PROMULGATED ON OCTOBER 7, 2003, THEREBY DEPRIVING PETITIONER'S
FUNDAMENTAL RIGHT TO DUE PROCESS.
II
THE HONORABLE COURT OF APPEALS, TENTH DIVISION FURTHER GRAVELY ERRED IN
AFFIRMING IN TOTO THE DECISION OF THE REGIONAL TRIAL COURT OF GAPAN CITY,
BRANCH 35, PARTICULARLY IN AWARDING DAMAGES TO THE RESPONDENT WITHOUT
PRESENTING ANY SUBSTANTIAL EVIDENCE.
III
THE HONORABLE COURT OF APPEALS, TENTH DIVISION, IN AFFIRMING IN TOTO THE
DECISION OF THE REGIONAL TRIAL COURT OF GAPAN CITY, BRANCH 35, HAS COMMITTED
GRAVE AND REVERSIBLE ERROR IN ITS FINDING OF FACTS AND APPLICATION OF [THE]
LAW.27
The main issue is whether or not petitioner is liable to respondent for damages.
The Court affirms the decision of the Court of Appeals that petitioner is liable for damages.
Under the Civil Code, common carriers, like petitioner bus company, 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.28 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.29
Article 1756 of the Civil Code states that "[i]n 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 by Articles 1733 and 1755."
The contention is unmeritorious.
The Court of Appeals has the discretion to deny petitioner’s motion for reconsideration since
it found that there was no cogent reason to warrant reconsideration of its Decision dated
October 7, 2003. According to the appellate court, it had already considered, if not squarely
ruled upon, the arguments raised in petitioner’s motion for reconsideration. 35

Further, Article 1759 of the Civil Code provides that "[c]ommon carriers are liable for the
death or injury 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."30
Moreover, petitioner contends that the Court of Appeals erred in affirming the decision of the
trial court, which awarded actual damages in the amount of ₱22,870.00 based on the
statement of account issued by the Baliuag District Hospital and not based on an official
receipt. Petitioner argues that the statement of account is not the best evidence.
The contention is without merit.

In this case, the testimonial evidence of respondent showed that petitioner, through its bus As cited by the Court of Appeals in its Decision, Jarco Marketing Corporation v. Court of
driver, failed to observe extraordinary diligence, and was, therefore, negligent in transporting Appeals36 awarded actual damages for hospitalization expenses that was evidenced by a
the passengers of the bus safely to Gapan, Nueva Ecija on January 27, 1995, since the bus statement of account issued by the Makati Medical Center. Hence, the statement of account
bumped a tree and a house, and caused physical injuries to respondent. Article 1759 of the is admissible evidence of hospital expenses incurred by respondent.
Civil Code explicitly states that the common carrier is liable for the death or injury to
passengers through the negligence or willful acts of its employees, and that such liability does
Petitioner also contends that the award of moral damages is not proper, because it is not
not cease upon proof that the common carrier exercised all the diligence of a good father of a
recoverable in actions for damages predicated on breach of the contract of transportation
family in the selection and supervision of its employees. Hence, even if petitioner was able to
under Articles 2219 and 2220 of the Civil Code.37
prove that it exercised the diligence of a good father of the family in the selection and
supervision of its bus driver, it is still liable to respondent for the physical injuries he sustained
due to the vehicular accident.31 The Court is not persuaded.

Petitioner cannot complain that it was denied due process when the trial court waived its The Court of Appeals correctly sustained the award of moral damages, citing Spouses Ong v.
right to present evidence, because it only had itself to blame for its failure to attend the Court of Appeals,38 which awarded moral damages to paying passengers, who suffered
hearing scheduled for reception of its evidence on June 19, 2002. The trial court stated, thus: physical injuries on board a bus that figured in an accident. Spouses Ong held that a person is
entitled to the integrity of his body and if that integrity is violated, damages are due and
assessable. Thus, the usual practice is to award moral damages for physical injuries sustained.
It is noteworthy to state that during the course of the proceeding of this case, defendant
In Spouses Ong, the Court awarded moral damages in the amount of ₱50,000.00 to a
(petitioner) and its counsel hardly appeared in court and only made innumerable motions to
passenger who was deemed to have suffered mental anguish and anxiety because her right
reset the hearings to the point that this case x x x dragged [on] for seven years from its filing
arm could not function in a normal manner. Another passenger, who suffered injuries on his
up to the time that it has been submitted for decision. And for the unexplained absence of
left chest, right knee, right arm and left eye, was awarded moral damages in the amount of
counsel for defendant in the hearing set last June 19, 2002 despite repeated resetting, upon
₱30,000.00 for the mental anxiety and anguish he suffered from the accident.
motion of the counsel for plaintiff (respondent), Atty. Ireneo Romano, its right to present its
evidence was considered waived.32
In this case, respondent sustained a "laceration frontal area, with fracture of the right
humerus" due to the vehicular accident. He underwent an operation for the fracture of the
Appeals,33
In Silverio, Sr. v. Court of the Court held that petitioner therein was not denied due
bone extending from the shoulder to the elbow of his right arm. After a few years of rest, he
process when the records of the case showed that he was amply given the opportunity to
had to undergo a second operation. Respondent, therefore, suffered physical pain, mental
present his evidence, which he, however, waived. There is no denial of due process where a
anguish and anxiety as a result of the vehicular accident. Hence, the award of moral damages
party was given an opportunity to be heard.34
in the amount of ₱50,000.00 is proper.

