Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-18965 October 30, 1964

COMPAIA MARITIMA, petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, respondent. Rafael Dinglasan for petitioner. Ozaeta Gibbs & Ozaeta for respondent. BAUTISTA ANGELO, J.: Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the services of the Compaia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the former's Sasa private pier at Davao City to Manila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral contract was later on confirmed by a formal and written booking issued by Macleod's branch office in Sasa and handcarried to Compaia Maritima's branch office in Davao in compliance with which the latter sent to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp was completed on October 29, 1952. These two lighters were manned each by a patron and an assistant patron. The patrons of both barges issued the corresponding carrier's receipts and that issued by the patron of Barge No. 1025 reads in part: Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator. FINAL DESTINATION: Boston. Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the government's marginal wharf in the same place to await the arrival of the S.S. Bowline Knot belonging to Compaia Maritima on which the hemp was to be loaded. During the night of October 29, 1952, or at the early hours of October 30, LCT No. 1025 sank, resulting in the damage or loss of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified the carrier's main office in Manila and its branch in Davao advising it of its liability. The damaged hemp was brought to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying. During the period from November 1-15, 1952, the carrier's trucks and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out

of the original cargo of 1,162 bales weighing 2,324 piculs which had a total value of 116,835.00. After reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a loss in value of P31,947.72. Adding to this last amount the sum of P8,863.30 representing Macleod's expenses in checking, grading, rebating, and other fees for washing, cleaning and redrying in the amount of P19.610.00, the total loss adds up to P60,421.02. All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025, were insured with the Insurance Company of North America against all losses and damages. In due time, Macleod filed a claim for the loss it suffered as above stated with said insurance company, and after the same had been processed, the sum of P64,018.55 was paid, which was noted down in a document which aside from being a receipt of the amount paid, was a subrogation agreement between Macleod and the insurance company wherein the former assigned to the latter its rights over the insured and damaged cargo. Having failed to recover from the carrier the sum of P60,421.02, which is the only amount supported by receipts, the insurance company instituted the present action on October 28, 1953. After trial, the court a quo rendered judgment ordering the carrier to pay the insurance company the sum of P60,421.02, with legal interest thereon from the date of the filing of the complaint until fully paid, and the costs. This judgment was affirmed by the Court of Appeals on December 14, 1960. Hence, this petition for review. The issues posed before us are: (1) Was there a contract of carriage between the carrier and the shipper even if the loss occurred when the hemp was loaded on a barge owned by the carrier which was loaded free of charge and was not actually loaded on the S.S. Bowline Knot which would carry the hemp to Manila and no bill of lading was issued therefore?; (2) Was the damage caused to the cargo or the sinking of the barge where it was loaded due to a fortuitous event, storm or natural disaster that would exempt the carrier from liability?; (3) Can respondent insurance company sue the carrier under its insurance contract as assignee of Macleod in spite of the fact that the liability of the carrier as insurer is not recognized in this jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an implied admission by the carrier of the correctness and sufficiency of the shipper's statement of accounts contrary to the burden of proof rule?; and (5) Can the insurance company maintain this suit without proof of its personality to do so? 1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and Company contracted by telephone the services of petitioner to ship the hemp in question from the former's private pier at Sasa, Davao City, to Manila, to be subsequently transhipped to Boston, Massachusetts, U.S.A., which oral contract was later confirmed by a formal and written booking issued by the shipper's branch office, Davao City, in virtue of which the carrier sent two of its lighters to undertake the service. It also appears that the patrons of said lighters were employees of the carrier with due authority to undertake the transportation and to sign the documents that may

be necessary therefor so much so that the patron of LCT No. 1025 signed the receipt covering the cargo of hemp loaded therein as follows: . Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator. FINAL DESTINATION: Boston. The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage. The lighters were merely employed as the first step of the voyage, but once that step was taken and the hemp delivered to the carrier's employees, the rights and obligations of the parties attached thereby subjecting them to the principles and usages of the maritime law. In other words, here we have a complete contract of carriage the consummation of which has already begun: the shipper delivering the cargo to the carrier, and the latter taking possession thereof by placing it on a lighter manned by its authorized employees, under which Macleod became entitled to the privilege secured to him by law for its safe transportation and delivery, and the carrier to the full payment of its freight upon completion of the voyage. The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and deliver, and if actually no goods are received there can be no such contract. The liability and responsibility of the carrier under a contract for the carriage of goods commence on their actual delivery to, or receipt by, the carrier or an authorized agent. ... and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is the custom to deliver in that way, is a good delivery and binds the vessel receiving the freight, the liability commencing at the time of delivery to the lighter. ... and, similarly, where there is a contract to carry goods from one port to another, and they cannot be loaded directly on the vessel and lighters are sent by the vessel to bring the goods to it, the lighters are for the time its substitutes, so that the bill of landing is applicable to the goods as soon as they are placed on the lighters. (80 C.J.S., p. 901, emphasis supplied) ... The test as to whether the relation of shipper and carrier had been established is, Had the control and possession of the cotton been completely surrendered by the shipper to the railroad company? Whenever the control and possession of goods passes to the carrier and nothing remains to be done by the shipper, then it can be said with certainty that the relation of shipper and carrier has been established. Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W. 419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v. St. L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W. 148).

The claim that there can be no contract of affreightment because the hemp was not actually loaded on the ship that was to take it from Davao City to Manila is of no moment, for, as already stated, the delivery of the hemp to the carrier's lighter is in line with the contract. In fact, the receipt signed by the patron of the lighter that carried the hemp stated that he was receiving the cargo "in behalf of S.S. Bowline Knot in good order and condition." On the other hand, the authorities are to the effect that a bill of lading is not indispensable for the creation of a contract of carriage. Bill of lading not indispensable to contract of carriage. As to the issuance of a bill of lading, although article 350 of the Code of Commerce provides that "the shipper as well as the carrier of merchandise or goods may mutua-lly demand that a bill of lading is not indispensable. As regards the form of the contract of carriage it can be said that provided that there is a meeting of the minds and from such meeting arise rights and obligations, there should be no limitations as to form." The bill of lading is not essential to the contract, although it may become obligatory by reason of the regulations of railroad companies, or as a condition imposed in the contract by the agreement of the parties themselves. The bill of lading is juridically a documentary proof of the stipulations and conditions agreed upon by both parties. (Del Viso, pp. 314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the Code does not demand, as necessary requisite in the contract of transportation, the delivery of the bill of lading to the shipper, but gives right to both the carrier and the shipper to mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895). (Martin, Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13) The liability of the carrier as common carrier begins with the actual delivery of the goods for transportation, and not merely with the formal execution of a receipt or bill of lading; the issuance of a bill of lading is not necessary to complete delivery and acceptance. Even where it is provided by statute that liability commences with the issuance of the bill of lading, actual delivery and acceptance are sufficient to bind the carrier. (13 C.J.S., p. 288) 2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind the claim offorce majeure or storm which occurred on the night of October 29, 1952. But the evidence fails to bear this out. Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but to lack of adequate precautions or measures taken by the carrier to prevent the loss as may be inferred from the following findings of the Court of Appeals: Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea water in the same manner as rain entered "thru tank man-holes", according to the patron of LCT No. 1023 (exh. JJJ-4) conclusively showing that the barge was not seaworthy it should be noted that on the night of the nautical