Next, petitioner contends that the Court of Appeals erred in denying its motion for
reconsideration of the appellate court’s Decision dated October 7, 2003.
42
Petitioner likewise contends that the award of exemplary damages is improper, because it did
not act in a wanton, fraudulent, reckless, oppressive or malevolent manner.
The contention is without merit.
Article 2232 of the Civil Code states that "[i]n contracts and quasi-contracts, the court may
award exemplary damages if the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner. In this case, respondent’s testimonial evidence showed
that the bus driver, Johnny Merdiquia, was driving the bus very fast in a reckless, negligent
and imprudent manner; hence, the bus hit a tree and a house along the highway in Baliuag,
Bulacan. The award of exemplary damages is, therefore, proper. The award of exemplary
damages is justified to serve as an example or as a correction for the public good.39
Further, the Court affirms the award of attorney’s fees to respondent’s counsel. The Court
notes that respondent filed his Complaint for damages on March 14, 1995 as pauper-litigant.
The award of legal fees by the trial court to respondent’s counsel was a contingent fee of 25
percent of the total amount of damages, which shall constitute a lien on the total amount
awarded. The said award was affirmed by the Court of Appeals. Twenty-five percent of the
total damages is equivalent to ₱34,778.15. The award of legal fees is commensurate to the
effort of respondent’s counsel, who attended to the case in the trial court for seven years,
and who finally helped secure redress for the injury sustained by respondent after 14 years.
Lastly, petitioner contends that the medical certificate presented in evidence is without
probative value since respondent failed to present as witness Dr. Virginia Cabling to affirm the
content of said medical certificate.
The contention lacks merit. The Court of Appeals correctly held that the medical certificate is
admissible since petitioner failed to object to the presentation of the evidence.40
WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
76170, dated October 7, 2003, and its Resolution dated February 5, 2004, are hereby
AFFIRMED. Petitioner R Transport Corporation is ordered to pay respondent Eduardo Pante
₱39,112.60 as actual damages; ₱50,000.00 as moral damages; and ₱50,000.00 as exemplary
damages. Twenty-five percent (25%) of the total amount shall constitute a lien as contingent
fee of respondent’s counsel.
Costs against petitioner.
SO ORDERED.
G.R. No. 168402 August 6, 2008
43
ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by
the assured. As subrogee, the insurer steps into the shoes of the assured and may exercise
only those rights that the assured may have against the wrongdoer who caused the damage.
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA)
which reversed the Decision2 of the Regional Trial Court (RTC). The CA ordered petitioner
Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus interest and attorney's fees
in favor of respondent Insurance Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary
Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of
London. The insurance was for a transshipment of certain wooden work tools and
workbenches purchased for the consignee Science Teaching Improvement Project (STIP),
Ecotech Center, Sudlon Lahug, Cebu City, Philippines. 3 ICNA issued an "all-risk" open marine
policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the terms
and conditions printed hereon, does insure for MSAS Cargo International Limited
&/or Associated &/or Subsidiary Companies on behalf of the title holder: - Loss, if
any, payable to the Assured or order.5
The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg,
Germany on board M/S Katsuragi. A clean bill of lading6 was issued by Hapag-Lloyd which
stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S Vigour
Singapore. On July 18, 1993, the ship arrived and docked at the Manila International Container
Port where the container van was again off-loaded. On July 26, 1993, the cargo was received
by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking
representative, Aboitiz Transport System. The bill of lading7 issued by Aboitiz contained the
notation "grounded outside warehouse."
The container van was stripped and transferred to another crate/container van without any
notation on the condition of the cargo on the Stuffing/Stripping Report.8 On August 1, 1993,
the container van was loaded on board petitioner's vessel, MV Super Concarrier I. The vessel
left Manila en route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of
the Cebu International Port. It was then brought to the Cebu Bonded Warehousing
Corporation pending clearance from the Customs authorities. In the Stripping Report9 dated
August 5, 1993, petitioner's checker noted that the crates were slightly broken or cracked at
the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science
Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High School,
Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13, 1993, Mayo B.
Perez, then Claims Head of petitioner, received a telephone call from Willig informing him
that the cargo sustained water damage. Perez, upon receiving the call, immediately went to
the bonded warehouse and checked the condition of the container and other cargoes stuffed
in the same container. He found that the container van and other cargoes stuffed there were
completely dry and showed no sign of wetness.10
Perez found that except for the bottom of the crate which was slightly broken, the crate
itself appeared to be completely dry and had no water marks. But he confirmed that the tools
which were stored inside the crate were already corroded. He further explained that the
"grounded outside warehouse" notation in the bill of lading referred only to the container
van bearing the cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening
of the cargo.12 The letter stated that the crate was broken at its bottom part such that the
contents were exposed. The work tools and workbenches were found to have been
completely soaked in water with most of the packing cartons already disintegrating. The
crate was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized
metal bands were nailed onto all the edges. The letter concluded that apparently, the
damage was caused by water entering through the broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On August 21,
1993, the Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and
survey of the damage. CAC reported to ICNA that the goods sustained water damage, molds,
and corrosion which were discovered upon delivery to consignee.13
On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in the amount
of P276,540.00 for the damaged condition of the following goods:
ten (10) wooden workbenches
44
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that based on
official weather report from the Philippine Atmospheric, Geophysical and Astronomical
Services Administration, it would appear that heavy rains on July 28 and 29, 1993 caused
water damage to the shipment. CAC noted that the shipment was placed outside the
warehouse of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The
shipment was placed outside the warehouse as can be gleaned from the bill of lading issued
by Aboitiz which contained the notation "grounded outside warehouse." It was only on July
31, 1993 when the shipment was stuffed inside another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92
to consignee. A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz
of the claim and subrogation receipt executed in its favor. Despite follow-ups, however, no
reply was received from Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum
of P280,176.92, plus interest and attorney's fees.16 ICNA alleged that the damage sustained by
the shipment was exclusively and solely brought about by the fault and negligence of Aboitiz
when the shipment was left grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It
countered that the complaint stated no cause of action, plaintiff ICNA had no personality to
institute the suit, the cause of action was barred, and the suit was premature there being no
claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of
the decision17 states:
WHEREFORE, premises considered, the court holds that plaintiff is not entitled to
the relief claimed in the complaint for being baseless and without merit. The
complaint is hereby DISMISSED. The defendant's counterclaims are, likewise,
DISMISSED for lack of basis.18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim
against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK
Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA. However,
complainant ICNA Phils. did not present any evidence to show that ICNA UK is its
predecessor-in-interest, or that ICNA UK assigned the insurance policy to ICNA Phils.
Moreover, ICNA Phils.' claim that it had been subrogated to the rights of the consignee must
fail because the subrogation receipt had no probative value for being hearsay evidence. The
RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company
of North America (U.K.) Limited (ICNA UK) with address at Cigna House, 8 Lime
Street, London EC3M 7NA, no evidence has been adduced which would show that
ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance Company of
North America ICNA with office address at Cigna-Monarch Bldg., dela Rosa cor. Herrera
Sts., Legaspi Village, Makati, Metro Manila or that ICNA UK assigned the Marine
Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo
International Limited &/or Associated &/or Subsidiary Companies. Plaintiff's witness,
Francisco B. Francisco, claims that the signature below the name MSAS Cargo
International is an endorsement of the marine policy in favor of Science Teaching
Improvement Project. Plaintiff's witness, however, failed to identify whose signature
it was and plaintiff did not present on the witness stand or took (sic) the deposition of
the person who made that signature. Hence, the claim that there was an endorsement
of the marine policy has no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of
Science Teaching Improvement Project as shown by the Subrogation Form (Exhibit
"K") allegedly signed by a representative of Science Teaching Improvement Project.
Such representative, however, was not presented on the witness stand. Hence, the
Subrogation Form is self-serving and has no probative value.19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign
corporation duly licensed to do business in the Philippines. Thus, it lacked the capacity to sue
before Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign
insurance company duly authorized to do business in the Philippines. This allegation
was, however, denied by the defendant. In fact, in the Pre-Trial Order of 12 March
1996, one of the issues defined by the court is whether or not the plaintiff has legal
capacity to sue and be sued. Under Philippine law, the condition is that a foreign
insurance company must obtain licenses/authority to do business in the Philippines.
These licenses/authority are obtained from the Securities and Exchange Commission,
the Board of Investments and the Insurance Commission. If it fails to obtain these
licenses/authority, such foreign corporation doing business in the Philippines cannot
sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524.
(Emphasis supplied)
CA Disposition
45
ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of
action is anchored on the right of subrogation under Article 2207 of the Civil Code. ICNA said it
is one and the same as the ICNA UK Limited as made known in the dorsal portion of the Open
Policy.20
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the
formal claim was not filed within the period required under Article 366 of the Code of
Commerce; that ICNA had no right of subrogation because the subrogation receipt should
have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the
representative of the consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The
appealed decision of the Regional Trial Court of Makati City in Civil Case No. 94-1590
is hereby REVERSED and SET ASIDE. A new judgment is hereby rendered ordering
defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant
Insurance Company of North America the sum of P280,176.92 with interest thereon
at the legal rate from the date of the institution of this case until fully paid, and
attorney's fees in the sum of P50,000, plus the costs of suit.21
The CA opined that the right of subrogation accrues simply upon payment by the insurance
company of the insurance claim. As subrogee, ICNA is entitled to reimbursement from
Aboitiz, even assuming that it is an unlicensed foreign corporation. The CA ruled:
At any rate, We find the ground invoked for the dismissal of the complaint as legally
untenable. Even assuming arguendo that the plaintiff-insurer in this case is an
unlicensed foreign corporation, such circumstance will not bar it from claiming
reimbursement from the defendant carrier by virtue of subrogation under the
contract of insurance and as recognized by Philippine courts. x x x
xxxx
Plaintiff insurer, whether the foreign company or its duly authorized
Agent/Representative in the country, as subrogee of the claim of the insured under
the subject marine policy, is therefore the real party in interest to bring this suit and
recover the full amount of loss of the subject cargo shipped by it from Manila to the
consignee in Cebu City. x x x22
The CA ruled that the presumption that the carrier was at fault or that it acted negligently
was not overcome by any countervailing evidence. Hence, the trial court erred in dismissing
the complaint and in not finding that based on the evidence on record and relevant provisions
of law, Aboitiz is liable for the loss or damage sustained by the subject cargo.
 Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN
RULING THAT ICNA HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE
RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE CONSISTENTLY
RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN
THE PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND,
MORE SO, THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN
RULING THAT THE SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY
FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE
COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").
(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN
RULING THAT THERE WAS PROPER INDORSEMENT OF THE INSURANCE
POLICY FROM THE ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED
("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION
RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT
THAT IT HAS NO PROBATIVE VALUE AND IS MERELY HEARSAY AND A SELF-
SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A REPRESENTATIVE OF
STIP TO IDENTIFY AND AUTHENTICATE THE SAME.
(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN
RULING THAT THE EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT
CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF ABOITIZ.23 (Underscoring
supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent
ICNA the real party-in-interest that possesses the right of subrogation to claim
reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the notice of claim as
required under Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on
the claim for damages?
Our Ruling
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the Philippines is not absolutely
incapacitated from filing a suit in local courts. Only when that foreign corporation is
"transacting" or "doing business" in the country will a license be necessary before it can
institute suits.24 It may, however, bring suits on isolated business transactions, which is not
46
prohibited under Philippine law.25 Thus, this Court has held that a foreign insurance company
may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover
international-bound cargoes shipped by a Philippine carrier, even if it has no license to do
business in this country. It is the act of engaging in business without the prescribed license,
and not the lack of license per se, which bars a foreign corporation from access to our
courts.26
In any case, We uphold the CA observation that while it was the ICNA UK Limited which
issued the subject marine policy, the present suit was filed by the said company's authorized
agent in Manila. It was the domestic corporation that brought the suit and not the foreign
company. Its authority is expressly provided for in the open policy which includes the ICNA
office in the Philippines as one of the foreign company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the
insurance policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School,
the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be
brought against ICNA UK, the company who issued the insurance, or against any of its listed
agents worldwide.27 MSAS accepted said provision when it signed and accepted the policy.
The acceptance operated as an acceptance of the authority of the agents. Hence, a formal
indorsement of the policy to the agent in the Philippines was unnecessary for the latter to
exercise the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the terms and
conditions printed hereon, does insure MSAS Cargo International Limited &/or
Associates &/or Subsidiary Companies in behalf of the title holder: - Loss, if any,
payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who may file
claims on behalf of the assured. This is in keeping with Section 57 of the Insurance Code
which states:
A policy may be so framed that it will inure to the benefit of whosoever, during the
continuance of the risk, may become the owner of the interest insured. (Emphasis
added)
Respondent's cause of action is founded on it being subrogated to the rights of the
consignee of the damaged shipment. The right of subrogation springs from Article 2207 of
the Civil Code, which states:
 Article 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of
Appeals,28 payment by the insurer to the assured operates as an equitable assignment of all
remedies the assured may have against the third party who caused the damage. Subrogation
is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.29
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's
entitlement to subrogation equipped it with a cause of action against petitioner in case of a
contractual breach or negligence.30 This right of subrogation, however, has its limitations.
First, both the insurer and the consignee are bound by the contractual stipulations under the
bill of lading.31 Second, the insurer can be subrogated only to the rights as the insured may
have against the wrongdoer. If by its own acts after receiving payment from the insurer, the
insured releases the wrongdoer who caused the loss from liability, the insurer loses its claim
against the latter.32
The giving of notice of loss or injury is a condition precedent to the action for loss or injury
or the right to enforce the carrier's liability. Circumstances peculiar to this case lead Us to
conclude that the notice requirement was complied with. As held in the case of Philippine
American General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this notice requirement protects the
carrier by affording it an opportunity to make an investigation of the claim while the matter is
still fresh and easily investigated. It is meant to safeguard the carrier from false and
fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four (24)
hours from receipt of the cargo if the damage is not apparent from the outside of the
package. For damages that are visible from the outside of the package, the claim must be
made immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the
claim against the carrier for damages or average which may be found therein upon
opening the packages, may be made, provided that the indications of the damage or
average which give rise to the claim cannot be ascertained from the outside part of
such packages, in which case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been
paid, no claim shall be admitted against the carrier with regard to the condition in
which the goods transported were delivered. (Emphasis supplied)
47
The periods above, as well as the manner of giving notice may be modified in the terms of the
bill of lading, which is the contract between the parties. Notably, neither of the parties in this
case presented the terms for giving notices of claim under the bill of lading issued by
petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the carrier of
the damage was dated August 15, 1993, that letter, together with the notice of claim, was
received by petitioner only on September 21, 1993. But petitioner admits that even before it
received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the company, was
informed by telephone sometime in August 13, 1993. Mr. Perez then immediately went to the
warehouse and to the delivery site to inspect the goods in behalf of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage
Corporation,35 the notice was allegedly made by the consignee through telephone. The claim
for damages was denied. This Court ruled that such a notice did not comply with the notice
requirement under the law. There was no evidence presented that the notice was timely
given. Neither was there evidence presented that the notice was relayed to the responsible
authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us
to rule differently from the PCIC case, albeit this ruling is being made pro hac vice, not to be
made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the right
of recovery from a carrier must be given a reasonable and practical construction, adapted to
the circumstances of the case under adjudication, and their application is limited to cases
falling fairly within their object and purpose.36
Bernhard Willig, the representative of consignee who received the shipment, relayed the
information that the delivered goods were discovered to have sustained water damage to no
less than the Claims Head of petitioner, Mayo B. Perez. Immediately, Perez was able to
investigate the claims himself and he confirmed that the goods were, indeed, already
corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be
given a reasonable and practical, rather than a strict construction.37 We give due
consideration to the fact that the final destination of the damaged cargo was a school
institution where authorities are bound by rules and regulations governing their actions.
Understandably, when the goods were delivered, the necessary clearance had to be made
before the package was opened. Upon opening and discovery of the damaged condition of
the goods, a report to this effect had to pass through the proper channels before it could be
finalized and endorsed by the institution to the claims department of the shipping company.
The call to petitioner was made two days from delivery, a reasonable period considering that
the goods could not have corroded instantly overnight such that it could only have sustained
the damage during transit. Moreover, petitioner was able to immediately inspect the damage
while the matter was still fresh. In so doing, the main objective of the prescribed time period
was fulfilled. Thus, there was substantial compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the real
party in interest to institute the claim for damages against petitioner; and pro hac vice, that a
valid notice of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The rule as
stated in Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to have acted
negligently, unless they prove that they observed extraordinary diligence required by
law.38 Extraordinary diligence is that extreme measure of care and caution which persons of
unusual prudence and circumspection use for securing and preserving their own property
rights.39 This standard is intended to grant favor to the shipper who is at the mercy of the
common carrier once the goods have been entrusted to the latter for shipment.40
Here, the shipment delivered to the consignee sustained water damage. We agree with the
findings of the CA that petitioner failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High School
by a representative from Trabajo Arrastre, and the crates opened, it was discovered
that the workbenches and work tools suffered damage due to "wettage" although
by then they were already physically dry. Appellee carrier having failed to discharge
the burden of proving that it exercised extraordinary diligence in the vigilance over
such goods it contracted for carriage, the presumption of fault or negligence on its
part from the time the goods were unconditionally placed in its possession (July 26,
1993) up to the time the same were delivered to the consignee (August 11, 1993),
therefore stands. The presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. x x x41 (Emphasis
added)
The shipment arrived in the port of Manila and was received by petitioner for carriage on July
26, 1993. On the same day, it was stripped from the container van. Five days later, on July 31,
1993, it was re-stuffed inside another container van. On August 1, 1993, it was loaded onto
another vessel bound for Cebu. During the period between July 26 to 31, 1993, the shipment
was outside a container van and kept in storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded
outside warehouse," suggesting that from July 26 to 31, the goods were kept outside the
warehouse. And since evidence showed that rain fell over Manila during the same period, We
can conclude that this was when the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do more than merely show
the possibility that some other party could be responsible for the damage. It must prove that
48
it used "all reasonable means to ascertain the nature and characteristic of the goods
tendered for transport and that it exercised due care in handling them.42 Extraordinary
diligence must include safeguarding the shipment from damage coming from natural
elements such as rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to the
crate for shipment but only to the carrier van, petitioner failed to mention where exactly the
goods were stored during the period in question. It failed to show that the crate was properly
stored indoors during the time when it exercised custody before shipment to Cebu. As amply
explained by the CA:
On the other hand, the supplemental report submitted by the surveyor has
confirmed that it was rainwater that seeped into the cargo based on official data
from the PAGASA that there was, indeed, rainfall in the Port Area of Manila from
July 26 to 31, 1993. The Surveyor specifically noted that the subject cargo was under
the custody of appellee carrier from the time it was delivered by the shipper on July
26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993. No
other inevitable conclusion can be deduced from the foregoing established facts that
damage from "wettage" suffered by the subject cargo was caused by the negligence of
appellee carrier in grounding the shipment outside causing rainwater to seep into the
cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing
"wettage" to the subject goods by claiming that the notation "GROUNDED
OUTSIDE WHSE." actually refers to the container and not the contents thereof or the
cargoes. And yet it presented no evidence to explain where did they place or store the
subject goods from the time it accepted the same for shipment on July 26, 1993 up to
the time the goods were stripped or transferred from the container van to another
container and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left
Manila for Cebu City on August 2, 1993. x x x If the subject cargo was not grounded
outside prior to shipment to Cebu City, appellee provided no explanation as to
where said cargo was stored from July 26, 1993 to July 31, 1993. What the records
showed is that the subject cargo was stripped from the container van of the shipper
and transferred to the container on August 1, 1993 and finally loaded into the
appellee's vessel bound for Cebu City on August 2, 1993. The Stuffing/Stripping
Report (Exhibit "D") at the Manila port did not indicate any such defect or damage,
but when the container was stripped upon arrival in Cebu City port after being
discharged from appellee's vessel, it was noted that only one (1) slab was slightly
broken at the bottom allegedly hit by a forklift blade (Exhibit "F").43 (Emphasis
added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to
satisfactorily prove that it exercised the extraordinary diligence required of common carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.
SO ORDERED.
[G.R. NO. 123238 : September 22, 2008]
PHILIPPINE AIRLINES, INCORPORATED, Petitioner, v. COURT OF APPEALS AND SPOUSES
MANUEL S. BUNCIO AND AURORA R. BUNCIO, MINORS DEANNA R. BUNCIO AND NIKOLAI R.
BUNCIO, ASSISTED BY THEIR FATHER, MANUEL S. BUNCIO, AND JOSEFA REGALADO,
REPRESENTED BY HER ATTORNEY-IN-FACT, MANUEL S. BUNCIO, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review1 on Certiorari under Rule 45 of the Rules of Court seeking to
set aside the Decision,2 dated 20 December 1995, of the Court of Appeals in CA-G.R. CV No.
26921 which affirmed in toto the Decision,3 dated 2 April 1990, of the Quezon City Regional
Trial Court (RTC), Branch 90, in Civil Case No. Q-33893.
The undisputed facts are as follows:
Sometime before 2 May 1980, private respondents spouses Manuel S. Buncio and Aurora R.
Buncio purchased from petitioner Philippine Airlines, Incorporated, two plane tickets4 for
their two minor children, Deanna R. Buncio (Deanna), then 9 years of age, and Nikolai R.
Buncio (Nikolai), then 8 years old. Since Deanna and Nikolai will travel as unaccompanied
minors, petitioner required private respondents to accomplish, sign and submit to it an
indemnity bond.5 Private respondents complied with this requirement. For the purchase of
the said two plane tickets, petitioner agreed to transport Deanna and Nikolai on 2 May 1980
from Manila to San Francisco, California, United States of America (USA), through one of its
planes, Flight 106. Petitioner also agreed that upon the arrival of Deanna and Nikolai in San
Francisco Airport on 3 May 1980, it would again transport the two on that same day through a
connecting flight from San Francisco, California, USA, to Los Angeles, California,
USA, via another airline, United Airways 996. Deanna and Nikolai then will be met by their
grandmother, Mrs. Josefa Regalado (Mrs. Regalado), at the Los Angeles Airport on their
scheduled arrival on 3 May 1980.
On 2 May 1980, Deanna and Nikolai boarded Flight 106 in Manila.
On 3 May 1980, Deanna and Nikolai arrived at the San Francisco Airport. However, the staff of allowed to take their connecting flight to Los Angeles and that they were stranded in San
United Airways 996 refused to take aboard Deanna and Nikolai for their connecting flight to
Los Angeles because petitioner's personnel in San Francisco could not produce the indemnity gross negligence and malevolent conduct of its personnel. Petitioner averred that it always
bond accomplished and submitted by private respondents. The said indemnity bond was lost
by petitioner's personnel during the previous stop-over of Flight 106 in Honolulu, Hawaii.
Deanna and Nikolai were then left stranded at the San Francisco Airport. Subsequently, Mr.
Edwin Strigl (Strigl), then the Lead Traffic Agent of petitioner in San Francisco, California,
USA, took Deanna and Nikolai to his residence in San Francisco where they stayed overnight.
49
Meanwhile, Mrs. Regalado and several relatives waited for the arrival of Deanna and Nikolai
at the Los Angeles Airport. When United Airways 996 landed at the Los Angeles Airport and
its passengers disembarked, Mrs. Regalado sought Deanna and Nikolai but she failed to find
them. Mrs. Regalado asked a stewardess of the United Airways 996 if Deanna and Nikolai
were on board but the stewardess told her that they had no minor passengers. Mrs. Regalado
called private respondents and informed them that Deanna and Nikolai did not arrive at the
Los Angeles Airport. Private respondents inquired about the location of Deanna and Nikolai
from petitioner's personnel, but the latter replied that they were still verifying their
whereabouts.
On the morning of 4 May 1980, Strigl took Deanna and Nikolai to San Francisco Airport where
the two boarded a Western Airlines plane bound for Los Angeles. Later that day, Deanna and
Nikolai arrived at the Los Angeles Airport where they were met by Mrs. Regalado. Petitioner's
personnel had previously informed Mrs. Regalado of the late arrival of Deanna and Nikolai on
4 May 1980.
On 17 July 1980, private respondents, through their lawyer, sent a letter 6 to petitioner
demanding payment of 1 million pesos as damages for the gross negligence and inefficiency
of its employees in transporting Deanna and Nikolai. Petitioner did not heed the demand.
On 20 November 1981, private respondents filed a complaint7 for damages against petitioner
before the RTC. Private respondents impleaded Deanna, Nikolai and Mrs. Regalado as their
co-plaintiffs. Private respondents alleged that Deanna and Nikolai were not able to take their
connecting flight from San Francisco to Los Angeles as scheduled because the required
indemnity bond was lost on account of the gross negligence and malevolent conduct of
petitioner's personnel. As a consequence thereof, Deanna and Nikolai were stranded in San
Francisco overnight, thereby exposing them to grave danger. This dilemma caused Deanna,
Nikolai, Mrs. Regalado and private respondents to suffer serious anxiety, mental anguish,
wounded feelings, and sleepless nights. Private respondents prayed the RTC to render
judgment ordering petitioner: (1) to pay Deanna and Nikolai P100,000.00 each, or a total of
P200,000.00, as moral damages; (2) to pay private respondents P500,000.00 each, or a total
of P1,000,000,00, as moral damages; (3) to pay Mrs. Regalado P100,000.00 as moral
damages; (4) to pay Deanna, Nikolai, Mrs. Regalado and private respondents P50,000.00
each, or a total of P250,000.00 as exemplary damages; and (5) to pay attorney's fees
equivalent to 25% of the total amount of damages mentioned plus costs of suit.
In its answer8 to the complaint, petitioner admitted that Deanna and Nikolai were not
Francisco. Petitioner, however, denied that the loss of the indemnity bond was caused by the
exercised the diligence of a good father of the family in the selection, supervision and control
of its employees. In addition, Deanna and Nikolai were personally escorted by Strigl, and the
latter exerted efforts to make the connecting flight of Deanna and Nikolai to Los Angeles
possible. Further, Deanna and Nikolai were not left unattended from the time they were
stranded in San Francisco until they boarded Western Airlines for a connecting flight to Los
Angeles. Petitioner asked the RTC to dismiss the complaint based on the foregoing
averments.
After trial, the RTC rendered a Decision on 2 April 1990 holding petitioner liable for damages
for breach of contract of carriage. It ruled that petitioner should pay moral damages for its
inattention and lack of care for the welfare of Deanna and Nikolai which, in effect, amounted
to bad faith, and for the agony brought by the incident to private respondents and Mrs.
Regalado. It also held that petitioner should pay exemplary damages by way of example or
correction for the public good under Article 2229 and 2232 of the Civil Code, plus attorney's
fees and costs of suit. In sum, the RTC ordered petitioner: (1) to pay Deanna and Nikolai
P50,000.00 each as moral damages and P25,000.00 each as exemplary damages; (2) to pay
private respondent Aurora R. Buncio, as mother of Deanna and Nikolai, P75,000.00 as moral
damages; (3) to pay Mrs. Regalado, as grandmother of Deanna and Nikolai, P30,000.00 as
moral damages; and (4) to pay an amount of P38,250.00 as attorney's fees and the costs of
suit. Private respondent Manuel S. Buncio was not awarded damages because his court
testimony was disregarded, as he failed to appear during his scheduled cross-examination.
The dispositive portion of the RTC Decision reads:
ACCORDINGLY, judgment is hereby rendered:
1. Ordering defendant Philippines Airlines, Inc. to pay Deanna R. Buncio and Nikolai R.
Buncio the amount of P50,000.00 each as moral damages; and the amount of
P25,000.00 each as exemplary damages;
2. Ordering said defendant to pay the amount of P75,000.00 to Aurora R. Buncio,
mother of Deanna and Nikolai, as moral damages; and the amount of P30,000.00 to
Josefa Regalado, grandmother of Deanna and Nikolai, as moral damages; and
3. Ordering said defendant to pay P38,250.00 as attorney's fees and also the costs of
the suit.9
Petitioner appealed to the Court of Appeals. On 20 December 1995, the appellate court
promulgated its Decision affirming in toto the RTC Decision, thus:
WHEREFORE, the decision appealed is hereby AFFIRMED in toto and the instant appeal
DISMISSED.10
Petitioner filed the instant petition before us assigning the following errors11:
I.
THE COURT OF APPEALS ERRED IN SUSTAINING THE RTC AWARD OF MORAL DAMAGES.
II.
THE COURT OF APPEALS ERRED IN SUSTAINING THE RTC AWARD OF EXEMPLARY DAMAGES.
III.
THE COURT OF APPEALS ERRED IN SUSTAINING THE RTC AWARD OF ATTORNEY'S FEES AND
ORDER FOR PAYMENT OF COSTS.
50
Anent the first assigned error, petitioner maintains that moral damages may be awarded in a
breach of contract of air carriage only if the mishap results in death of a passenger or if the
carrier acted fraudulently or in bad faith, that is, by breach of a known duty through some
motive of interest or ill will, some dishonest purpose or conscious doing of wrong; if there
was no finding of fraud or bad faith on its part; if, although it lost the indemnity bond, there
was no finding that such loss was attended by ill will, or some motive of interest, or any
dishonest purpose; and if there was no finding that the loss was deliberate, intentional or
consciously done.12
Petitioner also claims that it cannot be entirely blamed for the loss of the indemnity bond;
that during the stop-over of Flight 106 in Honolulu, Hawaii, USA, it gave the indemnity bond
to the immigration office therein as a matter of procedure; that the indemnity bond was in
the custody of the said immigration office when Flight 106 left Honolulu, Hawaii, USA; that
the said immigration office failed to return the indemnity bond to petitioner's personnel
before Flight 106 left Honolulu, Hawaii, USA; and that even though it was negligent in
overlooking the indemnity bond, there was still no liability on its part because mere
carelessness of the carrier does not per se constitute or justify an inference of malice or bad
faith.13
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 airline's obligation to carry
him and his luggage safely to the agreed destination without delay. 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.14
Private respondents and petitioner entered into a contract of air carriage when the former
purchased two plane tickets from the latter. Under this contract, petitioner obliged itself (1)
to transport Deanna and Nikolai, as unaccompanied minors, on 2 May 1980 from Manila to
San Francisco through one of its planes, Flight 106; and (2) upon the arrival of Deanna and
Nikolai in San Francisco Airport on 3 May 1980, to transport them on that same day from San
Francisco to Los Angeles via a connecting flight on United Airways 996. As it was, petitioner
failed to transport Deanna and Nikolai from San Francisco to Los Angeles on the day of their
arrival at San Francisco. The staff of United Airways 996 refused to take aboard Deanna and
Nikolai for their connecting flight to Los Angeles because petitioner's personnel in San
Francisco could not produce the indemnity bond accomplished and submitted by private
respondents. Thus, Deanna and Nikolai were stranded in San Francisco and were forced to
stay there overnight. It was only on the following day that Deanna and Nikolai were able to
leave San Francisco and arrive at Los Angeles via another airline, Western Airlines. Clearly
then, petitioner breached its contract of carriage with private respondents.
In breach of contract of air carriage, moral damages may be recovered where (1) the mishap
results in the death of a passenger; or (2) where the carrier is guilty of fraud or bad faith;
or (3) where the negligence of the carrier is so gross and reckless as to virtually amount to
bad faith.15
Gross negligence implies a want or absence of or failure to exercise even slight care or
diligence, or the entire absence of care. It evinces a thoughtless disregard of consequences
without exerting any effort to avoid them.16
In Singson v. Court of Appeals,17 we ruled that a carrier's utter lack of care for and sensitivity to
the needs of its passengers constitutes gross negligence and is no different from fraud,
malice or bad faith. Likewise, in Philippine Airlines, Inc. v. Court of Appeals,18 we held that a
carrier's inattention to, and lack of care for, the interest of its passengers who are entitled to
its utmost consideration, particularly as to their convenience, amount to bad faith and
entitles the passenger to an award of moral damages.
It was established in the instant case that since Deanna and Nikolai would travel as
unaccompanied minors, petitioner required private respondents to accomplish, sign and
submit to it an indemnity bond. Private respondents complied with this requirement.
Petitioner gave a copy of the indemnity bond to one of its personnel on Flight 106, since it
was required for the San Francisco-Los Angeles connecting flight of Deanna and Nikolai.
Petitioner's personnel lost the indemnity bond during the stop-over of Flight 106 in Honolulu,
Hawaii. Thus, Deanna and Nikolai were not allowed to take their connecting flight.
Evidently, petitioner was fully aware that Deanna and Nikolai would travel as unaccompanied
minors and, therefore, should be specially taken care of considering their tender age and
delicate situation. Petitioner also knew well that the indemnity bond was required for Deanna
and Nikolai to make a connecting flight from San Francisco to Los Angeles, and that it was its
duty to produce the indemnity bond to the staff of United Airways 996 so that Deanna and
Nikolai could board the connecting flight. Yet, despite knowledge of the foregoing, it did not
exercise utmost care in handling the indemnity bond resulting in its loss in Honolulu, Hawaii.
This was the proximate cause why Deanna and Nikolai were not allowed to take the
connecting flight and were thus stranded overnight in San Francisco. Further, petitioner
discovered that the indemnity bond was lost only when Flight 106 had already landed in San
Francisco Airport and when the staff of United Airways 996 demanded the indemnity bond.
This only manifests that petitioner did not check or verify if the indemnity bond was in its
custody before leaving Honolulu, Hawaii for San Francisco.
The foregoing circumstances reflect petitioner's utter lack of care for and inattention to the
welfare of Deanna and Nikolai as unaccompanied minor passengers. They also indicate
petitioner's failure to exercise even slight care and diligence in handling the indemnity bond.
Clearly, the negligence of petitioner was so gross and reckless that it amounted to bad faith.
It is worth emphasizing that petitioner, as a common carrier, is bound by law to exercise
extraordinary diligence and utmost care in ensuring for the safety and welfare of its
passengers with due regard for all the circumstances.19 The negligent acts of petitioner
signified more than inadvertence or inattention and thus constituted a radical departure from
the extraordinary standard of care required of common carriers.
Petitioner's claim that it cannot be entirely blamed for the loss of the indemnity bond
because it gave the indemnity bond to the immigration office of Honolulu, Hawaii, as a matter
of procedure during the stop-over, and the said immigration office failed to return the
indemnity bond to petitioner's personnel before Flight 106 left Honolulu, Hawaii, deserves
51
scant consideration. It was petitioner's obligation to ensure that it had the indemnity bond in
its custody before leaving Honolulu, Hawaii for San Francisco. Petitioner should have asked
for the indemnity bond from the immigration office during the stop-over instead of partly
blaming the said office later on for the loss of the indemnity bond. Petitioner's insensitivity on
this matter indicates that it fell short of the extraordinary care that the law requires of
common carriers.
Petitioner, nonetheless, insists that the following circumstances negate gross negligence on
its part: (1) Strigl requested the staff of United Airways 996 to allow Deanna and Nikolai to
board the plane even without the indemnity bond; (2) Strigl took care of the two and brought
them to his house upon refusal of the staff of the United Airways 996 to board Deanna and
Nikolai; (3) private respondent Aurora R. Buncio and Mrs. Regalado were duly informed of
Deanna and Nikolai's predicament; and (4) Deanna and Nikolai were able to make a
connecting flight via an alternative airline, Western Airlines.20 We do not agree. It was
petitioner's duty to provide assistance to Deanna and Nikolai for the inconveniences of delay
in their transportation. These actions are deemed part of their obligation as a common
carrier, and are hardly anything to rave about.21
Apropos the second and third assigned error, petitioner argues that it was not liable for
exemplary damages because there was no wanton, fraudulent, reckless, oppressive, or
malevolent manner on its part. Further, exemplary damages may be awarded only if it is
proven that the plaintiff is entitled to moral damages. Petitioner contends that since there
was no proof that private respondents were entitled to moral damages, then they are also
not entitled to exemplary damages.22
Petitioner also contends that no premium should be placed on the right to litigate; that an
award of attorney's fees and order of payment of costs must be justified in the text of the
decision; that such award cannot be imposed by mere conclusion without supporting
explanation; and that the RTC decision does not provide any justification for the award of
attorney's fees and order of payment of costs.23
Article 2232 of the Civil Code provides that exemplary damages may be awarded in a breach
of contract if the defendant acted in a wanton, fraudulent, reckless, oppressive or malevolent
manner. In addition, Article 2234 thereof states that the plaintiff must show that he is entitled
to moral damages before he can be awarded exemplary damages.
As we have earlier found, petitioner breached its contract of carriage with private
respondents, and it acted recklessly and malevolently in transporting Deanna and Nikolai as
unaccompanied minors and in handling their indemnity bond. We have also ascertained that
private respondents are entitled to moral damages because they have sufficiently established
petitioner's gross negligence which amounted to bad faith. This being the case, the award of
exemplary damages is warranted.
Current jurisprudence24 instructs that in awarding attorney's fees, the trial court must state
the factual, legal, or equitable justification for awarding the same, bearing in mind that the
award of attorney's fees is the exception, not the general rule, and it is not sound public
policy to place a penalty on the right to litigate; nor should attorney's fees be awarded every
time a party wins a lawsuit. The matter of attorney's fees cannot be dealt with only in the
dispositive portion of the decision. The text of the decision must state the reason behind the
award of attorney's fees. Otherwise, its award is totally unjustified.25
In the instant case, the award of attorney's fees was merely cited in the dispositive portion of
the RTC decision without the RTC stating any legal or factual basis for said award. Hence, the
Court of Appeals erred in sustaining the RTC's award of attorney's fees.
Since we have already resolved that the RTC and Court of Appeals were correct in awarding
moral and exemplary damages, we shall now determine whether their corresponding
amounts were proper.
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.26 On the other hand, the aim of awarding exemplary
damages is to deter serious wrongdoings.27
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.28 Simply put, the amount of
damages must be fair, reasonable and proportionate to the injury suffered.
The RTC and the Court of Appeals ordered petitioner to pay Deanna and Nikolai P50,000.00
each as moral damages. This amount is reasonable considering the harrowing experience
they underwent at their tender age and the danger they were exposed to when they were
stranded in San Francisco. Both of them testified that they were afraid and were not able to
eat and sleep during the time they were stranded in San Francisco.29 Likewise, the award of
P25,000.00 each to Deanna and Nikolai as exemplary damages is fair so as to deter petitioner
and other common carriers from committing similar or other serious wrongdoings.
Both courts also directed petitioner to pay private respondent Aurora R. Buncio P75,000.00
as moral damages. This is equitable and proportionate considering the serious anxiety and
mental anguish she experienced as a mother when Deanna and Nikolai were not allowed to
take the connecting flight as scheduled and the fact that they were stranded in a foreign
country and in the company of strangers. Private respondent Aurora R. Buncio testified that
she was very fearful for the lives of Deanna and Nikolai when they were stranded in San
Francisco, and that by reason thereof she suffered emotional stress and experienced upset
stomach.30 Also, the award of P30,000.00 as moral damages to Mrs. Regalado is appropriate
because of the serious anxiety and wounded feelings she felt as a grandmother when Deanna
and Nikolai, whom she was to meet for the first time, did not arrive at the Los Angeles
Airport. Mrs. Regalado testified that she was seriously worried when Deanna and Nikolai did
not arrive in Los Angeles on 3 May 1980, and she was hurt when she saw the two crying upon
arriving in Los Angeles on 4 May 1980.31 The omission of award of damages to private
respondent Manuel S. Buncio was proper for lack of basis. His court testimony was rightly
disregarded by the RTC because he failed to appear in his scheduled cross-examination.32
52
On another point, we held in Eastern Shipping Lines, Inc. v. Court of Appeals,33 that 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 rate of 6% per annum. We further
declared that when the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether it is a loan/forbearance of money or not, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be
then equivalent to a forbearance of credit.
In the instant case, petitioner's obligation arose from a contract of carriage and not from a
loan or forbearance of money. Thus, an interest of 6% per annum should be imposed on the
damages awarded, to be computed from the time of the extra-judicial demand on 17 July 1980
up to the finality of this Decision. In addition, the interest shall become 12% per annum from
the finality of this Decision up to its satisfaction.
Finally, the records34 show that Mrs. Regalado died on 1 March 1995 at the age of 74, while
Deanna passed away on 8 December 2003 at the age of 32. This being the case, the foregoing
award of damages plus interests in their favor should be given to their respective heirs.
WHEREFORE, the Petition is PARTLY GRANTED. The Decision of the Court of Appeals, dated
20 December 1995, in CA-G.R. CV No. 26921, is hereby AFFIRMED with the
following MODIFICATIONS: (1) the award of attorney's fees is deleted; (2) an interest of 6%
per annum is imposed on the damages awarded, to be computed from 17 July 1980 up to the
finality of this Decision; and (3) an interest of 12% per annum is also imposed from the finality
of this Decision up to its satisfaction. The damages and interests granted in favor of deceased
Mrs. Regalado and deceased Deanna are hereby awarded to their respective heirs. Costs
against petitioner.
SO ORDERED.
G.R. No. 170141 April 22, 2008
JAPAN AIRLINES, petitioner, vs. JESUS SIMANGAN, respondent.
DECISION
REYES R.T., J.:
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 he does not, then the carrier opens itself to a suit for
breach of contract of carriage.1
The power to admit or not an alien into the country is a sovereign act which cannot be
interfered with even by Japan Airlines (JAL).2
In this petition for review on certiorari,3 petitioner JAL appeals the: (1) Decision4 dated May 31,
2005 of the Court of Appeals (CA) ordering it to pay respondent Jesus Simangan moral and
exemplary damages; and (2) Resolution5 of the same court dated September 28, 2005
denying JAL's motion for reconsideration.
The Facts
In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin, Loreto
Simangan, in UCLA School of Medicine in Los Angeles, California, U.S.A. Upon request of
UCLA, respondent undertook a series of laboratory tests at the National Kidney Institute in
Quezon City to verify whether his blood and tissue type are compatible with
Loreto's.6 Fortunately, said tests proved that respondent's blood and tissue type were well-
matched with Loreto's.7
Respondent needed to go to the United States to complete his preliminary work-up and
donation surgery. Hence, to facilitate respondent's travel to the United States, UCLA wrote a
letter to the American Consulate in Manila to arrange for his visa. In due time, respondent
was issued an emergency U.S. visa by the American Embassy in Manila.8
Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket from
petitioner JAL for US$1,485.00 and was issued the corresponding boarding pass.9 He was
scheduled to a particular flight bound for Los Angeles, California, U.S.A. via Narita, Japan. 10
On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International Airport
in the company of several relatives and friends.11 He was allowed to check-in at JAL's
counter.12 His plane ticket, boarding pass, travel authority and personal articles were
subjected to rigid immigration and security routines.13 After passing through said immigration
and security procedures, respondent was allowed by JAL to enter its airplane.14
While inside the airplane, JAL's airline crew suspected respondent of carrying a falsified travel
document and imputed that he would only use the trip to the United States as a pretext to
stay and work in Japan.15 The stewardess asked respondent to show his travel documents.
Shortly after, the stewardess along with a Japanese and a Filipino haughtily ordered him to
stand up and leave the plane.16 Respondent protested, explaining that he was issued a U.S.
visa. Just to allow him to board the plane, he pleaded with JAL to closely monitor his
movements when the aircraft stops over in Narita.17 His pleas were ignored. He was then
constrained to go out of the plane.18 In a nutshell, respondent was bumped off the flight.
Respondent went to JAL's ground office and waited there for three hours. Meanwhile, the
plane took off and he was left behind.19 Afterwards, he was informed that his travel
documents were, indeed, in order.20 Respondent was refunded the cost of his plane ticket
less the sum of US$500.00 which was deducted by JAL.21 Subsequently, respondent's U.S. visa
was cancelled.22
53
Displeased by the turn of events, respondent filed an action for damages against JAL with the
Regional Trial Court (RTC) in Valenzuela City, docketed as Civil Case No. 4195-V-93. He claimed
he was not able to donate his kidney to Loreto; and that he suffered terrible embarrassment
and mental anguish.23 He prayed that he be awarded P3 million as moral damages, P1.5 million
as exemplary damages and P500,000.00 as attorney's fees.24
JAL denied the material allegations of the complaint. It argued, among others, that its failure
to allow respondent to fly on his scheduled departure was due to "a need for his travel
documents to be authenticated by the United States Embassy"25 because no one from JAL's
airport staff had encountered a parole visa before.26 It posited that the authentication
required additional time; that respondent was advised to take the flight the following day,
July 30, 1992. JAL alleged that respondent agreed to be rebooked on July 30, 1992.27
JAL also lodged a counterclaim anchored on respondent's alleged wrongful institution of the
complaint. It prayed for litigation expenses, exemplary damages and attorney's fees.28
On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its decision in
favor of respondent (plaintiff), disposing as follows:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay the
plaintiff the amount of P1,000,000.00 as moral damages, the amount
of P500,000.00 as exemplary damages and the amount of P250,000.00 as
attorney's fees, plus the cost of suit.29
The RTC explained:
In summarily and insolently ordering the plaintiff to disembark while the latter was
already settled in his assigned seat, the defendant violated the contract of carriage;
that when the plaintiff was ordered out of the plane under the pretext that the
genuineness of his travel documents would be verified it had caused him
embarrassment and besmirched reputation; and that when the plaintiff was finally
not allowed to take the flight, he suffered more wounded feelings and social
humiliation for which the plaintiff was asking to be awarded moral and exemplary
damages as well as attorney's fees.
The reason given by the defendant that what prompted them to investigate the
genuineness of the travel documents of the plaintiff was that the plaintiff was not
then carrying a regular visa but just a letter does not appear satisfactory. The
defendant is engaged in transporting passengers by plane from country to country
and is therefore conversant with the travel documents. The defendant should not
be allowed to pretend, to the prejudice of the plaintiff not to know that the travel
documents of the plaintiff are valid documents to allow him entry in the United
States.
 The foregoing act of the defendant in ordering the plaintiff to deplane while already
settled in his assigned seat clearly demonstrated that the defendant breached its
contract of carriage with the plaintiff as passenger in bad faith and as such the
plaintiff is entitled to moral and exemplary damages as well as to an award of
attorney's fees.30
Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not guilty of
breach of contract of carriage, hence, not liable for damages.31 It posited that it is the one
entitled to recover on its counterclaim.32
CA Ruling
In a Decision33 dated May 31, 2005, the CA affirmed the decision of the RTC with modification
in that it lowered the amount of moral and exemplary damages and deleted the award of
attorney's fees. The fallo of the CA decision reads:
WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant
JAPAN AIR LINES is ordered to pay appellee JESUS SIMANGAN the reduced sums, as
follows: Five Hundred Thousand Pesos (P500,000.00) as moral damages, and Two
Hundred Fifty Thousand Pesos (P250,000.00) as exemplary damages. The award of
attorney's fees is hereby DELETED.34
The CA elucidated that since JAL issued to respondent a round trip plane ticket for a lawful
consideration, "there arose a perfected contract between them."35 It found that respondent
was "haughtily ejected"36 by JAL and that "he was certainly embarrassed and
humiliated"37 when, in the presence of other passengers, JAL's airline staff "shouted at him to
stand up and arrogantly asked him to produce his travel papers, without the least courtesy
every human being is entitled to";38 and that "he was compelled to deplane on the grounds
that his papers were fake."39
The CA ratiocinated:
While the protection of passengers must take precedence over convenience, the
implementation of security measures must be attended by basic courtesies.
In fact, breach of the contract of carriage creates against the carrier a presumption
of liability, by a simple proof of injury, relieving the injured passenger of the duty to
establish the fault of the carrier or of his employees; and placing on the carrier the
burden to prove that it was due to an unforeseen event or to force majeure.
That appellee possessed bogus travel documents and that he might stay illegally in
Japan are allegations without substantiation. Also, appellant's attempt to rebook
appellee the following day was too late and did not relieve it from liability. The
damage had been done. Besides, its belated theory of novation, i.e., that appellant's
54
original obligation to carry appellee to Narita and Los Angeles on July 29, 1992 was
extinguished by novation when appellant and appellant agreed that appellee will
instead take appellant's flight to Narita on the following day, July 30, 1992, deserves
little attention. It is inappropriate at bar. Questions not taken up during the trial
cannot be raised for the first time on appeal.40 (Underscoring ours and citations
were omitted)
Citing Ortigas, Jr. v. Lufthansa German Airlines,41 the CA declared that "(i)n contracts of
common carriage, inattention 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."42
Nevertheless, the CA modified the damages awarded by the RTC. It explained:
Fundamental in the law on damages is that one injured by a breach of a contract, or
by a wrongful or negligent act or omission shall have a fair and just compensation
commensurate to the loss sustained as consequence of the defendant's act. Being
discretionary on the court, the amount, however, should not be palpably and
scandalously excessive.
Here, the trial court's award of P1,000,000.00 as moral damages appears to be
overblown. No other proof of appellee's social standing, profession, financial
capabilities was presented except that he was single and a businessman. To Us, the
sum of 500,000.00 is just and fair. For, moral damages are emphatically not
intended to enrich a complainant at the expense of the defendant. They are
awarded only to enable the injured party to obtain means, diversion or amusements
that will serve to alleviate the moral suffering he has undergone, by reason of the
defendant's culpable action.
Moreover, the grant of P500,000.00 as exemplary damages needs to be reduced to
a reasonable level. The award of exemplary damages is designed to permit the
courts to mould behavior that has socially deleterious consequences and its
imposition is required by public policy to suppress the wanton acts of the offender.
Hence, the sum of P250,000.00 is adequate under the circumstances.
The award of P250,000.00 as attorney's fees lacks factual basis. Appellee was
definitely compelled to litigate in protecting his rights and in seeking relief from
appellant's misdeeds. Yet, the record is devoid of evidence to show the cost of the
services of his counsel and/or the actual expenses incurred in prosecuting his
action.43 (Citations were omitted)
When JAL's motion for reconsideration was denied, it resorted to the petition at bar.
 Issues
JAL poses the following issues -
I.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT
WAS ENTITLED TO MORAL DAMAGES, CONSIDERING THAT:
A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.
B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF CONTRACT CASES
ONLY WHEN THE BREACH IS ATTENDED BY FRAUD OR BAD FAITH.
ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT
ACT FRAUDULENTLY OR IN BAD FAITH AS TO ENTITLE RESPONDENT TO
MORAL DAMAGES.
C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH EFFECTED IN
GOOD FAITH FROM ONE ATTENDED BY BAD FAITH.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT
WAS ENTITLED TO EXEMPLARY DAMAGES CONSIDERING THAT:
A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH OF
CONTRACT OF CARRIAGE UNLESS THE CARRIER IS GUILTY OF WANTON,
FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT CONDUCT.
B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID
NOT ACT IN A WANTON FRAUDULENT, RECKLESS, OPPRESSIVE OR
MALEVOLENT MANNER AS TO ENTITLE RESPONDENT TO EXEMPLARY
DAMAGES.
III.
ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN AWARD OF
DAMAGES, WHETHER OR NOT THE COURT OF APPEALS AWARD OF P750,000 IN
DAMAGES WAS EXCESSIVE AND UNPRECEDENTED.
IV.
55
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING FOR JAL ON
ITS COUNTERCLAIM.44 (Underscoring Ours)
Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of contract
of carriage; (2) whether or not respondent is entitled to moral and exemplary damages; and
(3) whether or not JAL is entitled to its counterclaim for damages.
Our Ruling
This Court is not a trier of facts.
Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA. The CA also
gave its nod to the reasoning of the RTC except as to the awards of damages, which were
reduced, and that of attorney's fees, which was deleted.
We are not a trier of facts. We generally rely upon, and are bound by, the conclusions on this
matter of the lower courts, which are better equipped and have better opportunity to assess
the evidence first-hand, including the testimony of the witnesses.45
We have repeatedly held that the findings of fact of the CA are final and conclusive and
cannot be reviewed on appeal to the Supreme Court provided they are based on substantial
evidence.46 We have no jurisdiction, as a rule, to reverse their findings.47 Among the
exceptions to this rule are: (a) when the conclusion is a finding grounded entirely on
speculations, surmises or conjectures; (b) when the inference made is manifestly mistaken,
absurd or impossible; (c) where there is grave abuse of discretion; (d) when the judgment is
based on a misapprehension of facts; (e) when the findings of facts are conflicting; (f) when
the CA, in making its findings, went beyond the issues of the case and the same is contrary to
the admissions of both appellant and appellee.48
The said exceptions, which are being invoked by JAL, are not found here. There is no
indication that the findings of the CA are contrary to the evidence on record or that vital
testimonies of JAL's witnesses were disregarded. Neither did the CA commit
misapprehension of facts nor did it fail to consider relevant facts. Likewise, there was no
grave abuse of discretion in the appreciation of facts or mistaken and absurd inferences.
We thus sustain the coherent facts as established by the courts below, there being no
sufficient showing that the said courts committed reversible error in reaching their
conclusions.
JAL is guilty of breach of
contract of carriage.
That respondent purchased a round trip plane ticket from JAL and was issued the
corresponding boarding pass is uncontroverted.49 His plane ticket, boarding pass, travel
authority and personal articles were subjected to rigid immigration and security
procedure.50 After passing through said immigration and security procedure, he was allowed
by JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita,
Japan.51 Concisely, there was a contract of carriage between JAL and respondent.
Nevertheless, JAL made respondent get off the plane on his scheduled departure on July 29,
1992. He was not allowed by JAL to fly. JAL thus failed to comply with its obligation under the
contract of carriage.
JAL justifies its action by arguing that there was "a need to verify the authenticity of
respondent's travel document."52 It alleged that no one from its airport staff had
encountered a parole visa before.53 It further contended that respondent agreed to fly the
next day so that it could first verify his travel document, hence, there was novation.54 It
maintained that it was not guilty of breach of contract of carriage as respondent was not able
to travel to the United States due to his own voluntary desistance.55
We cannot agree. 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.56 As
admitted by JAL, "the flight could not wait for Mr. Simangan because it was ready to
depart."57
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.
Considering that respondent was forced to get out of the plane and left behind against his
will, he could not have freely consented to be rebooked the next day. In short, he did not
agree to the alleged novation. Since novation implies a waiver of the right the creditor had
before the novation, such waiver must be express.58 It cannot be supposed, without clear
proof, that respondent had willingly done away with his right to fly on July 29, 1992.
Moreover, the reason behind the bumping off incident, as found by the RTC and CA, was that
JAL personnel imputed that respondent would only use the trip to the United States as a
pretext to stay and work in Japan.59
Apart from the fact that respondent's plane ticket, boarding pass, travel authority and
personal articles already passed the rigid immigration and security routines,60 JAL, as a
common carrier, ought to know the kind of valid travel documents respondent carried. As
provided in Article 1755 of the New Civil Code: "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."61 Thus, We find
untenable JAL's defense of "verification of respondent's documents" in its breach of contract
of carriage.
56
It bears repeating that the power to admit or not an alien into the country is a sovereign act
which cannot be interfered with even by JAL.62
In an action for breach of contract of carriage, all that is required of plaintiff is to prove the
existence of such contract and its non-performance by the carrier through the latter's failure
to carry the passenger safely to his destination.63 Respondent has complied with these twin
requisites.
Respondent is entitled to moral and exemplary damages and attorney's fees plus legal
interest.
With reference to moral damages, JAL alleged that they are not recoverable in actions ex
contractu except only when the breach is attended by fraud or bad faith. It is contended that
it did not act fraudulently or in bad faith towards respondent, hence, it may not be held liable
for moral damages.
As a general rule, moral damages are not recoverable in actions for damages predicated on a
breach of contract for it is not one of the items enumerated under Article 2219 of the Civil
Code.64 As an exception, such damages are recoverable: (1) in cases in which the mishap
results in the death of a passenger, as provided in Article 1764, in relation to Article 2206(3) of
the Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as
provided in Article 2220.65
The acts committed by JAL against respondent amounts to bad faith. As found by the RTC,
JAL breached its contract of carriage with respondent in bad faith. JAL personnel summarily
and insolently ordered respondent to disembark while the latter was already settled in his
assigned seat. He was ordered out of the plane under the alleged reason that the
genuineness of his travel documents should be verified.
These findings of facts were upheld by the CA, to wit:
x x x he was haughtily ejected by appellant. He was certainly embarrassed and
humiliated when, in the presence of other passengers, the appellant's airline staff
shouted at him to stand up and arrogantly asked him to produce his travel papers,
without the least courtesy every human being is entitled to. Then, he was compelled
to deplane on the grounds that his papers were fake. His protestation of having
been issued a U.S. visa coupled with his plea to appellant to closely monitor his
movements when the aircraft stops over in Narita, were ignored. Worse, he was
made to wait for many hours at the office of appellant only to be told later that he
has valid travel documents.66 (Underscoring ours)
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.67
JAL is also liable for exemplary damages as its above-mentioned acts constitute wanton,
oppressive and malevolent acts against respondent. 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.68
Exemplary damages are designed by our civil law to permit the courts to reshape behaviour
that is socially deleterious in its consequence by creating negative incentives or deterrents
against such behaviour. 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.69
Neglect or malfeasance of the carrier's employees could give ground for an action for
damages. Passengers have a right to be treated by the carrier's employees with kindness,
respect, courtesy and due consideration and are entitled to be protected against personal
misconduct, injurious language, indignities and abuses from such employees.70
The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary damages in
respondent's favor is, in Our view, reasonable and realistic. This award is reasonably sufficient
to indemnify him for the humiliation and embarrassment he suffered. This also serves as an
example to discourage the repetition of similar oppressive acts.
With respect to attorney's fees, they may be awarded when defendant's act or omission has
compelled plaintiff to litigate with third persons or to incur expenses to protect his
interest.71 The Court, in Construction Development Corporation of the Philippines v.
Estrella,72 citing Traders Royal Bank Employees Union-Independent v. National Labor Relations
Commission,73 elucidated thus:
There are two commonly accepted concepts of attorney's fees, the so-called
ordinary and extraordinary. In its ordinary concept, an attorney's fee is the
reasonable compensation paid to a lawyer by his client for the legal services he has
rendered to the latter. The basis of this compensation is the fact of his employment
by and his agreement with the client.
In its extraordinary concept, an attorney's fee is an indemnity for damages
ordered by the court to be paid by the losing party in a litigation. The basis of this is
any of the cases provided by law where such award can be made, such as those
57
authorized in Article 2208, Civil Code, and is payable not to the lawyer but to the
client, unless they have agreed that the award shall pertain to the lawyer as
additional compensation or as part thereof.74
It was therefore erroneous for the CA to delete the award of attorney's fees on the ground
that the record is devoid of evidence to show the cost of the services of respondent's
counsel. The amount is actually discretionary upon the Court so long as it passes the test of
reasonableness. They may be recovered as actual or compensatory damages when exemplary
damages are awarded and whenever the court deems it just and equitable,75 as in this case.
Considering the factual backdrop of this case, attorney's fees in the amount of P200,000.00 is
reasonably modest.
The above liabilities of JAL in the total amount of P800,000.00 earn legal interest pursuant to
the Court's ruling in Construction Development Corporation of the Philippines v.
Estrella,76 citing Eastern Shipping Lines, Inc. v. Court of Appeals,77 to wit:
Regarding the imposition of legal interest at the rate of 6% from the time of the
filing of the complaint, we held in Eastern Shipping Lines, Inc. v. Court of Appeals, 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.78 (Emphasis supplied and
citations omitted)
Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay
respondent legal interest. Pursuant to the above ruling of the Court, the legal interest is 6%
and it shall be reckoned from September 21, 2000 when the RTC rendered its judgment. From
the time this Decision becomes final and executory, the interest rate shall be 12% until its
satisfaction.
JAL is not entitled to its counterclaim for damages.
The counterclaim of JAL in its Answer79 is a compulsory counterclaim for damages and
attorney's fees arising from the filing of the complaint. There is no mention of any other
counter claims.
This compulsory counterclaim of JAL 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 respondent precisely to claim his right to damages against JAL. 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.80
We reiterate case law that if damages result from a party's exercise of a right, it is damnum
absque injuria.81 Lawful acts give rise to no injury. Walang perhuwisyong maaring idulot ang
paggamit sa sariling karapatan.
During the trial, however, JAL presented a witness who testified that JAL suffered further
damages. Allegedly, respondent caused the publications of his subject complaint against JAL
in the newspaper for which JAL suffered damages.82
Although these additional damages allegedly suffered by JAL were not incorporated in its
Answer as they arose subsequent to its filing, JAL's witness was able to testify on the same
before the RTC.83 Hence, although these issues were not raised by the pleadings, they shall be
treated in all respects as if they had been raised in the pleadings.
As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen issues not raised by the
pleadings are tried with the express or implied consent of the parties, they shall be treated in
all respects as if they had been raised in the pleadings."
Nevertheless, JAL's counterclaim cannot be granted.
58
JAL is a common carrier. JAL's business is mainly with the traveling public. It invites people to
avail themselves of the comforts and advantages it offers.84 Since JAL deals with the public,
its bumping off of respondent without a valid reason naturally drew public attention and
generated a public issue.
The publications involved matters about which the public has the right to be informed
because they relate to a public issue. This public issue or concern is a legitimate topic of a
public comment that may be validly published.
Assuming that respondent, indeed, caused the publication of his complaint, he may not be
held liable for damages for it. The constitutional guarantee of freedom of the speech and of
the press includes fair commentaries on matters of public interest. This is explained by the
Court in Borjal v. Court of Appeals,85 to wit:
To reiterate, fair commentaries on matters of public interest are privileged and
constitute a valid defense in an action for libel or slander. The doctrine of fair
comment means that while in general every discreditable imputation publicly made
is deemed false, because every man is presumed innocent until his guilt is judicially
proved, and every false imputation is deemed malicious, nevertheless, when the
discreditable imputation is directed against a public person in his public capacity, it
is not necessarily actionable. In order that such discreditable imputation to a public
official may be actionable, it must either be a false allegation of fact or a comment
based on a false supposition. If the comment is an expression of opinion, based on
established facts, then it is immaterial that the opinion happens to be mistaken, as
long as it might reasonably be inferred from the facts.86 (Citations omitted and
underscoring ours)
Even though JAL is not a public official, the rule on privileged commentaries on matters of
public interest applies to it. The privilege applies not only to public officials but extends to a
great variety of subjects, and includes matters of public concern, public men, and candidates
for office.87
Hence, pursuant to the Borjal case, there must be an actual malice in order that a discreditable
imputation to a public person in his public capacity or to a public official may be actionable. To
be considered malicious, the libelous statements must be shown to have been written or
published with the knowledge that they are false or in reckless disregard of whether they are
false or not.88
Considering that the published articles involve matters of public interest and that its
expressed opinion is not malicious but based on established facts, the imputations against
JAL are not actionable. Therefore, JAL may not claim damages for them.
WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals
is AFFIRMED WITH MODIFICATION. As modified, petitioner Japan Airlines is ordered to pay
respondent Jesus Simangan the following: (1) P500,000.00 as moral damages; Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck, loaded with
(2) P100,000.00 as exemplary damages; and (3) P200,000.00 as attorney's fees. 11 bundles or 232 pieces of copper cathodes, failed to deliver its cargo.