accident there was no storm, flood, or other natural disaster or calamity. Certainly, winds of 11 miles per hour, although stronger than the average 4.6 miles per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot be classified as storm. For according to Beaufort's wind scale, a storm has wind velocities of from 64 to 75 miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of from 55 to 74 miles per hour in order to be classified as storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co., CA-G.R. No. 23167-R, March 12, 1959). The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors, attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions of various buoyancy compartments' (exh. JJJ); and this report finds confirmation on the above-mentioned admission of two witnesses for appellant concerning the cracks of the lighter's bottom and the entrance of the rain water 'thru manholes'." We are not prepared to dispute this finding of the Court of Appeals. 3. There can also be no doubt that the insurance company can recover from the carrier as assignee of the owner of the cargo for the insurance amount it paid to the latter under the insurance contract. And this is so because since the cargo that was damaged was insured with respondent company and the latter paid the amount represented by the loss, it is but fair that it be given the right to recover from the party responsible for the loss. The instant case, therefore, is not one between the insured and the insurer, but one between the shipper and the carrier, because the insurance company merely stepped into the shoes of the shipper. And since the shipper has a direct cause of action against the carrier on account of the damage of the cargo, no valid reason is seen why such action cannot be asserted or availed of by the insurance company as a subrogee of the shipper. Nor can the carrier set up as a defense any defect in the insurance policy not only because it is not a privy to it but also because it cannot avoid its liability to the shipper under the contract of carriage which binds it to pay any loss that may be caused to the cargo involved therein. Thus, we find fitting the following comments of the Court of Appeals: It was not imperative and necessary for the trial court to pass upon the question of whether or not the disputed abaca cargo was covered by Marine Open Cargo Policy No. MK-134 isued by appellee. Appellant was neither a party nor privy to this insurance contract, and therefore cannot avail itself of any defect in the policy which may constitute a valid reason for appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway, whatever defect the policy contained, if any, is deemed to have been waived by the subsequent payment of Macleod's claim by appellee. Besides, appellant is herein sued in its capacity as a common carrier, and appellee is suing as the assignee of the shipper pursuant to exhibit MM. Since, as above demonstrated, appellant is liable to Macleod and Company of the Philippines for the los or damage to the 1,162 bales of hemp after these were received in good order and condition by the patron of appellant's LCT No. 1025, it necessarily follows that appellant is likewise liable to appellee

who, as assignee of Macleod, merely stepped into the shoes of and substi-tuted the latter in demanding from appellant the payment for the loss and damage aforecited. 4. It should be recalled in connection with this issue that during the trial of this case the carrier asked the lower court to order the production of the books of accounts of the Odell Plantation containing the charges it made for the loss of the damaged hemp for verification of its accountants, but later it desisted therefrom on the claim that it finds their production no longer necessary. This desistance notwithstanding, the shipper however pre-sented other documents to prove the damage it suffered in connection with the cargo and on the strength thereof the court a quo ordered the carrier to pay the sum of P60,421.02. And after the Court of Appeals affirmed this award upon the theory that the desistance of the carrier from producing the books of accounts of Odell Plantation implies an admission of the correctness of the statements of accounts contained therein, petitioner now contends that the Court of Appeals erred in basing the affirmance of the award on such erroneous interpretation. There is reason to believe that the act of petitioner in waiving its right to have the books of accounts of Odell Plantation presented in court is tantamount to an admission that the statements contained therein are correct and their verification not necessary because its main defense here, as well as below, was that it is not liable for the loss because there was no contract of carriage between it and the shipper and the loss caused, if any, was due to a fortuitous event. Hence, under the carrier's theory, the correctness of the account representing the loss was not so material as would necessitate the presentation of the books in question. At any rate, even if the books of accounts were not produced, the correctness of the accounts cannot now be disputed for the same is supported by the original documents on which the entries in said books were based which were presented by the shipper as part of its evidence. And according to the Court of Appeals, these documents alone sufficiently establish the award of P60,412.02 made in favor of respondent. 5. Finally, with regard to the question concerning the personality of the insurance company to maintain this action, we find the same of no importance, for the attorney himself of the carrier admitted in open court that it is a foreign corporation doing business in the Philippines with a personality to file the present action. WHEREFORE, the decision appealed from is affirmed, with costs against petitioner. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-9840 April 22, 1957

LU DO & LU YM CORPORATION, petitioner-defendant, vs. I. V. BINAMIRA, respondent-plaintiff. Ross, Selph, Carrascoso and Janda for petitioner. I. V. Binamira in his own behalf. BAUTISTA ANGELO, J.: On April 4, 1954, plaintiff filed an action in the Court of First Instance of Cebu against defendant to recover the sum of P324.63 as value of certain missing shipment, P150 as actual and compensatory damages, and P600 as moral and pecuniary damages. After trial, the court rendered judgment ordering defendant to pay plaintiff the sum of P216.84, with legal interest. On appeal, the Court of Appeals affirmed the judgment, hence the present petition for review. On August 10, 1951, the Delta Photo Supply Company of New York shipped on board the M/S "FERNSIDE" at New York, U.S.A., six cases of films and/or photographic supplies consigned to the order of respondent I. V. Binamira. For this shipment, Bill of Lading No. 29 was issued. The ship arrived at the port of Cebu on September 23, 1951 and discharged her cargo on September 23, and 24, 1951, including the shipment in question, placing it in the possession and custody of the arrastre operator of said port, the Visayan Cebu Terminal Company, Inc. Petitioner, as agent of the carrier, hired the Cebu Stevedoring Company, Inc. to unload its cargo. During the discharge, good order cargo was separated from the bad order cargo on board the ship, and a separate list of bad order cargo was prepared by Pascual Villamor, checker of the stevedoring company. All the cargo unloaded was received at the pier by the Visayan Cebu Terminal Company Inc, arrastre operator of the port. This terminal company had also its own checker, Romeo Quijano, who also recorded and noted down the good cargo from the bad one. The shipment in question, was not included in the report of bad order cargo of both checkers, indicating that it was discharged from the, ship in good order and condition. On September 26, 1951, three days after the goods were unloaded from the ship, respondent took delivery of his six cases of photographic supplies from the arrastre operator. He discovered that the cases showed signs of pilferage and, consequently, he hired marine surveyors, R. J. del Pan & Company, Inc., to examine them. The surveyors examined the cases and made a physical count of their contents in the presence of representatives of petitioner, respondent and the stevedoring company. The surveyors examined the cases and made a physical count of their contents in the presence of representatives of petitioner, respondent and the stevedoring company. The finding of the surveyors showed that some films and photographic supplies were missing valued at P324.63.

It appears from the evidence that the six cases of films and photographic supplies were discharged from the ship at the port of Cebu by the stevedoring company hired by petitioner as agent of the carrier. All the unloaded cargo, including the shipment in question, was received by the Visayan Cebu Terminal Company Inc., the arrastre operator appointed by the Bureau of Customs. It also appears that during the discharge, the cargo was checked both by the stevedoring company hired by petitioner as well as by the arrastre operator of the port, and the shipment in question, when discharged from the ship, was found to be in good order and condition. But after it was delivered to respondent three days later, the same was examined by a marine surveyor who found that some films and supplies were missing valued at P324.63. The question now to be considered is: Is the carrier responsible for the loss considering that the same occurred after the shipment was discharged from the ship and placed in the possession and custody of the customs authorities? The Court of Appeals found for the affirmative, making on this point the following comment: In this jurisdiction, a common carrier has the legal duty to deliver goods to a consignee in the same condition in which it received them. Except where the loss, destruction or deterioration of the merchandise was due to any of the cases enumerated in Article 1734 of the new Civil Code, a carrier is presumed to have been at fault and to have acted negligently, unless it could prove that it observed extraordinary diligence in the care and handling of the goods (Article 1735, supra). Such presumption and the liability of the carrier attach until the goods are delivered actually or constructively, to the consignee, or to the person who has a right to receive them (Article 1736, supra), and we believe delivery to the customs authorities is not the delivery contemplated by Article 1736, supra, in connection with second paragraph of Article 1498,supra, because, in such a case, the goods are then still in the hands of the Government and their owner could not exercise dominion whatever over them until the duties are paid. In the case at bar, the presumption against the carrier, represented appellant as its agent, has not been successfully rebutted. It is now contended that the Court of Appeals erred in its finding not only because it made wrong interpretation of the law on the matter, but also because it ignored the provisions of the bill of lading covering the shipment wherein it was stipulated that the responsibility of the carrier is limited only to losses that may occur while the cargo is still under its custody and control. We believe this contention is well taken. It is true that, as a rule, a common carrier is responsible for the loss, destruction or deterioration of the goods it assumes to carry from one place to another unless the same is due to any to any of the causes mentioned in Article 1734 on the new Civil Code, and that, if the goods are lost, destroyed or deteriorated, for causes other that those mentioned, the common carrier

is presumed to have been at fault or to have acted negligently, unless it proves that it has observed extraordinary diligence in their care (Article 1735, Idem.), and that this extraordinary liability lasts from the time the goods are placed in the possession of the carrier until they are delivered to the consignee, or "to the person who has the right to receive them" (Article 1736, Idem.), but these provisions only apply when the loss, destruction or deterioration takes place while the goods are in the possession of the carrier, and not after it has lost control of them. The reason is obvious. While the goods are in its possession, it is but fair that it exercise extraordinary diligence in protecting them from damage, and if loss occurs, the law presumes that it was due to its fault or negligence. This is necessary to protect the interest the interest of the owner who is at its mercy. The situation changes after the goods are delivered to the consignee. While we agree with the Court of Appeals that while delivery of the cargo to the consignee, or to the person who has a right to receive them", contemplated in Article 1736, because in such case the goods are still in the hands of the Government and the owner cannot exercise dominion over them, we believe however that the parties may agree to limit the liability of the carrier considering that the goods have still to through the inspection of the customs authorities before they are actually turned over to the consignee. This is a situation where we may say that the carrier losses control of the goods because of a custom regulation and it is unfair that it be made responsible for what may happen during the interregnum. And this is precisely what was done by the parties herein. In the bill of lading that was issued covering the shipment in question, both the carrier and the consignee have stipulated to limit the responsibility of the carrier for the loss or damage that may because to the goods before they are actually delivered by insert in therein the following provisions: 1. . . . The Carrier shall not be liable in any capacity whatsoever for any delay, nondelivery or misdelivery, or loss of or damage to the goods occurring while the goods are not in the actual custody of the Carrier. . . . (Emphasis ours.) (Paragraph 1, Exhibit "1") 2. . . . The responsibility of the Carrier in any capacity shall altogether cease and the goods shall be considered to be delivered and at their own risk and expense in every respect when taken into the custody of customs or other authorities. The Carrier shall not be required to give any notification of disposition of the goods. . . . (Emphasis ours.) (Paragraph 12, Exhibit "1") 3. Any provisions herein to the contrary notwithstanding, goods may be . . . by Carrier at ship's tackle . . . and delivery beyond ship's tackle shall been tirely at the option of the Carrier and solely at the expense of the shipper or consignee. (Paragraph 22, Exhibit "1")

It therefore appears clear that the carrier does not assume liability for any loss or damage to the goods once they have been "taken into the custody of customs or other authorities", or when they have been delivered at ship's tackle. These stipulations are clear. They have been adopted precisely to mitigate the responsibility of the carrier considering the present law on the matter, and we find nothing therein that is contrary to morals or public policy that may justify their nullification. We are therefore persuaded to conclude that the carrier is not responsible for the loss in question, it appearing that the same happened after the shipment had been delivered to the customs authorities. Wherefore, the decision appealed from is reversed, without pronouncement as to costs. Bengzon, Padilla, Montemayor, Reyes, A., Labrador, Concepcion, Reyes, J.B.L. Endencia and Felix, JJ., concur.
FIRST DIVISION [G.R. No. L-15671. November 29, 1960.] AMERICAN PRESIDENT LINES, LTD., petitioner, vs. RICHARD A. KLEPPER, ET AL., respondents. Ross, Selph & Carrascoso for petitioner. Ozaeta, Gibbs & Ozaeta for respondent. J. A. Wolfson as amicus curiae. SYLLABUS 1. COMMON CARRIERS; NATURE AND EXTENT OF RESPONSIBILITY. The responsibility of a common carrier is extraordinary and lasts from the time the goods are placed in its possession until they are delivered, actually or constructively, to the consignee or to the person who has a right to receive them. It can only be exempt therefrom for causes enumerated in Article 1734 of the New Civil Code. 2. ID.; BILL OF LADING; WHEN BINDING UPON CONSIGNEE ALTHOUGH NOT SIGNED BY HIM OR BY HIS AGENT. Where the bill of lading provides that a shipper or consignee who accepts the bill becomes bound by all the stipulations contained therein, the said shipper or consignee cannot elude its provisions simply because they prejudice him and take advantage of those that are beneficial to him. In the case at bar, the fact that the shipper and consignee paid the corresponding freight on his goods, shows that he impliedly accepted the bill of lading which was issued in connection with his shipment. Hence, the same is binding upon him as if it had been actually signed by him or by any person in his behalf. 3. ID.; ID PROVISION IN CARRIAGE OF GOODS BY SEA ACT LIMITING CARRIER'S LIABILITY TO $500.00. Article 1753 of the Civil Code provides that the law of the country to which the goods are to be transported shall govern the liability of the common carrier in case of loss, destruction or deterioration. This means the law of the Philippines, or the Civil Code. Under Article 1766, "In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws," and in the Civil Code there are provisions that govern said rights and obligations (Articles 1736, 1737 and 1738). Therefore, although Section 4 (5) of the Carriage of Goods by Sea Act states that the carrier shall not be liable in an amount exceeding $500.00 per package unless the value of the goods had been declared by the shipper and inserted in the bill of lading, said section is merely suppletory to the provisions of the Civil Code. DECISION BAUTISTA ANGELO, J p: Richard A. Klepper brought this action before the Court of First Instance of Manila to recover the sum of P6,729.50 as damages allegedly sustained by his goods contained in a lift van which fell to the ground while being unloaded from a ship owned and operated by the American President Lines, Ltd.