The total amount adjudged shall earn legal interest at the rate of 6% per annum from the date
of judgment of the Regional Trial Court on September 21, 2000 until the finality of this
Decision. From the time this Decision becomes final and executory, the unpaid amount, if any,
shall earn legal interest at the rate of 12% per annum until its satisfaction.
SO ORDERED.
G.R. No. 179446 January 10, 2011
LOADMASTERS CUSTOMS SERVICES, INC., Petitioner, vs. GLODEL BROKERAGE
CORPORATION and R&B INSURANCE CORPORATION, Respondents.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the
copper cathodes. Because of this incident, Columbia filed with R&B Insurance a claim for
insurance indemnity in the amount of ₱1,903,335.39. After the requisite investigation and
adjustment, R&B Insurance paid Columbia the amount of ₱1,896,789.62 as insurance
indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and
Glodel before the Regional Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. 02-
103040. It sought reimbursement of the amount it had paid to Columbia for the loss of the
subject cargo. It claimed that it had been subrogated "to the right of the consignee to
recover from the party/parties who may be held legally liable for the loss." 2

On November 19, 2003, the RTC rendered a decision3 holding Glodel liable for damages for
DECISION
the loss of the subject cargo and dismissing Loadmasters’ counterclaim for damages and
attorney’s fees against R&B Insurance. The dispositive portion of the decision reads:
MENDOZA, J.:
WHEREFORE, all premises considered, the plaintiff having established by preponderance of
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing evidence its claims against defendant Glodel Brokerage Corporation, judgment is hereby
the August 24, 2007 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 82822, entitled rendered ordering the latter:
"R&B Insurance Corporation v. Glodel Brokerage Corporation and Loadmasters Customs Services,
Inc.," which held petitioner Loadmasters Customs Services, Inc. (Loadmasters) liable to
1. To pay plaintiff R&B Insurance Corporation the sum of ₱1,896,789.62 as actual
respondent Glodel Brokerage Corporation (Glodel) in the amount of ₱1,896,789.62
and compensatory damages, with interest from the date of complaint until fully
representing the insurance indemnity which R&B Insurance Corporation (R&B Insurance) paid
paid;
to the insured-consignee, Columbia Wire and Cable Corporation (Columbia).

2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the
THE FACTS:
principal amount recovered as and for attorney’s fees plus ₱1,500.00 per
appearance in Court;
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of
Columbia to insure the shipment of 132 bundles of electric copper cathodes against All Risks.
3. To pay plaintiff R&B Insurance Corporation the sum of ₱22,427.18 as litigation
On August 28, 2001, the cargoes were shipped on board the vessel "Richard Rey" from
expenses.
Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on the same date.

WHEREAS, the defendant Loadmasters Customs Services, Inc.’s counterclaim for damages
Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from
and attorney’s fees against plaintiff are hereby dismissed.
the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the
services of Loadmasters for the use of its delivery trucks to transport the cargoes to
Columbia’s warehouses/plants in Bulacan and Valenzuela City. With costs against defendant Glodel Brokerage Corporation.

The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its SO ORDERED.4
employed drivers and accompanied by its employed truck helpers. Six (6) truckloads of
copper cathodes were to be delivered to Balagtas, Bulacan, while the other six (6) truckloads Both R&B Insurance and Glodel appealed the RTC decision to the CA.
were destined for Lawang Bato, Valenzuela City. The cargoes in six truckloads for Lawang
Bato were duly delivered in Columbia’s warehouses there. Of the six (6) trucks en route to
59
On August 24, 2007, the CA rendered the assailed decision which reads in part:
Considering that appellee is an agent of appellant Glodel, whatever liability the latter owes to
appellant R&B Insurance Corporation as insurance indemnity must likewise be the amount it
shall be paid by appellee Loadmasters.
WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the appellee
Loadmasters is likewise held liable to appellant Glodel in the amount of ₱1,896,789.62
representing the insurance indemnity appellant Glodel has been held liable to appellant R&B
Insurance Corporation.
Appellant Glodel’s appeal to absolve it from any liability is herein DISMISSED.
SO ORDERED.5
Hence, Loadmasters filed the present petition for review on certiorari before this Court
presenting the following
ISSUES
1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of the
fact that the latter respondent Glodel did not file a cross-claim against it
(Loadmasters)?
2. Under the set of facts established and undisputed in the case, can petitioner
Loadmasters be legally considered as an Agent of respondent Glodel?6
To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it
cannot be considered an agent of Glodel because it never represented the latter in its
dealings with the consignee. At any rate, it further contends that Glodel has no recourse
against it for its (Glodel’s) failure to file a cross-claim pursuant to Section 2, Rule 9 of the 1997
Rules of Civil Procedure.
Glodel, in its Comment,7 counters that Loadmasters is liable to it under its cross-claim because
the latter was grossly negligent in the transportation of the subject cargo. With respect to
Loadmasters’ claim that it is already estopped from filing a cross-claim, Glodel insists that it
can still do so even for the first time on appeal because there is no rule that provides
otherwise. Finally, Glodel argues that its relationship with Loadmasters is that of Charter
wherein the transporter (Loadmasters) is only hired for the specific job of delivering the
merchandise. Thus, the diligence required in this case is merely ordinary diligence or that of a
good father of the family, not the extraordinary diligence required of common carriers.
R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim
against Loadmasters because it was not prevented from presenting evidence to prove its
60
position even without amending its Answer. As to the relationship between Loadmasters and
Glodel, it contends that a contract of agency existed between the two corporations.8
Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities. 9 Doubtless, R&B Insurance is
subrogated to the rights of the insured to the extent of the amount it paid the consignee
under the marine insurance, as provided under Article 2207 of the Civil Code, which reads:
ART. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrong-doer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek
reimbursement from either Loadmasters or Glodel or both for breach of contract and/or tort.
The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for the
amount of the indemnity it paid Columbia.
At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common
carriers to determine their liability for the loss of the subject cargo. Under Article 1732 of the
Civil Code, common carriers are persons, corporations, firms, or associations engaged in the
business of carrying or transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public.
Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in
the business of transporting goods by land, through its trucking service. It is a common
carrier as distinguished from a private carrier wherein the carriage is generally undertaken by
special agreement and it does not hold itself out to carry goods for the general public.10 The
distinction is significant in the sense that "the rights and obligations of the parties to a
contract of private carriage are governed principally by their stipulations, not by the law on
common carriers."11
In the present case, there is no indication that the undertaking in the contract between
Loadmasters and Glodel was private in character. There is no showing that Loadmasters
solely and exclusively rendered services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.12
In the same vein, Glodel is also considered a common carrier within the context of Article
1732. In its Memorandum,13 it states that it "is a corporation duly organized and existing under
the laws of the Republic of the Philippines and is engaged in the business of customs
brokering." It cannot be considered otherwise because as held by this Court in Schmitz
Transport & Brokerage Corporation v. Transport Venture, Inc.,14 a customs broker is also
regarded as a common carrier, the transportation of goods being an integral part of its
business.
Loadmasters and Glodel, being both common carriers, are mandated from the nature of their
business and for reasons of public policy, to observe the extraordinary diligence in the
vigilance over the goods transported by them according to all the circumstances of such case,
as required by Article 1733 of the Civil Code. When the Court speaks of extraordinary
diligence, it is that extreme measure of care and caution which persons of unusual prudence
and circumspection observe for securing and preserving their own property or rights.15 This
exacting standard imposed on common carriers in a contract of carriage of goods is intended
to tilt the scales in favor of the shipper who is at the mercy of the common carrier once the
goods have been lodged for shipment.16 Thus, in case of loss of the goods, the common
carrier is presumed to have been at fault or to have acted negligently.17 This presumption of
fault or negligence, however, may be rebutted by proof that the common carrier has
observed extraordinary diligence over the goods.
With respect to the time frame of this extraordinary responsibility, the Civil Code provides
that the exercise of extraordinary diligence lasts from the time the goods are unconditionally
placed in the possession of, and received by, the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has
a right to receive them.18
Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly
and severally liable to R & B Insurance for the loss of the subject cargo. Under Article 2194 of
the New Civil Code, "the responsibility of two or more persons who are liable for a quasi-
delict is solidary."
Loadmasters’ claim that it was never privy to the contract entered into by Glodel with the
consignee Columbia or R&B Insurance as subrogee, is not a valid defense. It may not have a
direct contractual relation with Columbia, but it is liable for tort under the provisions of
Article 2176 of the Civil Code on quasi-delicts which expressly provide:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no pre-
existing contractual relation between the parties, is called a quasi-delict and is governed by
the provisions of this Chapter.
Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service, Inc.
v. Phoenix Assurance Company of New York,/McGee & Co., Inc.19 where this Court held that a
tort may arise despite the absence of a contractual relationship, to wit:
61
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against
Mindanao Terminal, from which the present case has arisen, states a cause of action. The
present action is based on quasi-delict, arising from the negligent and careless loading and
stowing of the cargoes belonging to Del Monte Produce. Even assuming that both Phoenix
and McGee have only been subrogated in the rights of Del Monte Produce, who is not a party
to the contract of service between Mindanao Terminal and Del Monte, still the insurance
carriers may have a cause of action in light of the Court’s consistent ruling that the act that
breaks the contract may be also a tort. In fine, a liability for tort may arise even under a
contract, where tort is that which breaches the contract. In the present case, Phoenix and
McGee are not suing for damages for injuries arising from the breach of the contract of
service but from the alleged negligent manner by which Mindanao Terminal handled the
cargoes belonging to Del Monte Produce. Despite the absence of contractual relationship
between Del Monte Produce and Mindanao Terminal, the allegation of negligence on the part
of the defendant should be sufficient to establish a cause of action arising from quasi-delict.
[Emphases supplied]
In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own acts
or omissions, but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers
acting within the scope of their assigned tasks, even though the former are not engaged in
any business or industry.
It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose
employees (truck driver and helper) were instrumental in the hijacking or robbery of the
shipment. As employer, Loadmasters should be made answerable for the damages caused by
its employees who acted within the scope of their assigned task of delivering the goods safely
to the warehouse.
Whenever an employee’s negligence causes damage or injury to another, there instantly
arises a presumption juris tantum that the employer failed to exercise diligentissimi patris
families in the selection (culpa in eligiendo) or supervision (culpa in vigilando) of its
employees.20 To avoid liability for a quasi-delict committed by its employee, an employer must
overcome the presumption by presenting convincing proof that he exercised the care and
diligence of a good father of a family in the selection and supervision of his employee. 21 In this
regard, Loadmasters failed.
Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to
ensure that Loadmasters would fully comply with the undertaking to safely transport the
subject cargo to the designated destination. It should have been more prudent in entrusting
the goods to Loadmasters by taking precautionary measures, such as providing escorts to
accompany the trucks in delivering the cargoes. Glodel should, therefore, be held liable with
Loadmasters. Its defense of force majeure is unavailing.
At this juncture, the Court clarifies that there exists no principal-agent relationship between
Glodel and Loadmasters, as erroneously found by the CA. Article 1868 of the Civil Code
provides: "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." The elements of a contract of agency are: (1) consent, express or implied, of the
parties to establish the relationship; (2) the object is the execution of a juridical act in relation
to a third person; (3) the agent acts as a representative and not for himself; (4) the agent acts
within the scope of his authority.22
Accordingly, there can be no contract of agency between the parties. Loadmasters never
represented Glodel. Neither was it ever authorized to make such representation. It is a settled
rule that the basis for agency is representation, that is, the agent acts for and on behalf of the
principal on matters within the scope of his authority and said acts have the same legal effect
as if they were personally executed by the principal. On the part of the principal, there must
be an actual intention to appoint or an intention naturally inferable from his words or actions,
while on the part of the agent, there must be an intention to accept the appointment and act
on it.23 Such mutual intent is not obtaining in this case.
What then is the extent of the respective liabilities of Loadmasters and Glodel? Each
wrongdoer is liable for the total damage suffered by R&B Insurance. Where there are several
causes for the resulting damages, a party is not relieved from liability, even partially. It is
sufficient that the negligence of a party is an efficient cause without which the damage would
not have resulted. It is no defense to one of the concurrent tortfeasors that the damage
would not have resulted from his negligence alone, without the negligence or wrongful acts
of the other concurrent tortfeasor. As stated in the case of Far Eastern Shipping v. Court of
Appeals,24
X x x. Where several causes producing an injury are concurrent and each is an efficient cause
without which the injury would not have happened, the injury may be attributed to all or any
of the causes and recovery may be had against any or all of the responsible persons although
under the circumstances of the case, it may appear that one of them was more culpable, and
that the duty owed by them to the injured person was not the same. No actor's negligence
ceases to be a proximate cause merely because it does not exceed the negligence of other
actors. Each wrongdoer is responsible for the entire result and is liable as though his acts
were the sole cause of the injury.
There is no contribution between joint tortfeasors whose liability is solidary since both of
them are liable for the total damage. Where the concurrent or successive negligent acts or
omissions of two or more persons, although acting independently, are in combination the
direct and proximate cause of a single injury to a third person, it is impossible to determine in
what proportion each contributed to the injury and either of them is responsible for the
whole injury. Where their concurring negligence resulted in injury or damage to a third party,
62
they become joint tortfeasors and are solidarily liable for the resulting damage under Article
2194 of the Civil Code. [Emphasis supplied]
The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having
failed to file a cross-claim against the latter.1avvphi1
Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of
contract of service as the latter is primarily liable for the loss of the subject cargo. In this case,
however, it cannot succeed in seeking judicial sanction against Loadmasters because the
records disclose that it did not properly interpose a cross-claim against the latter. Glodel did
not even pray that Loadmasters be liable for any and all claims that it may be adjudged liable
in favor of R&B Insurance. Under the Rules, a compulsory counterclaim, or a cross-claim, not
set up shall be barred.25 Thus, a cross-claim cannot be set up for the first time on appeal.
For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid
on equitable grounds. "Equity, which has been aptly described as ‘a justice outside legality,’ is
applied only in the absence of, and never against, statutory law or judicial rules of
procedure."26 The Court cannot be a lawyer and take the cudgels for a party who has been at
fault or negligent.
WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the Court
of Appeals is MODIFIED to read as follows:
WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services, Inc.
and respondent Glodel Brokerage Corporation jointly and severally liable to respondent R&B
Insurance Corporation for the insurance indemnity it paid to consignee Columbia Wire &
Cable Corporation and ordering both parties to pay, jointly and severally, R&B Insurance
Corporation a] the amount of ₱1,896,789.62 representing the insurance indemnity; b] the
amount equivalent to ten (10%) percent thereof for attorney’s fees; and c] the amount of
₱22,427.18 for litigation expenses.
The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against
petitioner Loadmasters Customs Services, Inc. is DENIED.
SO ORDERED.
G.R. No. 137775. March 31, 2005
FGU INSURANCE CORPORATION, Petitioners, vs. THE COURT OF APPEALS, SAN MIGUEL
CORPORATION, and ESTATE OF ANG GUI, represented by LUCIO, JULIAN, and JAIME, all
surnamed ANG, and CO TO, Respondents.
G.R. No. 140704. March 31, 2005
ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG, and CO
TO, Petitioners, vs. THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU
INSURANCE CORP., Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us are two separate Petitions for review assailing the Decision1 of the Court of
Appeals in CA-G.R. CV No. 49624 entitled, "San Miguel Corporation, Plaintiff-Appellee versus
Estate of Ang Gui, represented by Lucio, Julian and Jaime, all surnamed Ang, and Co To,
Defendants-Appellants, Third–Party Plaintiffs versus FGU Insurance Corporation, Third-Party
Defendant-Appellant," which affirmed in toto the decision2 of the Regional Trial Court of Cebu
City, Branch 22. The dispositive portion of the Court of Appeals decision reads:
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:
1) Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an interest of 6% per
annum to be reckoned from the filing of this case on October 2, 1990;
2) Ordering defendants to pay plaintiff the sum of P25,000.00 for attorney’s fees and an
additional sum of P10,000.00 as litigation expenses;
3) With cost against defendants.
For the Third-Party Complaint:
1) Ordering third-party defendant FGU Insurance Company to pay and reimburse defendants
the amount of P632,700.00.3
The Facts
Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang Gui and
Co To, was engaged in the shipping business. It owned the M/T ANCO tugboat and the D/B
Lucio barge which were operated as common carriers. Since the D/B Lucio had no engine of
its own, it could not maneuver by itself and had to be towed by a tugboat for it to move from
one place to another.
On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on
board the D/B Lucio, for towage by M/T ANCO, the following cargoes:
Bill of Lading No. Shipment Destination
63
1 25,000 cases Pale Pilsen Estancia, Iloilo
350 cases Cerveza Negra Estancia, Iloilo
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra San Jose, Antique
The consignee for the cargoes covered by Bill of Lading No. 1 was SMC’s Beer Marketing
Division (BMD)-Estancia Beer Sales Office, Estancia, Iloilo, while the consignee for the cargoes
covered by Bill of Lading No. 2 was SMC’s BMD-San Jose Beer Sales Office, San Jose, Antique.
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose,
Antique. The vessels arrived at San Jose, Antique, at about one o’clock in the afternoon of 30
September 1979. The tugboat M/T ANCO left the barge immediately after reaching San Jose,
Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September
1979, the clouds over the area were dark and the waves were already big. The arrastre
workers unloading the cargoes of SMC on board the D/B Lucio began to complain about their
difficulty in unloading the cargoes. SMC’s District Sales Supervisor, Fernando Macabuag,
requested ANCO’s representative to transfer the barge to a safer place because the vessel
might not be able to withstand the big waves.
ANCO’s representative did not heed the request because he was confident that the barge
could withstand the waves. This, notwithstanding the fact that at that time, only the M/T
ANCO was left at the wharf of San Jose, Antique, as all other vessels already left the wharf to
seek shelter. With the waves growing bigger and bigger, only Ten Thousand Seven Hundred
Ninety (10,790) cases of beer were discharged into the custody of the arrastre operator.
At about ten to eleven o’clock in the evening of 01 October 1979, the crew of D/B Lucio
abandoned the vessel because the barge’s rope attached to the wharf was cut off by the big
waves. At around midnight, the barge run aground and was broken and the cargoes of beer in
the barge were swept away.
As a result, ANCO failed to deliver to SMC’s consignee Twenty-Nine Thousand Two Hundred
Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra. The
value per case of Pale Pilsen was Forty-Five Pesos and Twenty Centavos (P45.20). The value of
a case of Cerveza Negra was Forty-Seven Pesos and Ten Centavos (P47.10), hence, SMC’s
claim against ANCO amounted to One Million Three Hundred Forty-Six Thousand One
Hundred Ninety-Seven Pesos (P1,346,197.00).
As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage
and Damages against ANCO for the amount of One Million Three Hundred Forty-Six Thousand
One Hundred Ninety-Seven Pesos (P1,346,197.00) plus interest, litigation expenses and
Twenty-Five Percent (25%) of the total claim as attorney’s fees.
Upon Ang Gui’s death, ANCO, as a partnership, was dissolved hence, on 26 January 1993, SMC
filed a second amended complaint which was admitted by the Court impleading the surviving
partner, Co To and the Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed
Ang. The substituted defendants adopted the original answer with counterclaim of ANCO
"since the substantial allegations of the original complaint and the amended complaint are
practically the same."
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the
complaint were indeed loaded on the vessel belonging to ANCO. It claimed however that it
had an agreement with SMC that ANCO would not be liable for any losses or damages
resulting to the cargoes by reason of fortuitous event. Since the cases of beer Pale Pilsen and
Cerveza Negra were lost by reason of a storm, a fortuitous event which battered and sunk the
vessel in which they were loaded, they should not be held liable. ANCO further asserted that
there was an agreement between them and SMC to insure the cargoes in order to recover
indemnity in case of loss. Pursuant to that agreement, the cargoes to the extent of Twenty
Thousand (20,000) cases was insured with FGU Insurance Corporation (FGU) for the total
amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) per Marine
Insurance Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging
that before the vessel of ANCO left for San Jose, Antique with the cargoes owned by SMC,
the cargoes, to the extent of Twenty Thousand (20,000) cases, were insured with FGU for a
total amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) under
Marine Insurance Policy No. 29591. ANCO further alleged that on or about 02 October 1979,
by reason of very strong winds and heavy waves brought about by a passing typhoon, the
vessel run aground near the vicinity of San Jose, Antique, as a result of which, the vessel was
totally wrecked and its cargoes owned by SMC were lost and/or destroyed. According to
ANCO, the loss of said cargoes occurred as a result of risks insured against in the insurance
policy and during the existence and lifetime of said insurance policy. ANCO went on to assert
that in the remote possibility that the court will order ANCO to pay SMC’s claim, the third-
party defendant corporation should be held liable to indemnify or reimburse ANCO whatever
amounts, or damages, it may be required to pay to SMC.
In its answer to the Third-Party complaint, third-party defendant FGU admitted the existence
of the Insurance Policy under Marine Cover Note No. 29591 but maintained that the alleged
loss of the cargoes covered by the said insurance policy cannot be attributed directly or
indirectly to any of the risks insured against in the said insurance policy. According to FGU, it
is only liable under the policy to Third-party Plaintiff ANCO and/or Plaintiff SMC in case of any
of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.
Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to
exercise ordinary diligence or the diligence of a good father of the family in the care and
supervision of the cargoes insured to prevent its loss and/or destruction.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and asked
for actual, moral, and exemplary damages and attorney’s fees.
The trial court found that while the cargoes were indeed lost due to fortuitous event, there
was failure on ANCO’s part, through their representatives, to observe the degree of diligence
required that would exonerate them from liability. The trial court thus held the Estate of Ang
Gui and Co To liable to SMC for the amount of the lost shipment. With respect to the Third-
Party complaint, the court a quo found FGU liable to bear Fifty-Three Percent (53%) of the
amount of the lost cargoes. According to the trial court:
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground and
was broken and the beer cargoes on the said barge were swept away. It is the sense of this
Court that the risk insured against was the cause of the loss.
...
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and the
amount of the policy was only for P858,500.00, defendants as assured, therefore, were
considered co-insurers of third-party defendant FGU Insurance Corporation to the extent of
975,405.00 value of the cargo. Consequently, inasmuch as there was partial loss of only
P1,346,197.00, the assured shall bear 53% of the loss…4 [Emphasis ours]
The appellate court affirmed in toto the decision of the lower court and denied the motion for
reconsideration and the supplemental motion for reconsideration.
Hence, the petitions.
The Issues
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be summarized into
two: 1) Whether or not respondent Court of Appeals committed grave abuse of discretion in
holding FGU liable under the insurance contract considering the circumstances surrounding
the loss of the cargoes; and 2) Whether or not the Court of Appeals committed an error of
law in holding that the doctrine of res judicata applies in the instant case.

64
In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the appellate
court based on the following assignments of error: 1) The Court of Appeals committed grave
abuse of discretion in affirming the findings of the lower court that the negligence of the
crewmembers of the D/B Lucio was the proximate cause of the loss of the cargoes; and 2) The
respondent court acted with grave abuse of discretion when it ruled that the appeal was
without merit despite the fact that said court had accepted the decision in Civil Case No. R-
19341, as affirmed by the Court of Appeals and the Supreme Court, as res judicata.
Ruling of the Court
First, we shall endeavor to dispose of the common issue raised by both petitioners in their
respective petitions for review, that is, whether or not the doctrine of res judicata applies in
the instant case.
It is ANCO’s contention that the decision in Civil Case No. R-19341,5 which was decided in its
favor, constitutes res judicata with respect to the issues raised in the case at bar.
The contention is without merit. There can be no res judicata as between Civil Case No. R-
19341 and the case at bar. In order for res judicata to be made applicable in a case, the
following essential requisites must be present: 1) the former judgment must be final; 2) the
former judgment must have been rendered by a court having jurisdiction over the subject
matter and the parties; 3) the former judgment must be a judgment or order on the merits;
and 4) there must be between the first and second action identity of parties, identity of subject
matter, and identity of causes of action.6
There is no question that the first three elements of res judicata as enumerated above are
indeed satisfied by the decision in Civil Case No. R-19341. However, the doctrine is still
inapplicable due to the absence of the last essential requisite of identity of parties, subject
matter and causes of action.
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant while in the
instant case, SMC is the plaintiff and the Estate of Ang Gui represented by Lucio, Julian and
Jaime, all surnamed Ang and Co To as defendants, with the latter merely impleading FGU as
third-party defendant.
The subject matter of Civil Case No. R-19341 was the insurance contract entered into by ANCO,
the owner of the vessel, with FGU covering the vessel D/B Lucio, while in the instant case, the
subject matter of litigation is the loss of the cargoes of SMC, as shipper, loaded in the D/B
Lucio and the resulting failure of ANCO to deliver to SMC’s consignees the lost cargo.
Otherwise stated, the controversy in the first case involved the rights and liabilities of the
shipowner vis-à-vis that of the insurer, while the present case involves the rights and liabilities
of the shipper vis-à-vis that of the shipowner. Specifically, Civil Case No. R-19341 was an action
for Specific Performance and Damages based on FGU Marine Hull Insurance Policy No. VMF-
MH-13519 covering the vessel D/B Lucio, while the instant case is an action for Breach of
Contract of Carriage and Damages filed by SMC against ANCO based on Bill of Lading No. 1
65
and No. 2, with defendant ANCO seeking reimbursement from FGU under Insurance Policy
No. MA-58486, should the former be held liable to pay SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is different
from that in Civil Case No. R-19341. In the latter, ANCO was suing FGU for the insurance
contract over the vessel while in the former, the third-party complaint arose from the
insurance contract covering the cargoes on board the D/B Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue already
passed upon by a court of competent jurisdiction in a former judgment, in another action
between the same parties based on a different claim or cause of action. The judgment in the
prior action operates as estoppel only as to those matters in issue or points controverted,
upon the determination of which the finding or judgment was rendered.7 If a particular point
or question is in issue in the second action, and the judgment will depend on the
determination of that particular point or question, a former judgment between the same
parties or their privies will be final and conclusive in the second if that same point or question
was in issue and adjudicated in the first suit.8
Since the case at bar arose from the same incident as that involved in Civil Case No. R-19341,
only findings with respect to matters passed upon by the court in the former judgment are
conclusive in the disposition of the instant case. A careful perusal of the decision in Civil Case
No. R-19341 will reveal that the pivotal issues resolved by the lower court, as affirmed by both
the Court of Appeals and the Supreme Court, can be summarized into three legal conclusions:
1) that the D/B Lucio before and during the voyage was seaworthy; 2) that there was proper
notice of loss made by ANCO within the reglementary period; and 3) that the vessel D/B Lucio
was a constructive total loss.
Said decision, however, did not pass upon the issues raised in the instant case. Absent therein
was any discussion regarding the liability of ANCO for the loss of the cargoes. Neither did the
lower court pass upon the issue of the alleged negligence of the crewmembers of the D/B
Lucio being the cause of the loss of the cargoes owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the Court of
Appeals that there is res judicata.
Anent ANCO’s first assignment of error, i.e., the appellate court committed error in
concluding that the negligence of ANCO’s representatives was the proximate cause of the
loss, said issue is a question of fact assailing the lower court’s appreciation of evidence on the
negligence or lack thereof of the crewmembers of the D/B Lucio. As a rule, findings of fact of
lower courts, particularly when affirmed by the appellate court, are deemed final and
conclusive. The Supreme Court cannot review such findings on appeal, especially when they
are borne out by the records or are based on substantial evidence.9 As held in the case
of Donato v. Court of Appeals,10 in this jurisdiction, it is a fundamental and settled rule that
findings of fact by the trial court are entitled to great weight on appeal and should not be
disturbed unless for strong and cogent reasons because the trial court is in a better position
to examine real evidence, as well as to observe the demeanor of the witnesses while
testifying in the case.11
It is not the function of this Court to analyze or weigh evidence all over again, unless there is a
showing that the findings of the lower court are totally devoid of support or are glaringly
erroneous as to constitute palpable error or grave abuse of discretion.12
A careful study of the records shows no cogent reason to fault the findings of the lower
court, as sustained by the appellate court, that ANCO’s representatives failed to exercise the
extraordinary degree of diligence required by the law to exculpate them from liability for the
loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the Twenty Nine
Thousand Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases
of Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B Lucio
had no engine of its own and could not maneuver by itself. Yet, the patron of ANCO’s tugboat
M/T ANCO left it to fend for itself notwithstanding the fact that as the two vessels arrived at
the port of San Jose, Antique, signs of the impending storm were already manifest. As stated
by the lower court, witness Mr. Anastacio Manilag testified that the captain or patron of the
tugboat M/T ANCO left the barge D/B Lucio immediately after it reached San Jose, Antique,
despite the fact that there were already big waves and the area was already dark. This is
corroborated by defendants’ own witness, Mr. Fernando Macabueg.13
The trial court continued:
At that precise moment, since it is the duty of the defendant to exercise and observe
extraordinary diligence in the vigilance over the cargo of the plaintiff, the patron or captain of
M/T ANCO, representing the defendant could have placed D/B Lucio in a very safe location
before they left knowing or sensing at that time the coming of a typhoon. The presence of
big waves and dark clouds could have warned the patron or captain of M/T ANCO to insure
the safety of D/B Lucio including its cargo. D/B Lucio being a barge, without its engine, as the
patron or captain of M/T ANCO knew, could not possibly maneuver by itself. Had the patron
or captain of M/T ANCO, the representative of the defendants observed extraordinary
diligence in placing the D/B Lucio in a safe place, the loss to the cargo of the plaintiff could not
have occurred. In short, therefore, defendants through their representatives, failed to
observe the degree of diligence required of them under the provision of Art. 1733 of the Civil
Code of the Philippines.14
Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the contention
of respondents SMC and FGU that "the crewmembers of D/B Lucio should have left port at
the onset of the typhoon is like advising the fish to jump from the frying pan into the fire and
an advice that borders on madness."15
66
The argument does not persuade. The records show that the D/B Lucio was the only vessel
left at San Jose, Antique, during the time in question. The other vessels were transferred and
temporarily moved to Malandong, 5 kilometers from wharf where the barge
remained.16 Clearly, the transferred vessels were definitely safer in Malandong than at the
port of San Jose, Antique, at that particular time, a fact which petitioners failed to dispute
ANCO’s arguments boil down to the claim that the loss of the cargoes was caused by the
typhoon Sisang, a fortuitous event (caso fortuito), and there was no fault or negligence on
their part. In fact, ANCO claims that their crewmembers exercised due diligence to prevent or
minimize the loss of the cargoes but their efforts proved no match to the forces unleashed by
the typhoon which, in petitioners’ own words was, by any yardstick, a natural calamity, a
fortuitous event, an act of God, the consequences of which petitioners could not be held
liable for.17
The Civil Code provides:
Art. 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.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734,
1735, and 1745 Nos. 5, 6, and 7 . . .
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:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
...
Art. 1739. In order that the common carrier may be exempted from responsibility, the natural
disaster must have been the proximate and only cause of the loss. However, the common
carrier must exercise due diligence to prevent or minimize loss before, during and after the
occurrence of flood, storm, or other natural disaster in order that the common carrier may be
exempted from liability for the loss, destruction, or deterioration of the goods . . . (Emphasis
supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor
from liability)18 by definition, are extraordinary events not foreseeable or avoidable, events
that could not be foreseen, or which though foreseen, were inevitable. It is therefore not
enough that the event should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid.19
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it When evidence show that the insured’s negligence or recklessness is so gross as to be
unavoidable. In fact, the other vessels in the port of San Jose, Antique, managed to transfer sufficient to constitute a willful act, the insurer must be exonerated.
to another place, a circumstance which prompted SMC’s District Sales Supervisor to request
that the D/B Lucio be likewise transferred, but to no avail. The D/B Lucio had no engine and In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,24 the United States Supreme
could not maneuver by itself. Even if ANCO’s representatives wanted to transfer it, they no Court held that:
longer had any means to do so as the tugboat M/T ANCO had already departed, leaving the
barge to its own devices. The captain of the tugboat should have had the foresight not to
The ordinary negligence of the insured and his agents has long been held as a part of the risk
leave the barge alone considering the pending storm.
which the insurer takes upon himself, and the existence of which, where it is the proximate
cause of the loss, does not absolve the insurer from liability. But willful exposure, gross
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, negligence, negligence amounting to misconduct, etc., have often been held to release the
ANCO could not escape liability to respondent SMC. The records clearly show the failure of insurer from such liability.25 [Emphasis ours]
petitioners’ representatives to exercise the extraordinary degree of diligence mandated by
law. To be exempted from responsibility, the natural disaster should have been the proximate
...
and only cause of the loss.20 There must have been no contributory negligence on the part of
the common carrier. As held in the case of Limpangco Sons v. Yangco Steamship Co.:21
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the
owners of an insured vessel attempted to put her across the bar at Hatteras Inlet. She struck
. . . To be exempt from liability because of an act of God, the tug must be free from any
on the bar and was wrecked. The master knew that the depth of water on the bar was such
previous negligence or misconduct by which that loss or damage may have been occasioned.
as to make the attempted passage dangerous. Judge Clifford held that, under the
For, although the immediate or proximate cause of the loss in any given instance may have
circumstances, the loss was not within the protection of the policy, saying:
been what is termed an act of God, yet, if the tug unnecessarily exposed the two to such
accident by any culpable act or omission of its own, it is not excused.22
Authorities to prove that persons insured cannot recover for a loss occasioned by their own
wrongful acts are hardly necessary, as the proposition involves an elementary principle of
Therefore, as correctly pointed out by the appellate court, there was blatant negligence on
universal application. Losses may be recovered by the insured, though remotely occasioned
the part of M/T ANCO’s crewmembers, first in leaving the engine-less barge D/B Lucio at the
by the negligence or misconduct of the master or crew, if proximately caused by the perils
mercy of the storm without the assistance of the tugboat, and again in failing to heed the
insured against, because such mistakes and negligence are incident to navigation and
request of SMC’s representatives to have the barge transferred to a safer place, as was done
constitute a part of the perils which those who engage in such adventures are obliged to
by the other vessels in the port; thus, making said blatant negligence the proximate cause of
incur; but it was never supposed that the insured could recover indemnity for a loss occasioned
the loss of the cargoes.
by his own wrongful act or by that of any agent for whose conduct he was
responsible.26 [Emphasis ours]
We now come to the issue of whether or not FGU can be held liable under the insurance
policy to reimburse ANCO for the loss of the cargoes despite the findings of the respondent
From the above-mentioned decision, the United States Supreme Court has made a distinction
court that such loss was occasioned by the blatant negligence of the latter’s employees.
between ordinary negligence and gross negligence or negligence amounting to misconduct
and its effect on the insured’s right to recover under the insurance contract. According to the
One of the purposes for taking out insurance is to protect the insured against the Court, while mistake and negligence of the master or crew are incident to navigation and
consequences of his own negligence and that of his agents. Thus, it is a basic rule in insurance constitute a part of the perils that the insurer is obliged to incur, such negligence or
that the carelessness and negligence of the insured or his agents constitute no defense on recklessness must not be of such gross character as to amount to misconduct or wrongful
the part of the insurer.23 This rule however presupposes that the loss has occurred due to acts; otherwise, such negligence shall release the insurer from liability under the insurance
causes which could not have been prevented by the insured, despite the exercise of due contract.
diligence.
In the case at bar, both the trial court and the appellate court had concluded from the
The question now is whether there is a certain degree of negligence on the part of the evidence that the crewmembers of both the D/B Lucio and the M/T ANCO were blatantly
insured or his agents that will deprive him the right to recover under the insurance contract. negligent. To wit:
We say there is. However, to what extent such negligence must go in order to exonerate the
insurer from liability must be evaluated in light of the circumstances surrounding each case.