to the pier, plus the sum of P2,000.00 as sentimental value of the damaged goods and attorney's fees. It appears that on February 17, 1955, Klepper shipped on board the S.S. President Cleveland at Yokohama, Japan one life van under bill of lading No, 82, containing personal and household effects. The ship arrived in the port of Manila on February 22, 1995 and while the lift van was being unloaded by the Gantry crane operated by Delgado Brothers, Inc., it fell on the pier and its contents were spilled and scattered. A survey was made and the result was that Klepper suffered damages totalling P6,729.50 arising out of the breakage, denting and smashing of the goods. The trial court, on November 5, 1957, rendered decision ordering the shipping company to pay plaintiff the sum of P6,729.50, value of the goods damaged, plus P500.00 as their sentimental value, with legal interest from the filing of the complaint, and the sum of P1,000.00 as attorney's fees. The court ordered that, once the judgment is satisfied, co-defendant Delgado Brothers, Inc. should pay the shipping company the same amounts by way of reimbursement. Both defendants appealed to the Court of Appeals which affirmed in toto the decision of the trial court. The shipping company interposed the present petition for review. Anent the liability of petitioner relative to the damage caused to the goods in question, the Court of Appeals made the following comment: "At the outset, it may be well to state that the party primarily liable to plaintiff is appellant American President Lines, Ltd., the carrier whose duty it was to deliver the cargo in good order to the consignee. Articles 1734, 1736, Civil code; Articles 355, 363, Code of Commerce. This appellant does not question the finding below that the damage to plaintiff's goods was due to negligence." To this we agree. And we may add that, regardless of its negligence, the shipping company's liability would attach because being a common carrier its responsibility is extraordinary and lasts from the time the goods are placed in its possession until they are delivered, actually or constructively, to the consignee or to the person who has a right to receive them (Article 1736, Idem.) It can only be exempt therefrom for causes enumerated in Article 1734. But, while petitioner does not dispute its liability as common carrier, it however contends that the same cannot exceed $500.00 invoking in its favor the bill of lading Exhibit A and Section 4(5) of the Carriage of Goods by Sea Act (Commonwealth Act No. 65). The pertinent provision of the bill of lading alluded to is clause 17 which in part provides: "17. In case of any loss or damage to or in connection with goods exceeding in actual value $500 lawful money of the United States, per package, . . . the value of the goods shall be deemed to be $500 per package . . . on which basis the freight is adjusted and the Carrier's liability, if any, shall be determined on the basis of a value of $500 per package . . . or pro rata in case of partial loss or damage, unless the nature of the goods and a valuation higher than $500 shall have been declared in writing by the shipper upon delivery to the Carrier and inserted in this bill of lading and extra freight paid if required and in such case if the actual value of the goods per package . . . shall exceed such declared value, the value shall nevertheless be deemed to be the declared value and the Carrier's liability, if any, shall not exceed the declared value and any partial loss or damage shall be adjusted pro rata on the basis of such declared value." While it is apparent from the above that the carrier has expressly agreed that in case of any loss or damage to the goods in question exceeding the sum of $500.00 per package the extent of its liability shall be deemed to be merely $500.00 per package, and not more, the Court of Appeals ruled out the above stipulation, holding that the same is not binding upon the shipper. Its reasoning follows: "Neither plaintiff nor any agent of his signed the bill of lading; neither has agreed to the two clauses just recited. In fact, plaintiff received the bill of lading only after he had arrived at Manila. In this posture and lifting from the decision of the Supreme Court in Mirasol vs. Robert Dollar Co., 53 Phil., 124, 128, we hold that plaintiff 'was not legally bound by the clause which purports to limit defendants' liability'". Petitioner now assigns this finding as an error. We are inclined to agree to this contention. Firstly, we cannot but take note of the following clause printed in red ink that appears on the very face of the bill of lading: "IN ACCEPTING THIS BILL OF LADING the shipper, consignee and owner of the goods agree to be bound by all its stipulations,

exceptions, and conditions whether written, printed, or stamped on the front or back hereof, any local customs or privileges to the contrary notwithstanding." This clause is very revealing. It says that a shipper or consignee who accepts the bill of lading becomes bound by all stipulations contained therein whether on the front or back thereof. Respondent cannot elude its provisions simply because they prejudice him and take advantage of those that are beneficial. Secondly, the fact that respondent shipped his goods on board the ship of petitioner and paid the corresponding freight thereon shows that he impliedly accepted the bill of lading which was issued in connection with the shipment in question, and so it may be said that the same is binding upon him as if it has been actually signed by him or by any other person in his behalf. This is more so where respondent is both the shipper and the consignee of the goods in question. These circumstances take this case out of our ruling in the Mirasol case (invoked by the Court of Appeals) and places it within our doctrine in the case of Mendoza vs. Philippines Air Lines, Inc., (90 Phil., 836), where we said: ". . . Later, as already said, he says that he was never a party to the contract of transportation and was a complete stranger to it, and that he is now suing on a tort or a violation of his rights as a stranger (culpa aquiliana). If he does not invoke the contract of carriage entered into with the defendant company, then he would hardly have any leg to stand on. His right to prompt delivery of the can of film at the Pili Air Port stems and is derived from the contract of carriage under which contract, the PAL undertook to carry the can of film safely and to deliver it to him promptly. Take away or ignore that contract and the obligation to carry and to deliver the right to prompt delivery disappear. Common carriers are not obligated by law to carry and to deliver merchandise, and persons are not vested with the right to prompt delivery, unless such common carriers previously assume the obligation. Said rights and obligations are created by a specific contract entered into by the parties. xxx xxx xxx "Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the stipulations of delivery to Mendoza as consignee. His demand for the delivery of the can of film to him at the Pili Air Port may be regarded as a notice of his acceptance of the stipulation of the delivery in his favor contained in the contract of carriage, such demand being one for the fulfillment of the contract of carriage and delivery. In this case he also made himself a party to the contract, or at least has come to court to enforce it. His cause of action must necessarily be founded on its breach." With regard to the contention that the Carriage of Goods by Sea Act should also control this case, the same is of no moment. Article 1753 1 provides that the law of the country to which the goods are to be transported shall govern the liability of the common carrier in case of loss, destruction or deterioration. This means the law of the Philippines, or our new Civil Code. Under Article 1766, "In all matters not regulated by this Code, the rights and obligations of common carriers shall be governed by the Code of Commerce and by special laws," and here we have provisions that govern said rights and obligations (Articles 1736, 1737, and 1738). Therefore, although Section 4(5) of the Carriage of Goods by Sea Act states that the carrier shall not be liable in an amount exceeding $500.00 per package unless the value of the goods had been declared by the shipper and inserted in the bill of lading, said section is merely suppletory to the provisions of the Civil Code. In this respect, we agree to the opinion of the Court of Appeals. On the strength of the opinion we have above expressed, we are constrained to rule that the liability of the carrier with regard to the damage of the goods should only be limited to $500.00 contrary to the conclusion reached by the Court of Appeals. Wherefore, with the modification that petitioner shipping company should only pay to respondent the sum of $500.00 as value of the goods damaged, the decision appealed from should be affirmed in all other respects, without pronouncement as to costs. Paras, C.J., Bengzon, Padilla, Labrador, Barrera, Gutierrez David, Paredes and Dizon, JJ., concur. Separate Opinions REYES, J. B. L., J., concurring. I concur specifically in view of the difference in requisites between Article 1744 and Article 1749 of the Civil Code of the Philippines.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. 97412 July 12, 1994 EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner. Zapa Law Office for private respondent.