67
There was blatant negligence on the part of the employees of defendants-appellants when
the patron (operator) of the tug boat immediately left the barge at the San Jose, Antique
wharf despite the looming bad weather. Negligence was likewise exhibited by the
defendants-appellants’ representative who did not heed Macabuag’s request that the barge
be moved to a more secure place. The prudent thing to do, as was done by the other sea
vessels at San Jose, Antique during the time in question, was to transfer the vessel to a safer
wharf. The negligence of the defendants-appellants is proved by the fact that on 01 October
1979, the only simple vessel left at the wharf in San Jose was the D/B Lucio.27 [Emphasis ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion drawn by
the lower court, as sustained by the Court of Appeals, that ANCO’s representatives had failed
to exercise extraordinary diligence required of common carriers in the shipment of SMC’s
cargoes. Such blatant negligence being the proximate cause of the loss of the cargoes
amounting to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven
Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case, concludes that
the blatant negligence of ANCO’s employees is of such gross character that it amounts to a
wrongful act which must exonerate FGU from liability under the insurance contract.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February
1999 is hereby AFFIRMED with MODIFICATION dismissing the third-party complaint.
SO ORDERED.
G.R. No. 172682, July 27, 2016
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
68
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:
I The appeal lacks merit.
THE ASSAILED DECISION ERRED IN SUSTAINING THE AWARD OF MORAL DAMAGES, AS THE
INSTANT CASE IS FOR ALLEGED PERSONAL INJURIES PREDICATED ON BREACH OF
69
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
V
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
INCIDENT16
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
I
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.
70
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 117425 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.
71
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.
72
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 x 35
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.
73
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."
74
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)
75
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.
G.R. No. 156330 November 19, 2014
NEDLLOYD LIJNEN B.V. ROTTERDAM and THE EAST ASIATIC CO., LTD., Petitioners, vs.
GLOW LAKS ENTERPRISES, LTD., Respondent.
DECISION
PEREZ, J.:
This is a Petition for Review on Certiorari1 filed pursuant to Ruic 45 of the Revised Rules of
Comi, primarily assailing the 11 December 2002 Resolution rendered by the Special Former
Sixteenth Division of the Court of Appeals in CA-G.R. CV No. 48277,2 the decretal portion of
which states:
WHEREFORE, the appeal is GRANTED and the April 29. 1994 Decision of the Regional Trial
Court of Manila, Branch 52 thereof' in Civil Case No. 88-45595, SET ASIDE. Nedlloyd Lijncn B.V.
Rotterdam and The East Asiatic Co., Ltd arc ordered to pay Glow l ,aks Enterprises, I ,td. the
following:
1. The invoice value of the goodslost worth $53,640.00, or its equivalent in Philippine
currency;
2. Attorney’s fees of ₱50,000.00; and
3. Costs.3
The Facts
Petitioner Nedlloyd Lijnen B.V. Rotterdam (Nedlloyd) is a foreign corporation engaged in the
business of carrying goods by sea, whose vessels regularly call at the port of Manila. It is
doing business in the Philippines thru its local ship agent, co-petitioner East Asiatic Co., Ltd.
(East Asiatic).
Respondent Glow Laks Enterprises,Ltd., is likewise a foreign corporation organized and
existing under the laws of Hong Kong. It is not licensed to do, and it is not doing business in,
the Philippines.
On or about 14 September 1987, respondent loaded on board M/S Scandutch at the Port of
Manila a total 343 cartoons of garments, complete and in good order for pre-carriage tothe
Port of Hong Kong. The goods covered by Bills of Lading Nos. MHONX-2 and MHONX-
34 arrived in good condition in Hong Kong and were transferred to M/S Amethyst for final
carriage to Colon, Free Zone, Panama. Both vessels, M/S Scandutch and M/S Amethyst, are
owned by Nedlloyd represented in the Phlippines by its agent, East Asiatic. The goods which
were valued at US$53,640.00 was agreed to be released to the consignee, Pierre Kasem,
International, S.A., upon presentation of the original copies of the covering bills of
lading.5 Upon arrival of the vessel at the Port of Colon on 23 October 1987, petitioners
purportedly notified the consignee of the arrival of the shipments, and its custody was turned
over tothe National Ports Authority in accordance with the laws, customs regulations and
practice of trade in Panama. By an unfortunate turn ofevents, however, unauthorized
persons managed to forge the covering bills of lading and on the basis of the falsified
documents, the ports authority released the goods.
On 16 July 1988, respondent filed a formal claim with Nedlloyd for the recovery of the amount
of US$53,640.00 representing the invoice value of the shipment but to no avail.6 Claiming that
petitioners are liable for the misdelivery of the goods, respondent initiated Civil Case No. 88-
45595 before the Regional Trial Court (RTC) of Manila, Branch 52, seeking for the recovery of
the amount of US$53,640.00, including the legal interest from the date of the first demand.7
In disclaiming liability for the misdelivery of the shipments, petitioners asserted in their
Answer8 that they were never remiss in their obligation as a common carrier and the goods
were discharged in good order and condition into the custody of the National Ports Authority
of Panama in accordance with the Panamanian law. They averred that they cannot be faulted
for the release of the goods to unauthorized persons, their extraordinary responsibility as a
common carrier having ceased at the time the possession of the goods were turned over to
the possession of the port authorities.
After the Pre-Trial Conference, trial on the merits ensued. Both parties offered testimonial
and documentary evidence to support their respective causes. On 29 April 2004, the RTC
rendered a Decision9 ordering the dismissal of the complaint but granted petitioners’
counterclaims. In effect, respondent was directed to pay petitioners the amount of
₱120,000.00 as indemnification for the litigation expenses incurred by the latter. In releasing
the common carrier from liability for the misdelivery of the goods, the RTC ruled that Panama
law was duly proven during the trial and pursuant to the said statute, carriers of goods
destined to any Panama port of entry have to discharge their loads into the custody of
Panama Ports Authority to make effective government collection of port dues, customs
duties and taxes. The subsequent withdrawal effected by unauthorized persons on the
strength of falsified bills of lading does not constitute misdelivery arising from the fault of the
common carrier. The decretal part of the RTC Decision reads: WHEREFORE, judgment is
renderedfor [petitioners] and against [Respondent], ordering the dismissal of the complaint
76
and ordering the latter to pay [petitioners] the amount of ONE HUNDRED TWENTY
THOUSAND PESOS (₱120,000.00) on their counterclaims.
Cost against [Respondent].10
On appeal, the Court of Appeals reversed the findings of the RTC and held that foreign laws
were not proven in the manner provided by Section 24, Rule 132 of the Revised Rules of
Court, and therefore, it cannot be given full faith and credit.11 For failure to prove the foreign
law and custom, it is presumed that foreign laws are the sameas our local or domestic or
internal law under the doctrine of processual presumption. Under the New Civil Code, the
discharge of the goods intothe custody of the ports authority therefore does not relieve the
commoncarrier from liability because the extraordinary responsibility of the common carriers
lasts until actual or constructive delivery of the cargoes tothe consignee or to the person who
has the right to receive them. Absent any proof that the notify party or the consignee was
informed of the arrival of the goods, the appellate court held that the extraordinary
responsibility of common carriers remains. Accordingly, the Court of Appeals directed
petitioners to pay respondent the value of the misdelivered goods in the amount of
US$53,640.00.
The Issues
Dissatisfied with the foregoing disquisition, petitioners impugned the adverse Court of
Appeals Decision before the Court on the following grounds:
I.
THERE IS ABSOLUTELY NO NEED TO PROVE PANAMANIAN LAWS BECAUSE
THEYHAD BEEN JUDICIALLY ADMITTED. AN ADMISSION BY A PARTY IN THE
COURSE OF THE PROCEEDINGS DOES NOT REQUIRE PROOF.
II.
BY PRESENTING AS EVIDENCE THE [GACETA] OFFICIAL OF REPUBLICA DE PANAMA
NO. 17.596 WHERE THE APPLICABLE PANAMANIAN LAWS WERE OFFICIALLY
PUBLISHED, AND THE TESTIMONY OF EXPERT WITNESSES, PETITIONERS WERE
ABLE TO PROVE THE LAWS OF PANAMA.
III.
IF WE HAVE TO CONCEDE TO THE COURT OF APPEALS’ FINDING THAT THERE WAS
FAILURE OF PROOF, THE LEGAL QUESTION PRESENTED TO THE HONORABLE
COURT SHOULD BE RESOLVED FAVORABLY BECAUSE THE CARRIER DISCHARGED
ITS DUTY WHETHER UNDER THE PANAMANIAN LAW OR UNDER PHILIPPINE LAW. 12
 The Court’s Ruling
We find the petition bereft of merit.
It is well settled that foreign laws do not prove themselves in our jurisdiction and our courts
are not authorized to take judicial notice of them. Like any other fact, they must be alleged
and proved.13 To prove a foreign law, the party invoking it must present a copy thereof and
comply with Sections 24 and 25 of Rule 132 of the Revised Rules of Court14 which read: SEC.
24. Proof of official record. — The record of public documents referred to in paragraph (a) of
Section 19, when admissible for any purpose, may be evidenced by an official publication
thereof or by a copy attested by the officer having the legal custody of the record, or by his
deputy, and accompanied, if the record is not kept in the Philippines, with a certificate that
such officer has the custody. If the office in which the record is kept is in a foreigncountry, the
certificate may be made by a secretary of the embassy or legation, consul general, consul,
vice- consul, or consular agent or by any officer in the foreign service of the Philippines
stationed in the foreign country in which the record is kept, and authenticated by the seal of
his office.
SEC. 25. What attestation of copy must state. — Whenever a copy of a document or record is
attested for the purpose of the evidence, the attestation must state,in substance, that the
copy is a correct copy of the original, or a specific part thereof, as the case may be. The
attestation must be under the official seal of the attesting officer, if there be any, or if he be
the clerk of a court having a seal, under the seal of such court.
For a copy of a foreign public document to be admissible, the following requisites are
mandatory: (1) itmust be attested by the officer having legal custody of the records or by his
deputy; and (2) it must be accompanied by a certificate by a secretary of the embassy or
legation, consul general, consul, vice-consular or consular agent or foreign service officer, and
with the seal of his office.15 Such official publication or copy must be accompanied, if the
record is not kept in the Philippines, with a certificate that the attesting officer has the legal
custody thereof.16 The certificate may be issued by any of the authorized Philippine embassy
or consular officials stationed in the foreign country in which the record is kept, and
authenticated by the seal of his office.17 The attestation must state, in substance, that the
copy is a correct copy of the original, or a specific part thereof, as the case may be, and
mustbe under the official seal of the attesting officer.18
Contrary to the contention of the petitioners, the Panamanian laws, particularly Law 42 and
its Implementing Order No. 7, were not duly proven in accordance with Rules of Evidence and
as such, it cannot govern the rights and obligations of the parties in the case at bar. While a
photocopy of the Gaceta Official of the Republica de Panama No. 17.596, the Spanish text of
Law 42 which is theforeign statute relied upon by the court a quoto relieve the common
carrier from liability, was presented as evidence during the trial of the case below, the same
however was not accompanied by the required attestation and certification.
77
It is explicitly required by Section 24, Rule 132 of the Revised Rules of Court that a copy of the
statute must be accompanied by a certificate of the officer who has legal custody of the
records and a certificate made by the secretary of the embassy or legation, consul general,
consul, vice-consular or by any officer in the foreign service of the Philippines stationed in the
foreign country, and authenticated by the seal of his office. The latter requirement is not
merely a technicality but is intended to justify the giving of full faith and credit to the
genuineness of the document in a foreign country.19 Certainly, the deposition of Mr. Enrique
Cajigas, a maritime law practitioner in the Republic of Panama, before the Philippine
Consulate in Panama, is not the certificate contemplated by law. At best, the deposition can
be considered as an opinion of an expert witness who possess the required special
knowledge on the Panamanian laws but could not be recognized as proof of a foreign law,
the deponent not being the custodian of the statute who can guarantee the genuineness of
the document from a foreign country. To admit the deposition as proof of a foreign law is,
likewise, a disavowal of the rationaleof Section 24, Rule 132 of the Revised Rules of Court,
which isto ensure authenticity of a foreign law and its existence so as to justify its import and
legal consequence on the event or transaction in issue. The above rule, however, admits
exceptions, and the Court in certain cases recognized that Section 25, Rule132 of the Revised
Rules of Court does not exclude the presentation of other competent evidence to prove the
existence of foreign law. In Willamete Iron and Steel Works v. Muzzal20 for instance, we
allowed the foreign law tobe established on the basis of the testimony in open court during
the trial in the Philippines of an attorney-atlaw in San Francisco, California, who quoted the
particular foreign law sought to be established.21 The ruling is peculiar to the facts. Petitioners
cannot invoke the Willamete ruling to secure affirmative relief since their so called expert
witness never appeared during the trial below and his deposition, that was supposed to
establish the existence of the foreign law, was obtained ex-parte.
It is worth reiterating at this point that under the rules of private international law, a foreign
law must be properly pleaded and proved as a fact. In the absence of pleading and proof, the
laws of the foreign country or state will be presumed to be the same as our local or domestic
law. This is known as processual presumption.22 While the foreign law was properly pleaded
in the case at bar, it was,however, proven not in the manner provided by Section 24, Rule 132
of the Revised Rules of Court. The decision of the RTC, which proceeds from a disregard of
specific rules cannot be recognized.
Having settled the issue on the applicable Rule, we now resolve the issue of whether or not
petitioners are liable for the misdelivery of goods under Philippine laws.
Under the New Civil Code, common carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligencein the vigilance over goods,
according to the circumstances of each case.23 Common carriers are responsible for loss,
destruction or deterioration of the goods unless the same is due to flood, storm, earthquake
or other natural disaster or calamity.24 Extraordinary diligence is that extreme care and
caution which persons of unusual prudence and circumspection use for securing or
preserving their own property or rights.25 This expecting standardimposed on common
carriers in contract of carrier of goods is intended to tilt the scales in favor of the shipper who
is at the mercy of the common carrier once the goods have been lodged for the
shipment.26 Hence, in case of loss of goods in transit, the common carrier is presumed under
the law to have been in fault or negligent.27
While petitioners concede that, as a common carrier, they are bound to observe
extraordinary diligence in the care and custody of the goods in their possession, they insist
that they cannot be held liable for the loss of the shipments, their extraordinary responsibility
having ceased at the time the goods were discharged into the custody of the customs
arrastreoperator, who in turn took complete responsibility over the care, storage and delivery
of the cargoes.28
In contrast, respondent, submits that the fact that the shipments were not delivered to the
consignee as statedin the bill of lading or to the party designated or named by the consignee,
constitutes misdelivery thereof, and under the law it is presumed that the common carrier is
at fault or negligent if the goods they transported, as in this case, fell into the hands of
persons who have no right to receive them.
We sustain the position of the respondent.
Article 1736 and Article 1738 are the provisions in the New Civil Code which define the period
when the common carrier is required to exercise diligence lasts, viz:
Article 1736. The extraordinary responsibility of the common carrier lasts from the time the
goodsare unconditionally placed in the possession of, and received by the carrier for
transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them, without prejudice to the
provisions of article 1738.
Article 1738. The extraordinary liability of the common carrier continues to be operative even
during the time the goods are stored in a warehouse of the carrier at the place of destination,
until the consignee has been advised of the arrival of the goods and has had reasonable
opportunity thereafter to remove them or otherwise dispose of them.
Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of
the common carrier begins from the time the goods are delivered to the carrier. 29 This
responsibility remains in full force and effect even when they are temporarily unloaded or
stored in transit, unless the shipper or owner exercises the right of stop page in transitu, and
terminates only after the lapse of a reasonable time for the acceptance, of the goods by the
consignee or such other person entitled to receive them.30
It was further provided in the samestatute that the carrier may be relieved from the
responsibility for loss or damage to the goods upon actual or constructive delivery of the
same by the carrier to the consignee or to the person who has the right to receive them. 31 In
sales, actual delivery has been defined as the ceding of the corporeal possession by the seller,
and the actual apprehension of the corporeal possession by the buyer or by some person
78
authorized by him to receive the goods as his representative for the purpose of custody or
disposal.32 By the same token, there is actual delivery in contracts for the transport of goods
when possession has been turned over to the consignee or to his duly authorized agent and a
reasonable time is given him to remove the goods. 33
In this case, there is no dispute that the custody of the goods was never turned over to the
consignee or his agents but was lost into the hands of unauthorized persons who secured
possession thereof on the strength of falsified documents. The loss or the misdelivery of the
goods in the instant case gave rise to the presumption that the common carrier is at fault or
negligent.
A common carrier is presumed to have been negligent if it fails to prove that it exercised
extraordinary vigilance over the goods it transported.34 When the goods shipped are either
lost or arrived in damaged condition, a presumption arises against the carrier of its failure to
observe that diligence, and there need not be an express finding of negligence to hold it
liable.35 To overcome the presumption of negligence, the common carrier must establish by
adequateproof that it exercised extraordinary diligence over the goods.36 It must do more
than merely show that some other party could be responsible for the damage.37
In the present case, petitioners failed to prove that they did exercise the degree of diligence
required by law over the goods they transported. Indeed, aside from their persistent
disavowal of liability by conveniently posing an excuse that their extraordinary responsibility
isterminated upon release of the goods to the Panamanian Ports Authority, petitioners failed
to adduce sufficient evidence they exercised extraordinary care to prevent unauthorized
withdrawal of the shipments. Nothing in the New Civil Code, however, suggests, even
remotely, that the common carriers’ responsibility over the goods ceased upon delivery
thereof to the custom authorities. To the mind of this Court, the contract of carriage remains
in full force and effect even after the delivery of the goods to the port authorities; the only
delivery that releases it from their obligation to observe extraordinary care is the delivery to
the consignee or his agents. Even more telling of petitioners’ continuing liability for the goods
transported to the fact that the original bills of lading up to this time, remains in the
possession of the notify party or consignee. Explicit on this point is the provision of Article
353 of the Code of Commerce which provides:
Article 353. The legal evidence of the contract between the shipper and the carrier shall be
the bills of lading, by the contents of which the disputes which may arise regarding their
execution and performance shall be decided, no exceptions being admissible other than
those of falsity and material error in the drafting.
After the contract has been complied with, the bill of lading which the carrier has issued shall
be returned to him, and by virtue of the exchange of this title with the thing transported, the
respective obligations and actions shall be considered cancelled, unless in the same act the
claim which the parties may wish to reserve be reduced to writing, with the exception of that
provided for in Article 366.
In case the consignee, upon receiving the goods, cannot return the bill of lading subscribed
by the carrier, because of its loss or of any other cause, he must give the latter a receiptfor
the goods delivered, this receipt producing the same effects as the return of the bill of lading.
While surrender of the original bill of lading is not a condition precedent for the common
carrier to bedischarged from its contractual obligation, there must be, at the very least, an
acknowledgement of the delivery by signing the delivery receipt, if surrender of the original
of the bill of lading is not possible.38 There was neither surrender of the original copies of the
bills of lading nor was there acknowledgment of the delivery in the present case. This leads to
the conclusion that the contract of carriage still subsists and petitioners could be held liable
for the breach thereof.
Petitioners could have offered evidence before the trial court to show that they exercised the
highest degree of care and caution even after the goods was turned over to the custom
authorities, by promptly notifying the consignee of its arrival at the P01i of Cristobal in order
to afford them ample opportunity to remove the cargoes from the port of discharge. We
have scoured the records and found that neither the consignee nor the notify paiiy was
informed by the petitioners of the arrival of the goods, a crucial fact indicative of petitioners'
failure to observe extraordinary diligence in handling the goods entrusted to their custody for
transport. They could have presented proof to show that they exercised extraordinary care
but they chose in vain, full reliance to their cause on applicability of Panamanian law to local
jurisdiction. It is for this reason that we find petitioners liable for the misdelivery of the goods.
It is evident from the review of the records and by the evidence adduced by the respondent
that petitioners failed to rebut the prima facie presumption of negligence. We find no
compelling reason to depa1i from the ruling of the Court of Appeals that under the contract
of carriage, petitioners are liable for the value of the misdelivcred goods.
WHEREFORE, premises considered, the petition is hereby DENIED. The assailed Resolution of
the Court of Appeals is hereby AFFIRMED.
SO ORDERED.
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
79
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
B. ISSUES
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;
80
(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.
(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 (2) Actual damages in the amount of Php100,000.00;
death of Aaron John Zarate;
(3) For the loss of earning capacity- Php2,109,071.00;
(8) Whether or not defendant PNR was grossly negligent in operating the
commuter train involved in the accident, in allowing or tolerating the (4) Moral damages in the amount of Php4,000,000.00;
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;
(5) Exemplary damages in the amount of Php1,000,000.00;

(9) Whether or not defendant PNR should be made to reimburse

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

(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
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 Zarates’ claim against the Pereñas was upon breach of the contract of carriage for the The CA’s Ruling
safe transport of Aaron; but that against PNR was based on quasi-delict under Article 2176,
Civil Code. Both the Pereñas and PNR appealed (C.A.-G.R. CV No. 68916).

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;
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.