VITUG, J.: The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%). The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced: This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages. On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D). On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E). Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L). As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.) There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said: Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it. From the evidence the court found the following:

The issues are: 1. Whether or not the shipment sustained losses/damages; 2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable); 3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38). As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order. Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at

the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3Eastern) states that on December 12, 1981 one drum was found "open". and thus held: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: A. Ordering defendants to pay plaintiff, jointly and severally: 1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract); 2. P3,000.00 as attorney's fees, and 3. Costs. B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation. SO ORDERED. (p. 207, Record). Dissatisfied, defendant's recourse to US. The appeal is devoid of merit. After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.) The Court of Appeals thus affirmed in toto the judgment of the court a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION; II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED. The petition is, in part, granted. In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to. The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive 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 (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to this case. The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum,thus: The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator

(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it. It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark. Let us first see a chronological recitation of the major rulings of this Court: The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled: Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." And as was held by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and

not known until definitely ascertained, assessed and determined by the courts after proof (Montilla c.Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman, 38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of Property." After trial, the lower court decreed: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows: Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons: xxx xxx xxx (g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis supplied.) On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text) should have, instead, been applied. This Court 6 ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. xxx xxx xxx Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum. The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court 8modified the interest award from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid. In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co., Inc. (one of the petitioners) . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus: WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.

p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied) A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per annum imposed on the total amount of the monetary award was in contravention of law." The Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained: There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the imposition of the interest. It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.) The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate court and

rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied) Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held: WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.) The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said: . . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate"from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment contract like the case at bar. (Emphasis supplied) The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid. Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared: . . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding

interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply. Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate Appellate Court (1988). In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid. The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest. Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and

Sons case ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid. The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance. I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20 II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 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. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 22 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 23 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 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 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. WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on

the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof. SO ORDERED. Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur. Mendoza, J., took no part. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-16598 October 3, 1921

H. E. HEACOCK COMPANY, plaintiff-appellant, vs. MACONDRAY & COMPANY, INC., defendant-appellant. Fisher & DeWitt for plaintiff-appellant. Wolfson, Wolfson & Schwarzkopf for defendant-appellant.

JOHNSON, J.: This action was commenced in the Court of First Instance of the City of Manila to recover the sum of P240 together with interest thereon. The facts are stipulated by the parties, and are, briefly, as follows: (1) On or about the 5th day of June, 1919, the plaintiff caused to be delivered on board of steamship Bolton Castle, then in the harbor of New York, four cases of merchandise one of which contained twelve (12) 8-day Edmond clocks properly boxed and marked for transportation to Manila, and paid freight on said clocks from New York to Manila in advance. The said steampship arrived in the port of Manila on or about the 10th day of September, 1919, consigned to the defendant herein as agent and representative of said vessel in said port. Neither the master of said vessel nor the defendant herein, as its agent, delivered to the plaintiff the aforesaid twelve 8-day Edmond clocks, although demand was made upon them for their delivery.

(2) The invoice value of the said twelve 8-day Edmond clocks in the city of New York was P22 and the market value of the same in the City of Manila at the time when they should have been delivered to the plaintiff was P420. (3) The bill of lading issued and delivered to the plaintiff by the master of the said steamship Bolton Castlecontained, among others, the following clauses: 1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per freight ton, or, in proportion for any part of a ton, unless the value be expressly stated herein and ad valorem freight paid thereon. 9. Also, that in the event of claims for short delivery of, or damage to, cargo being made, the carrier shall not be liable for more than the net invoice price plus freight and insurance less all charges saved, and any loss or damage for which the carrier may be liable shall be adjusted pro rata on the said basis. (4) The case containing the aforesaid twelve 8-day Edmond clocks measured 3 cubic feet, and the freight ton value thereof was $1,480, U. S. currency. (5) No greater value than $500, U. S. currency, per freight ton was declared by the plaintiff on the aforesaid clocks, and no ad valorem freight was paid thereon. (6) On or about October 9, 1919, the defendant tendered to the plaintiff P76.36, the proportionate freight ton value of the aforesaid twelve 8-day Edmond clocks, in payment of plaintiff's claim, which tender plaintiff rejected. The lower court, in accordance with clause 9 of the bill of lading above quoted, rendered judgment in favor of the plaintiff against the defendant for the sum of P226.02, this being the invoice value of the clocks in question plus the freight and insurance thereon, with legal interest thereon from November 20, 1919, the date of the complaint, together with costs. From that judgment both parties appealed to this court. The plaintiff-appellant insists that it is entitled to recover from the defendant the market value of the clocks in question, to wit: the sum of P420. The defendantappellant, on the other hand, contends that, in accordance with clause 1 of the bill of lading, the plaintiff is entitled to recover only the sum of P76.36, the proportionate freight ton value of the said clocks. The claim of the plaintiff is based upon the argument that the two clause in the bill of lading above quoted, limiting the liability of the carrier, are contrary to public order and, therefore, null and void. The defendant, on the other hand, contends that both of said clauses are valid, and the clause 1 should have been applied by the lower court instead of clause 9.

I. The appeal of the plaintiff presents this question; May a common carrier, by stipulations inserted in the bill of lading, limit its liability for the loss of or damage to the cargo to an agreed valuation of the latter?
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Three kinds of stipulations have often been made in a bill of lading. The first is one exempting the carrier from any and all liability for loss or damage occasioned by its own negligence. The second is one providing for an unqualified limitation of such liability to an agreed valuation. And the third is one limiting the liability of the carrier to an agreed valuation unless the shipper declares a higher value and pays a higher rate of freight. According to an almost uniform weight of authority, the first and second kinds of stipulations are invalid as being contrary to public policy, but the third is valid and enforceable. The authorities relied upon by the plaintiff-appellant (the Harter Act [Act of Congress of February 13, 1893]: Louisville Ry. Co. vs. Wynn, 88 Tenn., 320; and Galt vs. Adams Express Co., 4 McAr., 124; 48 Am. Rep., 742) support the proposition that the first and second stipulations in a bill of lading are invalid which either exempt the carrier from liability for loss or damage occasioned by its negligence, or provide for an unqualified limitation of such liability to an agreed valuation. A reading of clauses 1 and 9 of the bill of lading here in question, however, clearly shows that the present case falls within the third stipulation, to wit: That a clause in a bill of lading limiting the liability of the carrier to a certain amount unless the shipper declares a higher value and pays a higher rate of freight, is valid and enforceable. This proposition is supported by a uniform lien of decisions of the Supreme Court of the United States rendered both prior and subsequent to the passage of the Harter Act, from the case of Hart vs.Pennsylvania R. R. Co. (decided Nov. 24, 1884; 112 U. S., 331), to the case of the Union Pacific Ry. Co. vs. Burke (decided Feb. 28, 1921, Advance Opinions, 1920-1921, p. 318). In the case of Hart vs. Pennsylvania R. R. Co., supra, it was held that "where a contract of carriage, signed by the shipper, is fairly made with a railroad company, agreeing on a valuation of the property carried, with the rate of freight based on the condition that the carrier assumes liability only to the extent of the agreed valuation, even in case of loss or damage by the negligence of the carrier, the contract will be upheld as proper and lawful mode of securing a due proportion between the amount for which the carrier may be responsible and the freight he receives, and protecting himself against extravagant and fanciful valuations." In the case of Union Pacific Railway Co. vs. Burke, supra, the court said: "In many cases, from the decision in Hart vs. Pennsylvania R. R. Co. (112 U. S. 331; 28 L. ed., 717; 5 Sup. Ct. Rep., 151, decided in 1884), to Boston and M. R. Co. vs. Piper (246 U. S., 439; 62 L. ed., 820; 38 Sup. Ct. Rep., 354; Ann. Cas. 1918 E, 469, decided in 1918), it has been declared to be the settled Federal law that if a common carrier gives to a shipper the choice of two rates, the lower of the conditioned upon his

agreeing to a stipulated valuation of his property in case of loss, even by the carrier's negligence, if the shipper makes such a choice, understandingly and freely, and names his valuation, he cannot thereafter recover more than the value which he thus places upon his property. As a matter of legal distinction, estoppel is made the basis of this ruling, that, having accepted the benefit of the lower rate, in common honesty the shipper may not repudiate the conditions on which it was obtained, but the rule and the effect of it are clearly established." The syllabus of the same case reads as follows: "A carrier may not, by a valuation agreement with a shipper, limit its liability in case of the loss by negligence of an interstate shipment to less than the real value thereof, unless the shipper is given a choice of rates, based on valuation." A limitation of liability based upon an agreed value to obtain a lower rate does not conflict with any sound principle of public policy; and it is not conformable to plain principles of justice that a shipper may understate value in order to reduce the rate and then recover a larger value in case of loss. (Adams Express Co. vs. Croninger 226 U. S. 491, 492.) See also Reid vs. Farbo (130 C. C. A., 285); Jennings vs.Smith (45 C. C. A., 249); George N. Pierce Co. vs. Wells, Fargo and Co. (227 U. S., 278); Wells, Fargo & Co. vs. NeimanMarcus Co. (227 U. S., 469). It seems clear from the foregoing authorities that the clauses (1 and 9) of the bill of lading here in question are not contrary to public order. Article 1255 of the Civil Code provides that "the contracting parties may establish any agreements, terms and conditions they may deem advisable, provided they are not contrary to law, morals or public order." Said clauses of the bill of lading are, therefore, valid and binding upon the parties thereto. II. The question presented by the appeal of the defendant is whether clause 1 or clause 9 of the bill of lading here in question is to be adopted as the measure of defendant's liability. Clause 1 provides as follows: 1. It is mutually agreed that the value of the goods receipted for above does not exceed $500 per freight ton, or, in proportion for any part of a ton, unless the value be expressly stated herein and ad valorem freight paid thereon. Clause 9 provides: 9. Also, that in the even of claims for short delivery of, or damage to, cargo being made, the carrier shall not be liable for more than the net invoice price plus freight and insurance less all charges saved, and any loss or damage for which the carrier may be liable shall be adjusted pro rata on the said basis. The defendant-appellant contends that these two clauses, if construed together, mean that the shipper and the carrier stipulate and agree that the value of the goods

receipted for does not exceed $500 per freight ton, but should the invoice value of the goods be less than $500 per freight ton, then the invoice value governs; that since in this case the invoice value is more than $500 per freight ton, the latter valuation should be adopted and that according to that valuation, the proportionate value of the clocks in question is only P76.36 which the defendant is ready and willing to pay to the plaintiff. It will be noted, however, that whereas clause 1 contains only an implied undertaking to settle in case of loss on the basis of not exceeding $500 per freight ton, clause 9 contains an express undertaking to settle on the basis of the net invoice price plus freight and insurance less all charges saved. "Any loss or damage for which the carrier may be liable shall be adjusted pro rata on the said basis," clause 9 expressly provides. It seems to us that there is an irreconcilable conflict between the two clauses with regard to the measure of defendant's liability. It is difficult to reconcile them without doing violence to the language used and reading exceptions and conditions into the undertaking contained in clause 9 that are not there. This being the case, the bill of lading in question should be interpreted against the defendant carrier, which drew said contract. "A written contract should, in case of doubt, be interpreted against the party who has drawn the contract." (6 R. C. L. 854.) It is a well-known principle of construction that ambiguity or uncertainty in an agreement must be construed most strongly against the party causing it. (6 R. C. L., 855.) These rules as applicable to contracts contained in bills of lading. "In construing a bill of lading given by the carrier for the safe transportation and delivery of goods shipped by a consignor, the contract will be construed most strongly against the carrier, and favorably to the consignor, in case of doubt in any matter of construction." (Alabama, etc. R. R. Co. vs. Thomas, 89 Ala., 294; 18 Am. St. Rep., 119.) It follows from all of the foregoing that the judgment appealed from should be affirmed, without any finding as to costs. So ordered. Araullo, street, Avancea and Villamor, JJ., concur. Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-20099 July 7, 1966

PARMANAND SHEWARAM, plaintiff and appellee, vs. PHILIPPINE AIR LINES, INC., defendant and appellant. Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant and appellant. Climaco and Associates for plaintiff and appellee.