81
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
82
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:
83
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
84
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.
85
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.
WHEREFORE, we DENY the petition for review on certiorari; AFFIRM the decision
promulgated on November 13, 2002; and ORDER the petitioners to pay the costs of suit.
SO ORDERED.
G.R. No. 147246 August 19, 2003
ASIA LIGHTERAGE AND SHIPPING, INC., petitioner, vs. COURT OF APPEALS and PRUDENTIAL
GUARANTEE AND ASSURANCE, INC., respondents.
PUNO, J.:
On appeal is the Court of Appeals' May 11, 2000 Decision1 in CA-G.R. CV No. 49195 and
February 21, 2001 Resolution2 affirming with modification the April 6, 1994 Decision3 of the
Regional Trial Court of Manila which found petitioner liable to pay private respondent the
amount of indemnity and attorney's fees.
First, the facts.
86
On June 13, 1990, 3,150 metric tons of Better Western White Wheat in bulk, valued at
US$423,192.354 was shipped by Marubeni American Corporation of Portland, Oregon on
board the vessel M/V NEO CYMBIDIUM V-26 for delivery to the consignee, General Milling
Corporation in Manila, evidenced by Bill of Lading No. PTD/Man-4.5 The shipment was insured
by the private respondent Prudential Guarantee and Assurance, Inc. against loss or damage
for P14,621,771.75 under Marine Cargo Risk Note RN 11859/90.6
On July 25, 1990, the carrying vessel arrived in Manila and the cargo was transferred to the
custody of the petitioner Asia Lighterage and Shipping, Inc. The petitioner was contracted by
the consignee as carrier to deliver the cargo to consignee's warehouse at Bo. Ugong, Pasig
City.
On August 15, 1990, 900 metric tons of the shipment was loaded on barge PSTSI III, evidenced
by Lighterage Receipt No. 03647 for delivery to consignee. The cargo did not reach its
destination.
It appears that on August 17, 1990, the transport of said cargo was suspended due to a
warning of an incoming typhoon. On August 22, 1990, the petitioner proceeded to pull the
barge to Engineering Island off Baseco to seek shelter from the approaching typhoon. PSTSI
III was tied down to other barges which arrived ahead of it while weathering out the storm
that night. A few days after, the barge developed a list because of a hole it sustained after
hitting an unseen protuberance underneath the water. The petitioner filed a Marine Protest
on August 28, 1990.8 It likewise secured the services of Gaspar Salvaging Corporation which
refloated the barge.9 The hole was then patched with clay and cement.
The barge was then towed to ISLOFF terminal before it finally headed towards the
consignee's wharf on September 5, 1990. Upon reaching the Sta. Mesa spillways, the barge
again ran aground due to strong current. To avoid the complete sinking of the barge, a
portion of the goods was transferred to three other barges. 10
The next day, September 6, 1990, the towing bits of the barge broke. It sank completely,
resulting in the total loss of the remaining cargo.11 A second Marine Protest was filed on
September 7, 1990.12
On September 14, 1990, a bidding was conducted to dispose of the damaged wheat retrieved
and loaded on the three other barges.13 The total proceeds from the sale of the salvaged
cargo was P201,379.75.14
On the same date, September 14, 1990, consignee sent a claim letter to the petitioner, and
another letter dated September 18, 1990 to the private respondent for the value of the lost
cargo.
On January 30, 1991, the private respondent indemnified the consignee in the amount
of P4,104,654.22.15 Thereafter, as subrogee, it sought recovery of said amount from the
petitioner, but to no avail.
On July 3, 1991, the private respondent filed a complaint against the petitioner for recovery of
the amount of indemnity, attorney's fees and cost of suit.16 Petitioner filed its answer with
counterclaim.17
The Regional Trial Court ruled in favor of the private respondent. The dispositive portion of its
Decision states:
WHEREFORE, premises considered, judgment is hereby rendered ordering
defendant Asia Lighterage & Shipping, Inc. liable to pay plaintiff Prudential
Guarantee & Assurance Co., Inc. the sum of P4,104,654.22 with interest from the
date complaint was filed on July 3, 1991 until fully satisfied plus 10% of the amount
awarded as and for attorney's fees. Defendant's counterclaim is hereby DISMISSED.
With costs against defendant.18
Petitioner appealed to the Court of Appeals insisting that it is not a common carrier. The
appellate court affirmed the decision of the trial court with modification. The dispositive
portion of its decision reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED with modification in
the sense that the salvage value of P201,379.75 shall be deducted from the amount
of P4,104,654.22. Costs against appellant.
SO ORDERED.
Petitioner's Motion for Reconsideration dated June 3, 2000 was likewise denied by the
appellate court in a Resolution promulgated on February 21, 2001.
Hence, this petition. Petitioner submits the following errors allegedly committed by the
appellate court, viz:19
(1) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD
WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT HELD THAT PETITIONER IS A COMMON CARRIER.
(2) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD
WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT AFFIRMED THE FINDING OF THE LOWER COURT A QUO THAT ON THE
BASIS OF THE PROVISIONS OF THE CIVIL CODE APPLICABLE TO COMMON
CARRIERS, "THE LOSS OF THE CARGO IS, THEREFORE, BORNE BY THE CARRIER IN ALL
CASES EXCEPT IN THE FIVE (5) CASES ENUMERATED."
87
(3) THE COURT OF APPEALS DECIDED THE CASE A QUO IN A WAY NOT IN ACCORD
WITH LAW AND/OR WITH THE APPLICABLE DECISIONS OF THE SUPREME COURT
WHEN IT EFFECTIVELY CONCLUDED THAT PETITIONER FAILED TO EXERCISE DUE
DILIGENCE AND/OR WAS NEGLIGENT IN ITS CARE AND CUSTODY OF THE
CONSIGNEE'S CARGO.
The issues to be resolved are:
(1) Whether the petitioner is a common carrier; and,
(2) Assuming the petitioner is a common carrier, whether it exercised extraordinary
diligence in its care and custody of the consignee's cargo.
On the first issue, we rule that petitioner is a common carrier.
Article 1732 of the Civil Code defines common carriers 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.
Petitioner contends that it is not a common carrier but a private carrier. Allegedly, it has no
fixed and publicly known route, maintains no terminals, and issues no tickets. It points out
that it is not obliged to carry indiscriminately for any person. It is not bound to carry goods
unless it consents. In short, it does not hold out its services to the general public.20
We disagree.
In De Guzman vs. Court of Appeals,21 we held that the definition of common carriers in Article
1732 of the Civil Code 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. We also did not distinguish 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. Further, we ruled that Article 1732 does not distinguish
between a carrier offering its services to the general public, and one who offers services or
solicits business only from a narrow segment of the general population.
In the case at bar, the principal business of the petitioner is that of lighterage and
drayage22 and it offers its barges to the public for carrying or transporting goods by water for
compensation. Petitioner is clearly a common carrier. In De Guzman, supra,23 we considered
private respondent Ernesto Cendaña to be a common carrier even if his principal occupation
was not the carriage of goods for others, but that of buying used bottles and scrap metal in
Pangasinan and selling these items in Manila.
We therefore hold that petitioner is a common carrier whether its carrying of goods is done
on an irregular rather than scheduled manner, and with an only limited clientele. A common
carrier need not have fixed and publicly known routes. Neither does it have to maintain
terminals or issue tickets.
To be sure, petitioner fits the test of a common carrier as laid down in Bascos vs. Court of
Appeals.24 The test to determine a common carrier is "whether the given undertaking is a part
of the business engaged in by the carrier which he has held out to the general public as his
occupation rather than the quantity or extent of the business transacted."25 In the case at
bar, the petitioner admitted that it is engaged in the business of shipping and
lighterage,26 offering its barges to the public, despite its limited clientele for carrying or
transporting goods by water for compensation.27
suffered a hole. Clearly, this could not be solely attributed to the typhoon. The partly-
submerged vessel was refloated but its hole was patched with only clay and cement. The
patch work was merely a provisional remedy, not enough for the barge to sail safely. Thus,
when petitioner persisted to proceed with the voyage, it recklessly exposed the cargo to
further damage. A portion of the cross-examination of Alfredo Cunanan, cargo-surveyor of
Tan-Gatue Adjustment Co., Inc., states:
CROSS-EXAMINATION BY ATTY. DONN LEE:31
xxx xxx xxx

On the second issue, we uphold the findings of the lower courts that petitioner failed to
exercise extraordinary diligence in its care and custody of the consignee's goods.
Common carriers are bound to observe extraordinary diligence in the vigilance over the
goods transported by them.28 They are presumed to have been at fault or to have acted
negligently if the goods are lost, destroyed or deteriorated.29 To overcome the presumption
of negligence in the case of loss, destruction or deterioration of the goods, the common
carrier must prove that it exercised extraordinary diligence. There are, however, exceptions
to this rule. Article 1734 of the Civil Code enumerates the instances when the presumption of
negligence does not attach:
q - Can you tell us what else transpired after that incident?
a - After the first accident, through the initiative of the barge owners, they tried
to pull out the barge from the place of the accident, and bring it to the anchor
terminal for safety, then after deciding if the vessel is stabilized, they tried to pull it
to the consignee's warehouse, now while on route another accident occurred, now
this time the barge totally hitting something in the course.
q - You said there was another accident, can you tell the court the nature of the
second accident?

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

q - Can you tell the nature . . . can you tell the court, if you know what caused
(1) Flood, storm, earthquake, lightning, or other natural disaster or
the sinking?
calamity;

a - Mostly it was related to the first accident because there was already a
(2) Act of the public enemy in war, whether international or civil;
whole (sic) on the bottom part of the barge.

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

xxx xxx xxx

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

This is not all. Petitioner still headed to the consignee's wharf despite knowledge of an
containers;
incoming typhoon. During the time that the barge was heading towards the consignee's
wharf on September 5, 1990, typhoon "Loleng" has already entered the Philippine area of
(5) Order or act of competent public authority. responsibility.32 A part of the testimony of Robert Boyd, Cargo Operations Supervisor of the
petitioner, reveals:
In the case at bar, the barge completely sank after its towing bits broke, resulting in the total
loss of its cargo. Petitioner claims that this was caused by a typhoon, hence, it should not be DIRECT-EXAMINATION BY ATTY. LEE:33
held liable for the loss of the cargo. However, petitioner failed to prove that the typhoon is
the proximate and only cause of the loss of the goods, and that it has exercised due diligence
xxx xxx xxx
before, during and after the occurrence of the typhoon to prevent or minimize the loss.30 The
evidence show that, even before the towing bits of the barge broke, it had already previously
sustained damage when it hit a sunken object while docked at the Engineering Island. It even
88
q - Now, Mr. Witness, did it not occur to you it might be safer to just allow the
Barge to lie where she was instead of towing it?
a - Since that time that the Barge was refloated, GMC (General Milling
Corporation, the consignee) as I have said was in a hurry for their goods to be
delivered at their Wharf since they needed badly the wheat that was loaded in
PSTSI-3. It was needed badly by the consignee.
q - And this is the reason why you towed the Barge as you did?
a - Yes, sir.
xxx xxx xxx
q - And yet you proceeded to the premises of the GMC?
a - ISLOFF Terminal is far from Manila Bay and anytime even with the typhoon if
you are already inside the vicinity or inside Pasig entrance, it is a safe place to tow
upstream.
Accordingly, the petitioner cannot invoke the occurrence of the typhoon as force majeure to
escape liability for the loss sustained by the private respondent. Surely, meeting a typhoon
head-on falls short of due diligence required from a common carrier. More importantly, the
officers/employees themselves of petitioner admitted that when the towing bits of the vessel
broke that caused its sinking and the total loss of the cargo upon reaching the Pasig River, it
was no longer affected by the typhoon. The typhoon then is not the proximate cause of the
loss of the cargo; a human factor, i.e., negligence had intervened.

IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV
CROSS-EXAMINATION BY ATTY. IGNACIO:34
No. 49195 dated May 11, 2000 and its Resolution dated February 21, 2001 are hereby
AFFIRMED. Costs against petitioner.
xxx xxx xxx
SO ORDERED.
q - And then from ISLOFF Terminal you proceeded to the premises of the GMC?
Am I correct?
G.R. No. 149038 April 9, 2003

a - The next day, in the morning, we hired for additional two (2) tugboats as I
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, petitioner, vs. PKS SHIPPING
have stated.
COMPANY, respondent.

q - Despite of the threats of an incoming typhoon as you testified a while ago?

VITUG, J.:

a - It is already in an inner portion of Pasig River. The typhoon would be coming

and it would be dangerous if we are in the vicinity of Manila Bay.
q - But the fact is, the typhoon was incoming? Yes or no?
The petition before the Court seeks a review of the decision of the Court of Appeals in C.A.
G.R. CV No. 56470, promulgated on 25 June 2001, which has affirmed in toto the judgment of
the Regional Trial Court (RTC), Branch 65, of Makati, dismissing the complaint for damages
filed by petitioner insurance corporation against respondent shipping company.

a - Yes. Davao Union Marketing Corporation (DUMC) contracted the services of respondent PKS
Shipping Company (PKS Shipping) for the shipment to Tacloban City of seventy-five thousand
q - And yet as a standard operating procedure of your Company, you have to (75,000) bags of cement worth Three Million Three Hundred Seventy-Five Thousand Pesos
secure a sort of Certification to determine the weather condition, am I correct? (P3,375,000.00). DUMC insured the goods for its full value with petitioner Philippine American
General Insurance Company (Philamgen). The goods were loaded aboard the dumb
a - Yes, sir. barge Limar I belonging to PKS Shipping. On the evening of 22 December 1988, about nine
o’clock, while Limar I was being towed by respondent’s tugboat, MT Iron Eagle, the barge
sank a couple of miles off the coast of Dumagasa Point, in Zamboanga del Sur, bringing down
q - So, more or less, you had the knowledge of the incoming typhoon, right? with it the entire cargo of 75,000 bags of cement.