ZALDIVAR, J.: Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram instituted an action to recover damages suffered by him due to the alleged failure of defendant-appellant Philippines Air Lines, Inc. to observe extraordinary diligence in the vigilance and carriage of his luggage. After trial the municipal court of Zamboanga City rendered judgment ordering the appellant to pay appellee P373.00 as actual damages, P100.00 as exemplary damages, P150.00 as attorney's fees, and the costs of the action. Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After hearing the Court of First Instance of Zamboanga City modified the judgment of the inferior court by ordering the appellant to pay the appellee only the sum of P373.00 as actual damages, with legal interest from May 6, 1960 and the sum of P150.00 as attorney's fees, eliminating the award of exemplary damages. From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this Court on a question of law, assigning two errors allegedly committed by the lower court a quo, to wit: 1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions of the tariff regulations filed by defendant-appellant with the civil aeronautics board and the conditions of carriage printed at the back of the plane ticket stub. 2. The lower court erred in not dismissing this case or limiting the liability of the defendant-appellant to P100.00. The facts of this case, as found by the trial court, quoted from the decision appealed from, are as follows: That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying passenger with ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from Zamboanga City bound for Manila; that defendant is a common carrier engaged in air line transportation in the Philippines, offering its services to the public to carry and transport passengers and cargoes from and to different points in the Philippines; that on the above-mentioned date of November 23, 1959, he checked in three (3) pieces of baggages a suitcase and two (2) other pieces; that the suitcase was mistagged by defendant's personnel in Zamboanga City, as I.G.N. (for Iligan) with claim check No. B-3883, instead of MNL (for Manila). When plaintiff Parmanand Shewaram arrived in Manila on the date of November 23, 1959, his suitcase did not arrive with his flight because it was sent to Iligan. So, he made a claim with defendant's personnel in Manila airport and another suitcase similar to his own which was the only baggage left for that flight, the rest having been claimed and released to the other passengers of said flight,

was given to the plaintiff for him to take delivery but he did not and refused to take delivery of the same on the ground that it was not his, alleging that all his clothes were white and the National transistor 7 and a Rollflex camera were not found inside the suitcase, and moreover, it contained a pistol which he did not have nor placed inside his suitcase; that after inquiries made by defendant's personnel in Manila from different airports where the suitcase in question must have been sent, it was found to have reached Iligan and the station agent of the PAL in Iligan caused the same to be sent to Manila for delivery to Mr. Shewaram and which suitcase belonging to the plaintiff herein arrived in Manila airport on November 24, 1959; that it was also found out that the suitcase shown to and given to the plaintiff for delivery which he refused to take delivery belonged to a certain Del Rosario who was bound for Iligan in the same flight with Mr. Shewaram; that when the plaintiff's suitcase arrived in Manila as stated above on November 24, 1959, he was informed by Mr. Tomas Blanco, Jr., the acting station agent of the Manila airport of the arrival of his suitcase but of course minus his Transistor Radio 7 and the Rollflex Camera; that Shewaram made demand for these two (2) items or for the value thereof but the same was not complied with by defendant. xxx xxx xxx

It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as IGN. The tampering of the suitcase is more apparent when on November 24, 1959, when the suitcase arrived in Manila, defendant's personnel could open the same in spite of the fact that plaintiff had it under key when he delivered the suitcase to defendant's personnel in Zamboanga City. Moreover, it was established during the hearing that there was space in the suitcase where the two items in question could have been placed. It was also shown that as early as November 24, 1959, when plaintiff was notified by phone of the arrival of the suitcase, plaintiff asked that check of the things inside his suitcase be made and defendant admitted that the two items could not be found inside the suitcase. There was no evidence on record sufficient to show that plaintiff's suitcase was never opened during the time it was placed in defendant's possession and prior to its recovery by the plaintiff. However, defendant had presented evidence that it had authority to open passengers' baggage to verify and find its ownership or identity. Exhibit "1" of the defendant would show that the baggage that was offered to plaintiff as his own was opened and the plaintiff denied ownership of the contents of the baggage. This proven fact that baggage may and could be opened without the necessary authorization and presence of its owner, applied too, to the suitcase of plaintiff which was mis-sent to Iligan City because of mistagging. The possibility of what happened in the baggage of Mr. Del Rosario at the Manila Airport in his absence could have also happened to plaintiffs suitcase at Iligan City in the absence of plaintiff. Hence, the Court believes that

these two items were really in plaintiff's suitcase and defendant should be held liable for the same by virtue of its contract of carriage. It is clear from the above-quoted portions of the decision of the trial court that said court had found that the suitcase of the appellee was tampered, and the transistor radio and the camera contained therein were lost, and that the loss of those articles was due to the negligence of the employees of the appellant. The evidence shows that the transistor radio cost P197.00 and the camera cost P176.00, so the total value of the two articles was P373.00. There is no question that the appellant is a common carrier.1 As such common carrier the appellant, from the nature of its business and for reasons of public policy, is bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by it according to the circumstances of each case. 2 It having been shown that the loss of the transistor radio and the camera of the appellee, costing P373.00, was due to the negligence of the employees of the appellant, it is clear that the appellant should be held liable for the payment of said loss.3 It is, however, contended by the appellant that its liability should be limited to the amount stated in the conditions of carriage printed at the back of the plane ticket stub which was issued to the appellee, which conditions are embodied in Domestic Tariff Regulations No. 2 which was filed with the Civil Aeronautics Board. One of those conditions, which is pertinent to the issue raised by the appellant in this case provides as follows: The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof is limited to its value and, unless the passenger declares in advance a higher valuation and pay an additional charge therefor, the value shall be conclusively deemed not to exceed P100.00 for each ticket. The appellant maintains that in view of the failure of the appellee to declare a higher value for his luggage, and pay the freight on the basis of said declared value when he checked such luggage at the Zamboanga City airport, pursuant to the abovequoted condition, appellee can not demand payment from the appellant of an amount in excess of P100.00. The law that may be invoked, in this connection is Article 1750 of the New Civil Code which provides as follows: 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. In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the pecuniary liability of a common carrier may, by contract, be limited to a fixed

amount. It is required, however, that the contract must be "reasonable and just under the circumstances and has been fairly and freely agreed upon." The requirements provided in Article 1750 of the New Civil Code must be complied with before a common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or deterioration of the goods it has undertaken to transport. In the case before us We believe that the requirements of said article have not been met. It can not be said that the appellee had actually entered into a contract with the appellant, embodying the conditions as printed at the back of the ticket stub that was issued by the appellant to the appellee. The fact that those conditions are printed at the back of the ticket stub in letters so small that they are hard to read would not warrant the presumption that the appellee was aware of those conditions such that he had "fairly and freely agreed" to those conditions. The trial court has categorically stated in its decision that the "Defendant admits that passengers do not sign the ticket, much less did plaintiff herein sign his ticket when he made the flight on November 23, 1959." We hold, therefore, that the appellee is not, and can not be, bound by the conditions of carriage found at the back of the ticket stub issued to him when he made the flight on appellant's plane on November 23, 1959. The liability of the appellant in the present case should be governed by the provisions of Articles 1734 and 1735 of the New Civil Code, which We quote as follows: ART. 1734. Common carries 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, 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.
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ART. 1735. In all cases other than 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 in Article 1733. It having been clearly found by the trial court that the transistor radio and the camera of the appellee were lost as a result of the negligence of the appellant as a common carrier, the liability of the appellant is clear it must pay the appellee the value of those two articles.