a - Yes, sir. DUMC filed a formal claim with Philamgen for the full amount of the insurance. Philamgen
promptly made payment; it then sought reimbursement from PKS Shipping of the sum paid
89
to DUMC but the shipping company refused to pay, prompting Philamgen to file suit against
PKS Shipping with the Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the cargo could have been
caused either by a fortuitous event, in which case the ship owner was not liable, or through
the negligence of the captain and crew of the vessel and that, under Article 587 of the Code
of Commerce adopting the "Limited Liability Rule," the ship owner could free itself of liability
by abandoning, as it apparently so did, the vessel with all her equipment and earned
freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in toto the decision
of the trial court. The appellate court ruled that evidence to establish that PKS Shipping was a
common carrier at the time it undertook to transport the bags of cement was wanting
because the peculiar method of the shipping company’s carrying goods for others was not
generally held out as a business but as a casual occupation. It then concluded that PKS
Shipping, not being a common carrier, was not expected to observe the stringent
extraordinary diligence required of common carriers in the care of goods. The appellate
court, moreover, found that the loss of the goods was sufficiently established as having been
due to fortuitous event, negating any liability on the part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has committed a patent
error in ruling that PKS Shipping is not a common carrier and that it is not liable for the loss of
the subject cargo. The fact that respondent has a limited clientele, petitioner argues, does not
militate against respondent’s being a common carrier and that the only way by which such
carrier can be held exempt for the loss of the cargo would be if the loss were caused by
natural disaster or calamity. Petitioner avers that typhoon "APIANG" has not entered the
Philippine area of responsibility and that, even if it did, respondent would not be exempt
from liability because its employees, particularly the tugmaster, have failed to exercise due
diligence to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied because what
Philamgen seeks is not a review on points or errors of law but a review of the undisputed
factual findings of the RTC and the appellate court. In any event, PKS Shipping points out, the
findings and conclusions of both courts find support from the evidence and applicable
jurisprudence.
The determination of possible liability on the part of PKS Shipping boils down to the question
of whether it is a private carrier or a common carrier and, in either case, to the other question
of whether or not it has observed the proper diligence (ordinary, if a private carrier, or
extraordinary, if a common carrier) required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such findings are
consistent with those of the trial court, may not at liberty be reviewed by this Court in a
petition for review under Rule 45 of the Rules of Court.1 The conclusions derived from those
factual findings, however, are not necessarily just matters of fact as when they are so linked
90
to, or inextricably intertwined with, a requisite appreciation of the applicable law. In such
instances, the conclusions made could well be raised as being appropriate issues in a petition
for review before this Court. Thus, an issue whether a carrier is private or common on the
basis of the facts found by a trial court or the appellate court can be a valid and reviewable
question of law.
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."
Complementary to the codal definition is Section 13, paragraph (b), of the Public Service Act;
it defines "public service" to be –
"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 clientele, whether
permanent, occasional or accidental, and done for general business purposes, any
common carrier, railroad, street 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, 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 communication systems, wire or wireless broadcasting stations and other
similar public services. x x x. (Underscoring supplied)."
The prevailing doctrine on the question is that enunciated in the leading case of De Guzman
vs. Court of Appeals.2 Applying Article 1732 of the Code, in conjunction with Section 13(b) of
the Public Service Act, this Court has held:
"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 1732 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."
Much of the distinction between a "common or public carrier" and a "private or special
carrier" lies in the character of the business, such that if the undertaking is an isolated
transaction, not a part of the business or occupation, and the carrier does not hold itself out
to carry the goods for the general public or to a limited clientele, although involving the
carriage of goods for a fee,3 the person or corporation providing such service could very well
be just a private carrier. A typical case is that of a charter party which includes both the vessel
and its crew, such as in a bareboat or demise, where the charterer obtains the use and service
of all or some part of a ship for a period of time or a voyage or voyages4 and gets the control
of the vessel and its crew.5 Contrary to the conclusion made by the appellate court, its factual
findings indicate that PKS Shipping has engaged itself in the business of carrying goods for
others, although for a limited clientele, undertaking to carry such goods for a fee. The
regularity of its activities in this area indicates more than just a casual activity on its
part.6 Neither can the concept of a common carrier change merely because individual
contracts are executed or entered into with patrons of the carrier. Such restrictive
interpretation would make it easy for a common carrier to escape liability by the simple
expedient of entering into those distinct agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised the proper diligence
demanded of common carriers, Article 1733 of the Civil Code requires common carriers to
observe extraordinary diligence in the vigilance over the goods they carry. In case of loss,
destruction or deterioration of goods, common carriers are presumed to have been at fault or
to have acted negligently, and the burden of proving otherwise rests on them.7 The
provisions of Article 1733, notwithstanding, common carriers are exempt from liability for
loss, destruction, or deterioration of the goods due to any of the following causes:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers; and
(5) Order or act of competent public authority.8
The appellate court ruled, gathered from the testimonies and sworn marine protests of the
respective vessel masters of Limar I and MT Iron Eagle, that there was no way by which the
barge’s or the tugboat’s crew could have prevented the sinking of Limar I. The vessel was
suddenly tossed by waves of extraordinary height of six (6) to eight (8) feet and buffeted by
strong winds of 1.5 knots resulting in the entry of water into the barge’s hatches. The official
Certificate of Inspection of the barge issued by the Philippine Coastguard and the Coastwise
91
Load Line Certificate would attest to the seaworthiness of Limar I and should strengthen the
factual findings of the appellate court.
Findings of fact of the Court of Appeals generally conclude this Court; none of the recognized
exceptions from the rule - (1) when the factual findings of the Court of Appeals and the trial
court are contradictory; (2) when the conclusion is a finding grounded entirely on speculation,
surmises, or conjectures; (3) when the inference made by the Court of Appeals from its
findings of fact is manifestly mistaken, absurd, or impossible; (4) when there is a grave abuse
of discretion in the appreciation of facts; (5) when the appellate court, in making its findings,
went beyond the issues of the case and such findings are contrary to the admissions of both
appellant and appellee; (6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts; (7) when the Court of Appeals failed to notice certain relevant facts
which, if properly considered, would justify a different conclusion; (8) when the findings of
fact are themselves conflicting; (9) when the findings of fact are conclusions without citation
of the specific evidence on which they are based; and (10) when the findings of fact of the
Court of Appeals are premised on the absence of evidence but such findings are contradicted
by the evidence on record – would appear to be clearly extant in this instance.
All given then, the appellate court did not err in its judgment absolving PKS Shipping from
liability for the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.
SO ORDERED.
G.R. No. 148496 March 19, 2002
VIRGINES CALVO doing business under the name and style TRANSORIENT CONTAINER
TERMINAL SERVICES, INC., petitioner, vs. UCPB GENERAL INSURANCE CO., INC. (formerly
Allied Guarantee Ins. Co., Inc.) respondent.
MENDOZA, J.:
This is a petition for review of the decision,1 dated May 31, 2001, of the Court of Appeals,
affirming the decision2 of the Regional Trial Court, Makati City, Branch 148, which ordered
petitioner to pay respondent, as subrogee, the amount of P93,112.00 with legal interest,
representing the value of damaged cargo handled by petitioner, 25% thereof as attorney's
fees, and the cost of the suit.1âwphi1.nêt
The facts are as follows:
Petitioner Virgines Calvo is the owner of Transorient Container Terminal Services, Inc. (TCTSI),
a sole proprietorship customs broker. At the time material to this case, petitioner entered
into a contract with San Miguel Corporation (SMC) for the transfer of 114 reels of semi-
chemical fluting paper and 124 reels of kraft liner board from the Port Area in Manila to SMC's
warehouse at the Tabacalera Compound, Romualdez St., Ermita, Manila. The cargo was
insured by respondent UCPB General Insurance Co., Inc.
On July 14, 1990, the shipment in question, contained in 30 metal vans, arrived in Manila on
board "M/V Hayakawa Maru" and, after 24 hours, were unloaded from the vessel to the
custody of the arrastre operator, Manila Port Services, Inc. From July 23 to July 25, 1990,
petitioner, pursuant to her contract with SMC, withdrew the cargo from the arrastre operator
and delivered it to SMC's warehouse in Ermita, Manila. On July 25, 1990, the goods were
inspected by Marine Cargo Surveyors, who found that 15 reels of the semi-chemical fluting
paper were "wet/stained/torn" and 3 reels of kraft liner board were likewise torn. The
damage was placed at P93,112.00.
SMC collected payment from respondent UCPB under its insurance contract for the
aforementioned amount. In turn, respondent, as subrogee of SMC, brought suit against
petitioner in the Regional Trial Court, Branch 148, Makati City, which, on December 20, 1995,
rendered judgment finding petitioner liable to respondent for the damage to the shipment.
The trial court held:
It cannot be denied . . . that the subject cargoes sustained damage while in the
custody of defendants. Evidence such as the Warehouse Entry Slip (Exh. "E"); the
Damage Report (Exh. "F") with entries appearing therein, classified as "TED" and
"TSN", which the claims processor, Ms. Agrifina De Luna, claimed to be tearrage at
the end and tearrage at the middle of the subject damaged cargoes respectively,
coupled with the Marine Cargo Survey Report (Exh. "H" - "H-4-A") confirms the fact
of the damaged condition of the subject cargoes. The surveyor[s'] report (Exh. "H-4-
A") in particular, which provides among others that:
" . . . we opine that damages sustained by shipment is attributable to
improper handling in transit presumably whilst in the custody of the
broker . . . ."
is a finding which cannot be traversed and overturned.
The evidence adduced by the defendants is not enough to sustain [her] defense
that [she is] are not liable. Defendant by reason of the nature of [her] business
should have devised ways and means in order to prevent the damage to the cargoes
which it is under obligation to take custody of and to forthwith deliver to the
consignee. Defendant did not present any evidence on what precaution [she]
performed to prevent [the] said incident, hence the presumption is that the
moment the defendant accepts the cargo [she] shall perform such extraordinary
diligence because of the nature of the cargo.
92
....
Generally speaking under Article 1735 of the Civil Code, if the goods are proved to
have been lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they have
observed the extraordinary diligence required by law. The burden of the plaintiff,
therefore, is to prove merely that the goods he transported have been lost,
destroyed or deteriorated. Thereafter, the burden is shifted to the carrier to prove
that he has exercised the extraordinary diligence required by law. Thus, it has been
held that the mere proof of delivery of goods in good order to a carrier, and of their
arrival at the place of destination in bad order, makes out a prima facie case against
the carrier, so that if no explanation is given as to how the injury occurred, the
carrier must be held responsible. It is incumbent upon the carrier to prove that the
loss was due to accident or some other circumstances inconsistent with its liability."
(cited in Commercial Laws of the Philippines by Agbayani, p. 31, Vol. IV, 1989 Ed.)
Defendant, being a customs brother, warehouseman and at the same time a
common carrier is supposed [to] exercise [the] extraordinary diligence required by
law, hence the extraordinary responsibility 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 the same.3
Accordingly, the trial court ordered petitioner to pay the following amounts --
1. The sum of P93,112.00 plus interest;
2. 25% thereof as lawyer's fee;
3. Costs of suit.4
The decision was affirmed by the Court of Appeals on appeal. Hence this petition for review
on certiorari.
Petitioner contends that:
I. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR [IN]
DECIDING THE CASE NOT ON THE EVIDENCE PRESENTED BUT ON PURE SURMISES,
SPECULATIONS AND MANIFESTLY MISTAKEN INFERENCE.
II. THE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR IN
CLASSIFYING THE PETITIONER AS A COMMON CARRIER AND NOT AS PRIVATE OR
SPECIAL CARRIER WHO DID NOT HOLD ITS SERVICES TO THE PUBLIC.5
It will be convenient to deal with these contentions in the inverse order, for if petitioner is not
a common carrier, although both the trial court and the Court of Appeals held otherwise,
then she is indeed not liable beyond what ordinary diligence in the vigilance over the goods
transported by her, would require.6 Consequently, any damage to the cargo she agrees to
transport cannot be presumed to have been due to her fault or negligence.
Petitioner contends that contrary to the findings of the trial court and the Court of Appeals,
she is not a common carrier but a private carrier because, as a customs broker and
warehouseman, she does not indiscriminately hold her services out to the public but only
offers the same to select parties with whom she may contract in the conduct of her business.
The contention has no merit. In De Guzman v. Court of Appeals,7 the Court dismissed a similar
contention and held the party to be a common carrier, thus -
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 . . . 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 1732 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:
" 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
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
93
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. x x x" 8
There is greater reason for holding petitioner to be a common carrier because the
transportation of goods is an integral part of her business. To uphold petitioner's contention
would be to deprive those with whom she contracts the protection which the law affords
them notwithstanding the fact that the obligation to carry goods for her customers, as
already noted, is part and parcel of petitioner's business.
Now, as to petitioner's liability, Art. 1733 of the Civil Code provides:
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. . . .
In Compania Maritima v. Court of Appeals,9 the meaning of "extraordinary diligence in the
vigilance over goods" was explained thus:
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
characteristic of goods tendered for shipment, and to exercise due care in the
handling and stowage, including such methods as their nature requires."
In the case at bar, petitioner denies liability for the damage to the cargo. She claims that the
"spoilage or wettage" took place while the goods were in the custody of either the carrying
vessel "M/V Hayakawa Maru," which transported the cargo to Manila, or the arrastre
operator, to whom the goods were unloaded and who allegedly kept them in open air for
nine days from July 14 to July 23, 1998 notwithstanding the fact that some of the containers
were deformed, cracked, or otherwise damaged, as noted in the Marine Survey Report (Exh.
H), to wit:
MAXU-2062880 - rain gutter deformed/cracked
ICSU-363461-3 - left side rubber gasket on door distorted/partly loose
PERU-204209-4 - with pinholes on roof panel right portion
 TOLU-213674-3 - wood flooring we[t] and/or with signs of water soaked
MAXU-201406-0 - with dent/crack on roof panel
ICSU-412105-0 - rubber gasket on left side/door panel partly detached
loosened.10
In addition, petitioner claims that Marine Cargo Surveyor Ernesto Tolentino testified that he
has no personal knowledge on whether the container vans were first stored in petitioner's
warehouse prior to their delivery to the consignee. She likewise claims that after withdrawing
the container vans from the arrastre operator, her driver, Ricardo Nazarro, immediately
delivered the cargo to SMC's warehouse in Ermita, Manila, which is a mere thirty-minute drive
from the Port Area where the cargo came from. Thus, the damage to the cargo could not
have taken place while these were in her custody.11
Contrary to petitioner's assertion, the Survey Report (Exh. H) of the Marine Cargo Surveyors
indicates that when the shipper transferred the cargo in question to the arrastre operator,
these were covered by clean Equipment Interchange Report (EIR) and, when petitioner's
employees withdrew the cargo from the arrastre operator, they did so without exception or
protest either with regard to the condition of container vans or their contents. The Survey
Report pertinently reads --
Details of Discharge:
Shipment, provided with our protective supervision was noted discharged ex vessel
to dock of Pier #13 South Harbor, Manila on 14 July 1990, containerized onto 30' x
20' secure metal vans, covered by clean EIRs. Except for slight dents and paint
scratches on side and roof panels, these containers were deemed to have [been]
received in good condition.
....
Transfer/Delivery:
On July 23, 1990, shipment housed onto 30' x 20' cargo containers was [withdrawn]
by Transorient Container Services, Inc. . . . without exception.
[The cargo] was finally delivered to the consignee's storage warehouse located at
Tabacalera Compound, Romualdez Street, Ermita, Manila from July 23/25, 1990.12
As found by the Court of Appeals:
94
From the [Survey Report], it [is] clear that the shipment was discharged from the
vessel to the arrastre, Marina Port Services Inc., in good order and condition as
evidenced by clean Equipment Interchange Reports (EIRs). Had there been any
damage to the shipment, there would have been a report to that effect made by the
arrastre operator. The cargoes were withdrawn by the defendant-appellant from
the arrastre still in good order and condition as the same were received by the
former without exception, that is, without any report of damage or loss. Surely, if
the container vans were deformed, cracked, distorted or dented, the defendant-
appellant would report it immediately to the consignee or make an exception on the
delivery receipt or note the same in the Warehouse Entry Slip (WES). None of these
took place. To put it simply, the defendant-appellant received the shipment in good
order and condition and delivered the same to the consignee damaged. We can only
conclude that the damages to the cargo occurred while it was in the possession of
the defendant-appellant. Whenever the thing is lost (or damaged) in the possession
of the debtor (or obligor), it shall be presumed that the loss (or damage) was due to
his fault, unless there is proof to the contrary. No proof was proffered to rebut this
legal presumption and the presumption of negligence attached to a common carrier
in case of loss or damage to the goods.13
Anent petitioner's insistence that the cargo could not have been damaged while in her
custody as she immediately delivered the containers to SMC's compound, suffice it to say that
to prove the exercise of extraordinary diligence, petitioner must do more than merely show
the possibility that some other party could be responsible for the damage. It must prove that
it used "all reasonable means to ascertain the nature and characteristic of goods tendered for
[transport] and that [it] exercise[d] due care in the handling [thereof]." Petitioner failed to do
this.
Nor is there basis to exempt petitioner from liability under Art. 1734(4), which provides --
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:
....
(4) The character of the goods or defects in the packing or in the containers.
....
For this provision to apply, the rule is that if the improper packing or, in this case, the defect/s
in the container, is/are known to the carrier or his employees or apparent upon ordinary
observation, but he nevertheless accepts the same without protest or exception
notwithstanding such condition, he is not relieved of liability for damage resulting
therefrom.14 In this case, petitioner accepted the cargo without exception despite the
apparent defects in some of the container vans. Hence, for failure of petitioner to prove that
she exercised extraordinary diligence in the carriage of goods in this case or that she is
exempt from liability, the presumption of negligence as provided under Art. 1735 15 holds.
WHEREFORE, the decision of the Court of Appeals, dated May 31, 2001, is
AFFIRMED.1âwphi1.nêt
SO ORDERED.
G.R. No. 203902, July 19, 2017
SPOUSES DIONISIO ESTRADA and JOVITA R. ESTRADA, Petitioner vs. PHILIPPINE RABBIT
BUS LINES, INC. and EDUARDO R. SA YLAN, Respondents
DECISION
DEL CASTILLO, J.:
The Court restates in this petition two principles on the grant of damages. First, moral
damages, as a general rule, are not recoverable in an action for damages predicated on
breach of contract.1 Second, temperate damages in lieu of actual damages for loss of earning
capacity may be awarded where earning capacity is plainly established but no evidence was
presented to support the allegation of the injured party's actual income.2
This Petition for Review on Certiorari assails the May 16, 2012 Decision3 and October 1, 2012
Resolution4 of the Court of Appeals (CA) in CA-G.R. CV No. 95520, which partially granted the
appeal filed therewith by respondent Philippine Rabbit Bus Lines, Inc. (Philippine Rabbit) and
denied petitioners spouses Dionisio C. Estrada (Dionisio) and Jovita R. Estrada's motion for
reconsideration thereto.
Factual Antecedents
On April 13, 2004, petitioners filed with the Regional Trial Court (RTC) of Urdaneta City,
Pangasinan, a Complaint5 for Damages against Philippine Rabbit and respondent Eduardo R.
Saylan (Eduardo).
The facts as succinctly summarized by the RTC are as follows:
[A] mishap occurred on April 9, 2002 along the national highway in Barangay Alipangpang,
Pozorrubio, Pangasinan, between the passenger bus with plate number CVK-964 and body
number 3101, driven by [respondent] Eduardo Saylan and owned by [respondent] Philippine
Rabbit Bus, Lines, Inc., and the Isuzu truck with plate number UPB-974 driven by Willy U. Urez Hence, it claimed to be exempt from any liability arising therefrom. In any case, Philippine
and registered in the nan1e of Rogelio Cuyton, Jr.. At the time of the incident, the Philippine
Rabbit Bus was going towards the north direction, while the Isuzu truck was travelling
95
towards the south direction. The collision happened at the left lane or the lane properly
belonging to the Isuzu truck. The right front portion of the Isuzu Truck appears to have
collided with the right side portion of the body of the Philippine Rabbit bus. x x x Before the
collision, the bus was following closely a jeepney. When the jeepney stopped, the bus
suddenly swerved to the left encroaching upon the rightful lane of the Isuzu truck, which
resulted in the collision of the two (2) vehicles. x x x The [petitioner] Dionisio Estrada, who
was an1ong the passengers of the Philippine Rabbit bus, as evidenced by the ticket issued to
him, was injured on the [right] arm as a consequence of the accident. His injured right arm
was amputated at the Villaflor Medical Doctor's Hospital in Dagupan City x x x. For the
treatment of his injury, he incurred expenses as evidenced by x x x various receipts.6
Dionisio argued that pursuant to the contract of carriage between him and Philippine Rabbit,
respondents were duty-bound to carry him safely as far as human care and foresight can
provide, with utmost diligence of a very cautious person, and with due regard for all the
circumstances from the point of his origin in Urdaneta City to his destination in Pugo, La
Union. However, through the fault and negligence of Philippine Rabbit's driver, Eduardo, and
without human care, foresight, and due regard for all circumstances, respondents failed to
transport him safely by reason of the aforementioned collision which resulted in the
amputation of Dionisio's right arm. And since demands for Philippine Rabbit7 to pay him
damages for the injury he sustained remained unheeded, Dionisio filed the said complaint
wherein he prayed for the following awards: moral damages of ₱500,000.00 actual damages
of ₱60,000.00, and attorney's fees of ₱25,000.00.
Petitioners' claim for moral damages, in particular, was based on the following allegations:
9. [The] amount of ₱500,000.00 as moral damages for the amputation of [Dionisio's] right
arm for life including his moral sufferings for such [loss] of right arm is reasonable. Said
amount is computed and derived using the formula (2/3 x [80- age of the complainant when
the injury is sustained] = life expectancy) adopted in the American Expectancy Table of
Mortality or the actuarial of Combined Experience Table of Mortality. From such formula,
[Dionisio] is expected to live for 18 years, which is equivalent [to] about 6570 days. For each
day, [Dionisio] is claiming ₱80.00 as he is expected to work for 8 hours a day with his
amputated arm or to enjoy the same for at least 8 hours a day (or is claiming ₱l0.00 for each
hour) for 18 years (6570 days). The amount that can be computed thereof would be
₱525,600.00 (6570 days x ₱80.00). [Dionisio] then [rounded] it off to ₱500,000.00, the moral
damages consisted [of] his moral sufferings due to the [loss] of his right arm for life;8
Denying any liability, Philippine Rabbit in its Answer9 averred that it carried Dionisio safely as
far as human care and foresight could provide with the utmost diligence of a very cautious
person and with due regard for all the circumstances prevailing. While it did not contest that
its bus figured in an accident, Philippine Rabbit nevertheless argued that the cause thereof
was an extraordinary circumstance independent of its driver's action or a fortuitous event.
Rabbit averred that it was the Isuzu truck coming from the opposite direction which had the
last clear chance to avoid the mishap. Instead of slowing down upon seeing the bus, the said
truck continued its speed such that it bumped into the right side of the bus. The proximate
cause of the accident, therefore, was the wrongful and negligent manner in which the Isuzu
truck was operated by its driver. In view of this, Philippine Rabbit believed that Dionisio has
no cause of action against it.
With respect to Eduardo, he was declared in default after he failed to file an Answer despite
due notice.10
Ruling of the Regional Trial Court
Treating petitioners' Complaint for damages as one predicated on breach of contract of
carriage, the RTC rendered its Decision11 on December 1, 2009.
In concluding that Eduardo was negligent in driving the Philippine Rabbit bus, the said court
ratiocinated, viz.:
Evidently, prior to the accident, [Eduardo] was tailgating the jeepney ahead of him. When the
jeepney stopped, [Eduardo] suddenly swerved the bus to the left, encroaching in the process
the rightful lane of the oncoming Isuzu truck, thereby resulting in the collision. The fact that
[Eduardo] did not apply the brakes, but instead swerved to the other lane, fairly suggests that
he was not only unnecessarily close to the jeepney, but that he was operating the bus at a
speed greater than what was reasonably necessary for him to be able to bring his vehicle to a
full stop to avoid hitting the vehicle he was then following. Clearly, immediately before the
collision, [Eduardo] was actually violating Section 35 of the Land Transportation and Traffic
Code, Republic Act No. 4136, as amended:
Sec. 35. Restriction as to speed. - (a) Any person driving a motor vehicle on a highway shall
drive the same at a careful and prudent speed, not greater nor less than [what] is reasonable
and proper, having due regard for the traffic, the width of the highway, and or any other
condition then and there existing; and no person shall drive any motor vehicle upon a
highway at such a speed as to endanger the life, limb and property of any person, nor at a
speed greater than will permit him to bring the vehicle to a stop within the clear distance
ahead.
Too, when [Eduardo] swerved to the left and encroached on the rightful lane of the Isuzu
truck, he was violating Section 41 of the same Traffic Code:
Sec. 41. Restriction on overtaking and passing. - (a) The driver of a vehicle shall not drive to
the left side of the center line of a highway in overtaking or passing another vehicle,
proceeding in the same direction, unless such left side is clearly visible, and is free of
oncoming traffic for a sufficient distance ahead to permit such overtaking or passing to be
made in safety.
96
The fact that the collision occurred immediately after the bus swerved on the left lane clearly
[indicates] that the other lane was not clear and free of oncoming vehicle at the time x x x
[Eduardo] tried to overtake the jeepney to avoid hitting it.
It is presumed that a person driving a motor vehicle has been negligent if at the time of the
mishap, he was violating any traffic regulation, unless there is proof to the contrary (Article
2185 of the CivilCode). [Eduardo] failed to rebut this legal presumption as he chose not to
answer the complaint and to testify in court. [Philippine Rabbit was also] unsuccessful in
overthrowing the said legal presumption. x x x
[Eduardo's] failure to observe the proper and safe distance from the vehicle ahead of him and
in running the bus at a speed greater than what was reasonably necessary to control and stop
the vehicle when warranted by the circumstances, clearly were reflective of his lack of
precaution, vigilance, and foresight in operating his vehicle. As an experienced driver, he
should have known about the danger posed by tailgating another vehicle and driving his
vehicle at an unreasonable speed called for by the circumstances. For, the sudden stopping of
a motor vehicle, for whatever [reason], is not an uncommon and [unforeseeable] occurrence
in the highway. If only he had exercised diligence, vigilance and foresight, he would have
refrained from tailgating another vehicle at a dangerously close range. What he should have
done instead was to maintain a reasonable distance from the jeepney and drove his vehicle at
a speed not greater than will permit him to bring the vehicle to a stop within the assured clear
distance ahead. This he failed to do. As a consequence, when the jeepney stopped, he was
unable to control and stop the bus. Instead, he was forced to swerve the bus to the left lane
blocking the path of the oncoming Isuzu truck. While he averted smashing the jeepney, he
however collided with the Isuzu truck. No doubt, it was [Eduardo's] lack of precaution,
vigilance and foresight that led to the accident. Otherwise stated, it was his recklessness or
negligence that was the proximate cause of the mishap.
[Philippine Rabbit's] imputation of fault to the driver of the Isuzu truck, claiming that it was
the latter [which] had the last clear chance to avoid the accident, deserves scant
consideration. As the evidence would show, the impact occurred immediately after the bus
swerved and while in the process of encroaching on the left lane. This is evidenced by the fact
that the front portion of the Isuzu truck collided with the right side portion of the bus. The
driver of the Isuzu truck, before the accident, was cruising on the lane properly belonging to
him. He had every right to expect that all the vehicles, including the bus coming from the
opposite direction would stay on their proper lane. He certainly was not expected to know
what prompted the bus driver to suddenly swerve his vehicle to the left. The abruptness by
which the bus swerved without a warning could not have given him the luxury of time to
reflect and anticipate the bus' encroachment of his lane for him to be able to avoid it.
Needless to point out, there was no last clear chance to speak of on the part of the driver of
the Isuzu truck to avoid the accident. Besides, the 'last clear chance' principle is not applicable
in this case since the instant suit is between the passenger and the common carrier. x x x12
The RTC then proceeded to determine whether Philippine Rabbit, as it claimed, exercised the
diligence of a good father of a family in the selection and supervision of its drivers as to
negate any liability for damages. The said court, however, was unconvinced after it found that
(1) Philippine Rabbit failed to show that it had taken all the necessary and actual steps to
thoroughly examine the qualifications of Eduardo as a driver worthy of employment; and (2)
no proof relative to the existence of company rules and regulations, instructions, and policies
affecting its drivers, as well as to their actual implementation and observance, were
presented. Hence, Philippine Rabbit was held jointly and severally liable with Eduardo for the
awards made in favor of Dionisio as follows:
The emotional anguish and suffering of x x x Dionisio Estrada as a consequence of the injury
and amputation of his right arm due to the reckless driving of x x x Eduardo, which resulted in
the accident, cannot be overemphasized. The loss of the use of his right arm and the
humiliation of being tagged in the public [eye] as a person with only one arn1 would certainly
be borne by him for the rest of his life. The amount of moral damages he is praying appears to
be reasonable under the circumstances.
Too, the award of attorney's fees is proper considering that x xx [Dionisio] was forced to
litigate after x x x [Philippine Rabbit] refused to heed his demand for the payment of
damages as a consequence of the accident.
WHEREFORE, judgment is hereby rendered ordering x x x Philippine Rabbit Bus Lines, Inc. and
Eduardo Saylan to pay jointly and severally x xx Dionisio Estrada the following amounts:
1. Five Hundred Thousand Pesos (₱500,000.00) as moral damages;
2. Fifty Seven Thousand Seven Hundred Sixty Six Pesos and Twenty Five
Centavos (₱57,766.25), as actual damages; and
3. Twenty Five Thousand Pesos (₱25,000.00), as attorney's fees; and the
costs of suit.
SO ORDERED.13
Philippine Rabbit filed a Motion for Reconsideration14 but the same was denied for lack of
merit in an Order15 dated May 31, 2010.
Ruling of the Court of Appeals
On appeal, Philippine Rabbit imputed error upon the RTC in not finding that it exercised the
diligence of a good father of a family in the selection and supervision of its drivers. In any
case, it argued that moral damages are not recoverable in an action for damages predicated
on breach of contract except when death results or when the carrier is guilty of fraud or bad
faith. Since none of the two aforementioned circumstances are present in this case, Philippine
Rabbit contended that it is Eduardo alone who should be held civilly liable.
97
In a Decision16 dated May 16, 2012, the CA partially granted the appeal on the following
ratiocination:
Based from [sic] the aforecited allegations in the complaint, it was rightly regarded by the
trial court as an action to recover damages arising from breach of contract of carriage. There
was in fact, an admission that [Dionisio] was a passenger of a bus owned by [Philippine
Rabbit]. In an action for breach of contract of carriage, all that is required is to prove the
existence of such contract and its non-performance by the carrier through the latter's failure
to carry the passenger safely to his destination. In the present case, it was duly established
that there was a collision and as a result of which, [Dionisio] sustained an injury.
[Philippine Rabbit] was therefore properly found liable for breach of contract of carriage. A
common carrier 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 to all the
circumstances. In a contract of carriage, it is presumed that the common carrier was at fault
or was negligent when a passenger dies or is injured. Unless the presumption is rebutted, the
court need not even make an express finding of fault or negligence on the part of the
common carrier. This presumption may only be overcome by evidence that the carrier
exercised extraordinary diligence, and this presumption remained unrebutted in this case.
The trial court found that the accident which led to the amputation of [Dionisio's] arm was
due to the reckless driving and negligence of [Philippine Rabbit's] driver and stated that:
No doubt, it was x x x [Eduardo's] lack of precaution, vigilance and foresight that led to the
accident. Otherwise stated, it was his recklessness or negligence that was the proximate
cause of the mishap.
Such negligence and recklessness is binding against [Philippine Rabbit] pursuant to Article
1759 of the Civil Code which provides:
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.
Thus, [Philippine Rabbit's] defense that it acted with the diligence of a good father of a family
in its selection of its driver, Eduardo R. Saylan, is unavailing. [Philippine Rabbit] however is
correct in its contention that moral damages are not recoverable in actions for damages
predicated on a breach of contract, unless death of a passenger results, or it is proved that
the carrier was guilty of fraud or bad faith, even if death does not result.
There was no evidence on record indicative of fraud or bad faith on [Philippine Rabbit's] part.
Bad faith should be established by clear and convincing evidence. The settled rule is that the
law always presumes good faith such that any person who seeks to be awarded damages due
to the acts of another has the burden of proving that the latter acted in bad faith or with ill
motive. The award for attorney's fees must likewise be deleted considering that moral
damages cannot be granted and none of the instances enumerated in Article 2208 of the Civil
Code is present in the instant case. However, the actual damages awarded by the trial court
are adequately substantiated by official receipts. Therefore, the same shall be sustained.
The driver on the other hand, may not be held liable under the contract of carriage, not being
a party to the same. The basis of a cause of action of a passenger against the driver is either
culpa criminal or culpa aquiliana. A passenger may file a criminal case based on culpa criminal
punishable under the Revised Penal Code or a civil case based on culpa aquiliana under
Articles 2176 and 2177 of the Civil Code.
A cause of action based on culpa contractual is also separate and distinct from a cause of
action based on culpa aquiliana. x x x
xxxx
The trial court therefore erred in ruling that [Philippine Rabbit] bus company and
[respondent] driver are jointly and severally liable. The driver cannot be held jointly and
severally liable with the carrier in case of breach of the contract of carriage. The contract of
carriage is between the carrier and the passenger, and in the event of contractual liability, the
carrier is exclusively responsible [therefor] to the passenger, even if such breach be due to
the negligence of his driver. The carrier can neither shift his liability on the contract to his
driver nor share it with him for his driver's negligence is his. 17
Accordingly, the CA modified the RTC Decision in that it declared Philippine Rabbit as solely
and exclusively liable to Dionisio for actual damages in the amount of ₱57,766.25 and deleted
the award of moral damages and attorney's fees.
Petitioners filed a Motion for Reconsideration18 but the same was denied by the CA for lack of
merit in a Resolution19 dated October 1, 2012.
Hence, this Petition for Review on Certiorari raising the following issues:
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN DECLARING THAT THERE
WAS NO EVIDENCE ON RECORD INDICATIVE OF FRAUD OR BAD FAITH ON [PHILIPPINE
RABBIT'S] PART.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS ERRED IN NOT [CONSIDERING] X X
X THE [COST OF THE] REPLACEMENT OF PETITIONER [DIONISIO'S AMPUTATED RIGHT ARM]
WITH [AN] ARTIFICIAL ONE AS ACTUAL DAMAGES.20
The Parties' Arguments
98
Petitioners dispute the findings of lack of fraud or bad faith on the part of Philippine Rabbit as
to make it liable for moral damages. According to them, the assertions of Philippine Rabbit in
its Answer, i.e., that it carried Dionisio safely; that it was not an insurer of all risks; that the
accident was caused by a fortuitous event; that in any event, it was the negligent manner by
which the Isuzu truck was operated which was the proximate cause of the accident; and that
Dionisio has no cause of action against Philippine Rabbit, were made with the intention to
evade liability. Petitioners claim that the said assertions are clear indication of fraud or bad
faith.
In justifying their claim for moral damages, petitioners aver that in their Complaint, they did
not seek for moral damages in terms of physical suffering, mental anguish, fright, serious
anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury per se, but for moral damages based purely on the fact that Dionisio lost his right
arm. They argue that while in a strict sense, Dionisio incurred actual damages through the
amputation of his right arm, such loss may rightly be considered as falling under moral
damages. This is because a right arm is beyond the commerce of man and loss thereof
necessarily brings physical suffering, mental anguish, besmirched reputation, social
humiliation and similar injury to a person. At any rate, should this Court award the amount of
₱500,000.00 as actual damages due to the loss of Dionisio's right arm, petitioners also find
the same proper and appropriate under the circumstances.
Now jointly represented by one counsel, respondents, on the other hand, reiterate the rule
that moral damages are not recoverable in an action for damages predicated on a breach of
contract, as in this case, since breach of contract is not one of the items enumerated in Article
2219 of the Civil Code. Only as an exception, moral damages may be recovered in an action for
breach of contract of carriage when the mishap results in death or if the carrier acted
fraudulently or in bad faith. Since Dionisio did not die in the mishap nor was Philippine Rabbit
found guilty of fraud or bad faith, respondents argue that an award for moral damages is
improper for having no basis in fact and in law.
Our Ruling
The Court modifies the CA ruling.
Moral damages; Instances when
moral damages can be awarded in an
action for breach of contract.
Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock, social humiliation, and similar injury. Though
incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant's wrongful act or omission.21
Under Article 2219 of the Civil Code, moral damages are recoverable 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;22 and (1) acts and actions referred to in Articles 21,23 26,24 27
,25 28,26 29,27 30,28 32,29 34,30 and 35.31
x x x [C]ase law establishes the following requisites for the award of moral damages: (1) there
must be an injury clearly sustained by the claimant, whether physical, mental or psychological;
(2) there must be a culpable act or omission factually established; (3) the wrongful act or
omission of the defendant is the proximate cause of the injury sustained by the claimant; and
(4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil
Code.32
Since breach of contract is not one of the items enumerated under Article 2219, moral
damages, as a general rule, are not recoverable in actions for damages predicated on breach
of contract.33
x x x As an exception, such damages are recoverable [in an action for breach of contract:] (1)
in cases in which the mishap results in the death of a passenger, as provided in Article
1764,34 in relation to Article 2206(3)35 of the Civil Code; and (2) in x x x cases in which the
carrier is guilty of fraud or bad faith, as provided in Article 222036.37
Moral damages are not recoverable
in this case.
It is obvious that this case does not come under the first of the abovementioned exceptions
since Dionisio did not die in the mishap but merely suffered an injury. Nevertheless,
petitioners contend that it falls under the second category since they aver that Philippine
Rabbit is guilty of fraud or bad faith.
It has been held, however, that "allegations of bad faith and fraud must be proved by clear
and convincing evidence."38 They are never presumed considering that they are serious
accusations that can be so conveniently and casually invoked.39 And unless convincingly
substantiated by whoever is alleging them, they amount to mere slogans or mudslinging.40
In this case, the fraud or bad faith that must be convincingly proved by petitioners should be
one which was committed by Philippine Rabbit in breaching its contract of carriage with
Dionisio. Unfortunately for petitioners, the Court finds no persuasive proof of such fraud or
bad faith.
Fraud has been defined to include an inducement through insidious machination. Insidious
machination refers to a deceitful scheme or plot with an evil or devious purpose. Deceit exists
where the party, with intent to deceive, conceals or omits to state material facts and, by
99
reason of such omission or concealment, the other party was induced to give consent that
would not otherwise have been given.41
Bad faith, on the other hand, "does not simply connote bad judgment or negligence; it
imports a dishonest purpose or some moral obliquity and conscious doing of a wrong, a
breach of a known duty through some motive or interest or ill will that partakes of the nature
of fraud."42
There is no showing here that Philippine Rabbit induced Dionisio to enter into a contract of
carriage with the former through insidious machination. Neither is there any indication or
even an allegation of deceit or concealment or omission of material facts by reason of which
Dionisio boarded the bus owned by Philippine Rabbit. Likewise, it was not shown that
Philippine Rabbit's breach of its known duty, which was to transport Dionisio from Urdaneta
to La Union,43 was attended by some motive, interest, or ill will. From these, no fraud or bad
faith can be attributed to Philippine Rabbit.
Still, petitioners insist that since the defenses it pleaded in its Answer were designed to evade
liability, Philippine Rabbit is guilty of fraud or bad faith. Suffice it to state, however, that the
allegations which made up Philippine Rabbit's defenses are hardly the kind of fraud or bad
faith contemplated by law. Again, it bears to mention that the fraud or bad faith must be one
which attended the contractual breach or one which induced Dionisio to enter into contract
in the first place.
Clearly, moral damages are not recoverable in this case. The CA, therefore, did not err in
deleting the award for moral damages.
Actual damages for loss/impairment
of earning capacity are also not
recoverable. In lieu thereof, the
Court awards temperate damages.
In an attempt to recover the ₱500,000.00 awarded by the RTC as moral damages but deleted
by the CA, petitioners would instead want this Court to grant them the same amount as just
and proper compensation for the loss of Dionisio's right arm.
It can be recalled that in the Complaint, petitioners justified their claim for moral damages as
follows:
9. [The] amount of ₱500,000.00 as moral damages for the amputation of [Dionisio's] right
arm for life including his moral sufferings for such [loss] of right arm is reasonable.
Said amount is computed and derived using the formula (2/3 x [80- age of the complainant
when the injury is sustained] = life expectancy) adopted in the American Expectancy Table of
Mortality or the actuarial of Combined Experience Table of Mortality. From such formula,
[Dionisio] is expected to live for 18 years, which is equivalent [to] about 6570 days. For each Dionisio's actual income is extant on the records. What it bears is the mere testimony of
day, [Dionisio] is claiming ₱80.00 as he is expected to work for 8 hours a day with his Dionisio on the matter, viz.:
amputated arm or to enjoy the same for at least 8 hours a day (or is claiming ₱l0.00 for each
hour) for 18 years (6570 days). The amount that can be computed thereof would be COURT:
₱525,600.00 (6570 days x ₱80.00). [Dionisio] then [rounded] it off to ₱500,000.00, the moral
damages consisted [of] his moral sufferings due to the [loss] of his right arm for life; 44
Q: By the way, why did you submit the original copy of your exhibits to the GSIS?

It thus appears that while petitioners denominated their claim for ₱500,000.00 as moral
A: I am claiming my GSIS compensation because I am a government Employee.
damages, their computation was actually based on the supposed loss/impairment of
Dionisio's earning capacity.
ATTY. SEVILLEJA:
Loss or impairment of ean1ing capacity finds support under Article 2205 (1) of the Civil Code,
to wit: Q: What particular government [agency do] you belong?

Art. 2205. Damages may be recovered: A: DECS.

(1) For loss or impairment of earning capacity in cases of temporary or permanent personal Q: You are a teacher?
injury;
A: Yes sir.
xxxx
Q: You are still continuing your profession as a teacher until now?
It is, however, settled that "damages for loss [or impairment] of earning capacity is in the
nature of actual damages x x x."45 A: Yes sir.

Actual or compensatory damages are those awarded in order to compensate a party for an Q: By the way Mr. witness, you are claiming x x x moral damages of ₱500,000.00? How did
injury or loss he suffered. They arise out of a sense of natural justice, aimed at repairing the you compute that ₱500,000.00?
wrong done. To be recoverable, they must be duly proved with a reasonable degree of
certainty. A court cannot rely on speculation, conjecture, or guesswork as to the fact and A: I based that from [sic] my income which is about ₱80.00 a day or ₱l0.00 per hour.
amount of damages, but must depend upon competent proof that they have suffered, and on
evidence of the actual amount thereof.46
Q: Is that x x x gross or not?
Thus, as a rule, documentary evidence should be presented to substantiate the claim for
damages for loss of earning capacity. By way of exception, damages for loss [or impairment] A: Net sir.
of earning capacity may be awarded despite the absence of documentary evidence when (1)
the deceased [or the injured] was self-employed and earning less than the minimum wage Q: What are your other sideline?
under current labor laws, in which case, 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 was A: I know [how] to drive a tricycle.
employed as a daily worker earning less than the minimum wage under current labor laws.47
Q: Because of [the] amputation of your right arm, you mean to say you [cannot] drive
Here, it is unlikely that petitioners presented evidence to prove a claim for actual damages anymore a tricycle?
based on loss/impairment of earning capacity since what they were claiming at the outset
was an award for moral damages. The Court has nonetheless gone over the records to find
A: Yes sir.
out if they have sufficiently shown during trial that they are entitled to such compensatory
damages that they are now claiming. Unfortunately, no documentary evidence supporting

100
Q: By the way Mr. witness, how old are you when you met [the] accident?
A: More than 53 years old sir, less than 54.
Q: If you are claiming for x x x moral damages of P80.00 a day, how come you are asking for
₱500,000.00?
A: If you compute that it is ₱2,400.00 monthly. If I still [live by] about 20-30 years [more], I
can still [earn] that amount.48
It must be emphasized, though, that documentary proof of Dionisio's actual income cannot
be dispensed with since based on the above testimony, Dionisio does not fall under any of the
two exceptions aforementioned. Thus, as it stands, there is no competent proof
substantiating his actual income and because of this, an award for actual damages for loss/
impairment of earning capacity cannot be made.
Nonetheless, since it was established that Dionisio lost his right arm, temperate damages in
lieu of actual damages for loss/impairment of earning capacity may be awarded in his favor.
Under Article 2224, "[t]emperate or moderate damages, which are more than nominal but
less than compensatory damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount cannot, from the nature of the case, be
proved with certainty."
The case of Tan v. OMC Carriers, Inc.49 enumerates several instances wherein the Court
awarded temperate damages in lieu of actual damages for loss of earning capacity, viz.:
In the past, we awarded temperate damages in lieu of actual damages for loss of earning
capacity where earning capacity is plainly established but no evidence was presented to
support the allegation of the injured party's actual income.
In Pleno v. Court of Appeals, we sustained the award of temperate damages in the amount of
₱200,000.00 instead of actual damages for loss of earning capacity because the plaintiffs
income was not sufficiently proven.
We did the same in People v. Singh, and People v. Almedilla, granting temperate damages in
place of actual damages for the failure of the prosecution to present sufficient evidence of
the deceased's income.
Similarly, in Victory Liner, Inc. v. Gammad, we deleted the award of damages for loss of
earning capacity for lack of evidentiary basis of the actual extent of the loss. Nevertheless,
because the income-earning capacity lost was clearly established, we awarded the heirs
₱500,000.00 as temperate damages.50
101
Accordingly, the Court in Tan awarded to the heirs of the therein deceased victim, who was
working as a tailor at the time of his death, temperate damages in the amount of
₱300,000.00 in lieu of compensatory damages.51
In the subsequent case of Orix Metro Leasing and Finance Corporation v. Mangalinao, 52 the
Court likewise awarded temperate damages as follows:
While the net income had not been sufficiently established, the Court recognizes the fact that
the Mangalinao heirs had suffered loss deserving of compensation.1âwphi1 What the CA
awarded is in actuality a form of temperate damages. Such form of damages under Article
2224 of the Civil Code is given in the absence of competent proof on the actual damages
suffered. In the past, we awarded temperate damages in lieu of actual damages for loss of
earning capacity where earning capacity is plainly established but no evidence was presented
to support the allegation of the injured party's actual income. In this case, Roberto
Mangalinao, the breadwinner of the family, was a businessman engaged in buying and
selling palay and agricultural supplies that required high capital in its operations and was only
37 at the time of his death. Moreover, the Pathfinder which the Mangalinaos own, became a
total wreck. Under the circumstances, we find the award of ₱500,000.00 as temperate
damages as reasonable.53
And in the more recent case of People v. Salahuddin,54 the lower courts' award of
₱4,398,000.00 as compensation for loss of earning capacity of a murdered lawyer was
disallowed due to insufficiency of evidence. Again in lieu thereof, temperate damages of
₱l,000,000.00 was awarded.55
In view of the above rulings and under the circumstances of this case, the Court finds
reasonable to award Dionisio temperate damages of ₱500,000.00 in lieu of actual damages
for the loss/impairment of his earning capacity.
Actual damages by way of medical
expenses must be supported by
official receipts.
Anent petitioners' assertion that actual damages should be awarded to them for the cost of
replacement of Dionisio's amputated right arm, suffice it to state that petitioners failed to
show during trial that the said amputated right arm was actually replaced by an artificial one.
All that petitioners submitted was a quotation of ₱l60,000.00 for a unit of elbow
prosthesis56 and nothing more. It has been held that actual proof of expenses incurred for
medicines and other medical supplies necessary for treatment and rehabilitation must be
presented by the claimant, in the form of official receipts, to show the exact cost of his
medication and to prove that he indeed went through medication and rehabilitation. In the
absence of the same, such claim must be negated.57
At any rate, the RTC already granted petitioners actual damages by way of medical expenses
based on the official hospital receipts submitted.58 There is, however, a need to correct the
amount, that is, the should be ₱57,658.25 as borne by the receipts and not ₱57,766.25 .
Legal interest is imposed on the
amounts awarded.
In addition, the amounts of damages awarded are declared subject to legal interest of 6% per
annum from the finality of this Decision until full satisfaction.59
WHEREFORE, the Petition for Review on Certiorari is DENIED. The assailed May 16, 2012
Decision and October 1, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 95520
are AFFIRMED with MODIFICATIONS as follows: (1) petitioners are declared entitled to
temperate damages of ₱500,000.00; (2) the award of actual damages is set at the amount of
₱57,658.25; and (3) all damages awarded are subject to legal interest of 6% per annum from
the finality of this Decision until full satisfaction.
SO ORDERED.
G.R. No. 206468, August 2, 2017
JUDITH D. DARINES and JOYCE D. DARINES, Petitioners, vs. EDUARDO QUIÑONES and
ROLANDO QUITAN, Respondents.
DECISION
DEL CASTILLO, J.:
Ibis Petition for Review on Certiorari assails the October 29, 2012 Decision1 of the Court of
Appeals (CA) in CA-G.R CV No. 95638, which reversed and set aside the July 14, 2010
Decision2 of the Regional Trial Court (RTC) of Baguio City, Branch 3 in Civil Case No. 6363-R for
"Breach of Contract of Carriage & Damages." Also challenged is the March 6, 2013 CA
Resolution3 denying the motion for reconsideration on the assailed Decision.
Factual Antecedents
Judith D. Darines (Judith) and her daughter, Joyce D. Darines (Joyce) (petitioners) alleged in
their Complaint4 that on December 31, 2005, they boarded the Amianan Bus Line with Plate
No. ACM 497 and Body No. 808 as paying passengers enroute from Carmen, Rosales,
Pangasinan to Baguio City. Respondent Rolando M. Quitan (Quitan) was driving the bus at
that time. While travelling on Camp 3, Tuba, Benguet along Kennon Road, the bus crashed
into a truck (with Plate No. XSE 578) which was parked on the shoulder of Kennon Road. As a
result, both vehicles were damaged; two passengers of the bus died; and the other
102
passengers, including petitioners, were injured. In particular, Joyce suffered cerebral
concussion while Judith had an eye wound which required an operation.
Petitioners argued that Quitan and respondent Eduardo Quiñones (Quiñones), the operator
of Amianan Bus Line, breached their contract of carriage as they failed to bring them safely to
their destination. They also contended that Quitan's reckless and negligent driving caused the
collision. Consequently, they prayed for actual, moral, exemplary and temperate damages,
and costs of suit.
For their part, Quiñones and Quitan (respondents) countered in their Answer5 that, during
the December 31, 2005 incident, Quitan was driving in a careful, prudent, and dutiful manner
at the normal speed of 40 kilometers per hour. According to them, the proximate cause of
the incident was the negligence of the truck driver, Ronald C. Fernandez, who parked the
truck at the roadside right after the curve without having installed any early warning device.
They also claimed that Quiñones observed due diligence in the selection and supervision of
his employees as he conducted seminars on road safety measures; and Quitan attended such
seminars including those required by the government on traffic safety. They likewise averred
that Quitan was a licensed professional driver who, in his 12 years as a public utility driver, had
not figured in any incident like the one at hand.
During the trial, Judith testified that Quitan was driving at a very fast pace resulting in a
collision with the truck parked at the shoulder of the road.6 Consequently, the bone holding
her right eye was fractured and had to be operated.7 She claimed that, as a result of incident,
she failed to report for work for two months.8
To prove the actual damages that she suffered, Judith presented receipts for medicine, and a
summary of expenses, which included those incurred for the ritual dao-is. She explained that
she and Joyce are Igorots, being members of Ibaloi, Kanka.nay-ey, an indigenous tribe;9 and as
their customary practice, when a member who meets an accident is released from the
hospital, they butcher pigs to remove or prevent bad luck from returning to the family.10
Moreover, to support her claim for moral damages, Judith testified that she suffered
sleepless nights since she worried about the result and possible effect of her operation. 11
On the other hand, respondents presented Ernesto Benitez (Benitez), who, on behalf of
respondents, testified that he bought the medicines and paid petitioners' hospitalization
expenses, as evidenced by receipts he submitted in court.12
Ruling of the Regional Trial Court
On July 14, 2010, the RTC rendered its Decision ordering respondents to pay petitioners the
following:
1. Moral Damages of One Hundred Thousand Pesos (₱100,000.00);
 2. Exemplary Damages of Thirty Thousand Pesos (₱30,000.00);
3. Attorney's Fees of Fifteen Percent (15%) of the Damages, plus Total Appearance
Fees of Sixteen Thousand Five Hundred Pesos (₱16,500.00); and
4. Costs of Suit.13
The RTC held that since the respondents already paid the actual damages relating to
petitioners' medical and hospitalization expenses, then the only remaining matters for
resolution were: whether respondents were liable to pay petitioners a) actual damages
representing the expenses incurred during the dao-is ritual; and, Judith's alleged lost income;
b) moral and exemplary damages; and, c) attorney's fees.
The RTC noted that petitioners did not present any receipt as regards the expenses they
incurred during the dao-is ritual. As regards their claim for Judith's lost income, the RTC held
that petitioners similarly failed to substantiate the same as there was no showing that
Judith's failure to report for work for two months was because of the incident. Thus, the RTC
did not award actual damages for lack of evidence.
However, the RTC awarded moral damages grounded on Judith's testimony regarding her
pain and suffering. It likewise awarded exemplary damages by way of correction, and to serve
as example to common carriers to be extraordinarily diligent in transporting passengers. It
also granted petitioners
attorney's fees plus costs of suit on the ground that petitioners were compelled to litigate
the case.
Aggrieved, respondents appealed to the CA.
Ruling of the Court of Appeals
In its October 29, 2012 Decision, the CA reversed and set aside the RTC Decision.
The CA stressed that respondents did not dispute that they were liable for breach of contract
of carriage; in fact, they paid for the medical and hospital expenses of petitioners.
Nonetheless, the CA deleted the award of moral damages because petitioners failed to prove
that respondents acted fraudulently or in bad faith, as shown by the fact that respondents
paid petitioners' medical and hospitalization expenses. The CA held that, since no moral
damages was awarded, then there was no basis to grant exemplary damages. Finally, it ruled
that because moral and exemplary damages were not granted, then the award of attorney's
fees must also be deleted.
On March 6, 2013, the CA denied petitioners' Motion for Reconsideration.
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Issues
Hence, petitioners filed this Petition raising the issues as follows:
1. WHETHER OR NOT THE CASE OF PETITIONERS FALL[S] UNDER ARTICLES 20, 1157, 1759,
2176, 2180 AND 2219 OF THE CIVIL CODE TIIEREBY ENTITL[ING TIIEM] TO MORAL AND
EXEMPLARY DAMAGES AND ATIORNEY'S FEES;
2. WHETHER OR NOT THE X X X AWARD OF DAMAGES AND ATTORNEY'S FEES BY TIIE TRIAL
COURT BECAME FINAL AND EXECUTORY SINCE HEREIN RESPONDENTS DID NOT QUESTION
THE SAME IN THEIR APPEAL BUT MERELY QUESTIONED THE AMOUNTS OF AWARD [FOR
BEING] EXORBITANT.14
Petitioners'Arguments
Petitioners maintain that respondents are liable to pay them moral and exemplary damages
because the proximate cause of their injuries was the reckless driving of Quitan. As regards
Quiñones, his fault is presumed considering that he did not offer proof that he exercised
extraordinary diligence in the selection and supervision of his employees. They added that the
negligence of respondents resulted in the latter's failure to transport them to their
destination thereby constituting a breach of their contract of carriage. They also argued that
the RTC's grant of damages and attorney's fees in their favor already attained finality because
when respondents appealed to the CA, they only questioned the amounts given by the RTC
for being exorbitant, but not the award itself.
Respondents' Arguments
Respondents, on their end, posit that they are not liable to pay moral damages because their
acts were not attended by fraud or bad faith. They add that since petitioners are not entitled
to moral damages, then it follows that they are also not entitled to exemplary damages; and
same is true with regard to the grant of attorney's fees as the same necessitates the grant of
moral and exemplary damages.
Our Ruling
The Court denies the Petition.
First of all, petitioners contend that the awards of moral and exemplary damages and
attorney's fees by the RTC already attained finality because respondents did not dispute such
grants when they appealed to the CA but only the fact that the amounts were exorbitant.
Such contention is without merit.
A plain reading of the assigned errors15 and issues16 in the Appellants' Brief of respondents
with the CA reveals that they questioned the awards of moral and exemplary damages as well
as attorney's fees made by the RTC to petitioners. Since respondents timely challenged the
awards when they interposed an appeal to the CA, the same had not yet attained finality.
Going now to the main issue, the Court fully agrees with the CA ruling that in an action for
breach of contract, moral damages may be recovered only when a) death of a passenger
results; orb) the carrier was guilty of fraud and bad faith even if death does not result; and
that neither of these circumstances were present in the case at bar. The CA correctly held
that, since no moral damages was awarded then, there is no basis to grant exemplary
damages and attorney's fees to petitioners.
To stress, this case is one for breach of contract of carriage (culpa contractual) where it is
necessary to show the existence of the contract between the parties, and the failure of the
common carrier to transport its passenger safely to his or her destination. An action for
breach of contract differs from quasi-delicts (also referred as culpa aquiliana or culpa extra
contractual) as the latter emanate from the negligence of the tort feasor17 including such
instance where a person is injured in a vehicular accident by a party other than the carrier
where he 1s a passenger.
The principle that, in an action for breach of contract of carriage, moral damages may be
awarded only in case (1) an accident results in the death of a passenger; or (2) the carrier is
guilty of fraud or bad faith, is pursuant to Article 1764, in relation to Article 2206(3) of the Civil
Code, and Article 2220 thereof,18 as follows:
Article 1764. Damages in cases comprised in this Section shall be awarded in accordance with
Title XVIII of this Book, concerning Damages.1âwphi1 Article 2206 shall also apply to the death
of a passenger caused by the breach of contract by a common carrier. (Emphasis supplied)
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:
xxxx
(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.
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 badfaith.
(Emphasis supplied)
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The aforesaid concepts of fraud or bad faith and negligence are basic as they are distinctly
differentiated by law. Specifically, fraud or bad faith connotes "deliberate or wanton wrong
doing"19 or such deliberate disregard of contractual obligations20 while negligence amount to
sheer carelessness.21
More particularly, fraud includes "inducement through insidious machination."22 In turn,
insidious machination refers to such deceitful strategy or such plan with an evil purpose. On
the other hand, bad faith does not merely pertain to bad judgment or negligence but relates
to a dishonest purpose, and a deliberate doing of a wrongful act. Bad faith involves "breach
of a known duty through some motive or interest or ill will that partakes of the nature of
fraud. "23
In Viluan v. Court of Appeals,24 and Bulante v. Chu Liante, 25 the Court disallowed the recovery
of moral damages in actions for breach of contract for lack of showing that the common
carrier committed fraud or bad faith in performing its obligation. Similarly, in Verzosa v.
Baytan,26 the Court did not also grant moral damages in an action for breach of contract as
there was neither allegation nor proof that the common carrier committed fraud or bad
faith.27 The Court declared that "[t]o award moral damages for breach of contract, therefore,
without proof of bad faith or malice on the part of the defendant, as required by [Article 2220
of the Civil Code], would be to violate the clear provisions of the law, and constitute
unwarranted judicial legislation."28
Meanwhile, in Gatchalian v. Delim,29 and Mr. & Mrs. Fabre, Jr. v. Court of Appeals,30 the Court
found the common carriers liable for breach of contract of carriage and awarded moral
damages to the injured passengers on the ground that the common carrier committed gross
negligence, which amounted to bad faith. Particularly, in Mr. & Mrs. Fabre, Jr., the gross
negligence of the common carrier was determined from the fact that its driver was not
engaged to drive long distance travels; he was also unfamiliar with the area where he
detoured the bus as it was his first time to ply such route; the road was slippery because it
was raining, yet the bus was running at 50 kilometers per hour resulting in its skidding to the
left shoulder of the road; and the bus hit the steel brace on the road at past 11:30 p.m. The
Court also noted that other than the imputation of gross negligence, the injured passengers
therein pursued their claim not on the theory of breach of contract of carriage alone but also
on quasi-delicts.
Clearly, unless it is fully established (and not just lightly inferred) that negligence in an action
for breach of contract is so gross as to amount to malice, then the claim of moral damages is
without merit.31
Here, petitioners impute negligence on the part of respondents when, as paying passengers,
they sustained injuries when the bus owned and operated by respondent Quiñones, and
driven by respondent Quitan, collided with another vehicle. Petitioners propounded on the
negligence of respondents, but did not discuss or impute fraud or bad faith, or such gross
negligence which would amount to bad faith, against respondents. There being neither
allegation nor proof that respondents acted in fraud or in bad faith in performing their duties
arising from their contract of carriage, they are then not liable for moral damages.

The Court also sustains the CA's finding that petitioners are not entitled to exemplary
damages. Pursuant to Articles 2229 and 223432 of the Civil Code, exemplary damages may be
awarded only in addition to moral, temperate, liquidated, or compensatory damages. Since
petitioners are not entitled to either moral, temperate, liquidated, or compensatory damages,
then their claim for exemplary damages is bereft of merit.

Finally, considering the absence of any of the circumstances under Article 220833 of the Civil
Code where attorney's fees may be awarded, the same cannot be granted to petitioners.

All told, the CA correctly ruled that petitioners are not entitled to moral and exemplary
damages as well as attorney's fees.

WHEREFORE, the Petition is DENIED. The October 29, 2012 Decision and March 6, 2013
Resolution of the Court of Appeals in CA-G.R. CV No. 95638 are AFFIRMED.

SO ORDERED.

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