In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support of its decision, this Court had laid down the rule that the carrier can not limit its liability for injury to or loss of goods shipped where such injury or loss was caused by its own negligence. Corpus Juris, volume 10, p. 154, says: "Par. 194, 6. Reasonableness of Limitations. The validity of stipulations limiting the carrier's liability is to be determined by their reasonableness and their conformity to the sound public policy, in accordance with which the obligations of the carrier to the public are settled. It cannot lawfully stipulate for exemption from liability, unless such exemption is just and reasonable, and unless the contract is freely and fairly made. No contractual limitation is reasonable which is subversive of public policy. "Par. 195. 7. What Limitations of Liability Permissible. a. Negligence (1) Rule in America (a) In Absence of Organic or Statutory Provisions Regulating Subject aa. Majority Rule. In the absence of statute, it is settled by the weight of authority in the United States, that whatever limitations against its common-law liability are permissible to a carrier, it cannot limit its liability for injury to or loss of goods shipped, where such injury or loss is caused by its own negligence. This is the common law doctrine and it makes no difference that there is no statutory prohibition against contracts of this character. "Par. 196. bb. Considerations on which Rule Based. The rule, it is said, rests on considerations of public policy. The undertaking is to carry the goods, and to relieve the shipper from all liability for loss or damage arising from negligence in performing its contract is to ignore the contract itself. The natural effect of a limitation of liability against negligence is to induce want of care on the part of the carrier in the performance of its duty. The shipper and the common carrier are not on equal terms; the shipper must send his freight by the common carrier, or not at all; he is therefore entirely at the mercy of the carrier unless protected by the higher power of the law against being forced into contracts limiting the carrier's liability. Such contracts are wanting in the element of voluntary assent. "Par. 197. cc. Application and Extent of Rule (aa) Negligence of Servants. The rule prohibiting limitation of liability for negligence is often stated as a prohibition of any contract relieving the carrier from loss or damage caused by its own negligence or misfeasance, or that of its servants; and it has been specifically decided in many cases that no contract limitation will relieve the carrier from responsibility for the negligence, unskillfulness, or carelessness of its employer." (Cited in Ysmael and Co. vs. Barreto, 51 Phil. 90, 98, 99). In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-40597 June 29, 1979 AGUSTINO B. ONG YIU, petitioner, vs. HONORABLE COURT OF APPEALS and PHILIPPINE AIR LINES, INC., respondents.

MELENCIO-HERRERA, J.: In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a reversal of the Decision of the Court of Appeals in CA-G.R. No. 45005-R, which reduced his claim for damages for breach of contract of transportation. The facts are as follows: On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines, Inc. (PAL), on board Flight No. 463-R, from Mactan Cebu, bound for Butuan City. He was scheduled to attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in the Court of First Instance, Branch II, thereat, set for hearing on August 28-31, 1967. As a passenger, he checked in one piece of luggage, a blue "maleta" for which he was issued Claim Check No. 2106-R (Exh. "A"). The plane left Mactan Airport, Cebu, at about 1:00 o'clock P.M., and arrived at Bancasi airport, Butuan City, at past 2:00 o'clock P.M., of the same day. Upon arrival, petitioner claimed his luggage but it could not be found. According to petitioner, it was only after reacting indignantly to the loss that the matter was attended to by the porter clerk, Maximo Gomez, which, however, the latter denies, At about 3:00 o'clock P.M., PAL Butuan, sent a message to PAL, Cebu, inquiring about the missing luggage, which message was, in turn relayed in full to the Mactan Airport teletype operator at 3:45 P.M. (Exh. "2") that same afternoon. It must have been transmitted to Manila immediately, for at 3:59 that same afternoon, PAL Manila wired PAL Cebu advising that the luggage had been over carried to Manila aboard Flight No. 156 and that it would be forwarded to Cebu on Flight No. 345 of the same day. Instructions were also given that the luggage be immediately forwarded to Butuan City on the first available flight (Exh. "3"). At 5:00 P.M. of the same afternoon, PAL Cebu sent a message to PAL Butuan that the luggage would be forwarded on Fright No. 963 the following day, August 27, 196'(.

However, this message was not received by PAL Butuan as all the personnel had already left since there were no more incoming flights that afternoon. In the meantime, petitioner was worried about the missing luggage because it contained vital documents needed for trial the next day. At 10:00 o'clock that evening, petitioner wired PAL Cebu demanding the delivery of his baggage before noon the next day, otherwise, he would hold PAL liable for damages, and stating that PAL's gross negligence had caused him undue inconvenience, worry, anxiety and extreme embarrassment (Exh. "B"). This telegram was received by the Cebu PAL supervisor but the latter felt no need to wire petitioner that his luggage had already been forwarded on the assumption that by the time the message reached Butuan City, the luggage would have arrived. Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to inquire about his luggage. He did not wait, however, for the morning flight which arrived at 10:00 o'clock that morning. This flight carried the missing luggage. The porter clerk, Maximo Gomez, paged petitioner, but the latter had already left. A certain Emilio Dagorro a driver of a "colorum" car, who also used to drive for petitioner, volunteered to take the luggage to petitioner. As Maximo Gomez knew Dagorro to be the same driver used by petitioner whenever the latter was in Butuan City, Gomez took the luggage and placed it on the counter. Dagorro examined the lock, pressed it, and it opened. After calling the attention of Maximo Gomez, the "maleta" was opened, Gomez took a look at its contents, but did not touch them. Dagorro then delivered the "maleta" to petitioner, with the information that the lock was open. Upon inspection, petitioner found that a folder containing certain exhibits, transcripts and private documents in Civil Case No. 1005 and Sp. Procs. No. 1126 were missing, aside from two gift items for his parents-in-law. Petitioner refused to accept the luggage. Dagorro returned it to the porter clerk, Maximo Gomez, who sealed it and forwarded the same to PAL Cebu. Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss of his documents, which was granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to Cebu City on August 28, 1967. In a letter dated August 29, 1967 addressed to PAL, Cebu, petitioner called attention to his telegram (Exh. "D"), demanded that his luggage be produced intact, and that he be compensated in the sum of P250,000,00 for actual and moral damages within five days from receipt of the letter, otherwise, he would be left with no alternative but to file suit (Exh. "D"). On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to petitioner's office to deliver the "maleta". In the presence of Mr. Jose Yap and Atty. Manuel Maranga the contents were listed and receipted for by petitioner (Exh. "E"). On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of the investigation which Messrs. de Leon, Navarsi, and Agustin had promised

to conduct to pinpoint responsibility for the unauthorized opening of the "maleta" (Exh. "F"). The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim: Dear Atty. Ong Yiu: This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting Manager, Southern Philippines. First of all, may we apologize for the delay in informing you of the result of our investigation since we visited you in your office last August 31, 1967. Since there are stations other than Cebu which are involved in your case, we have to communicate and await replies from them. We regret to inform you that to date we have not found the supposedly lost folder of papers nor have we been able to pinpoint the personnel who allegedly pilferred your baggage. You must realize that no inventory was taken of the cargo upon loading them on any plane. Consequently, we have no way of knowing the real contents of your baggage when same was loaded. We realized the inconvenience you encountered of this incident but we trust that you will give us another opportunity to be of better service to you. Very truly yours , PHILIPPINE AIR LINES, INC. (Sgd) JEREMIAS S. AGUSTIN Branch Supervisor Cebu
(Exhibit G, Folder of Exhibits) 1

On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of contract of transportation with the Court of First Instance of Cebu, Branch V,

docketed as Civil Case No. R-10188, which PAL traversed. After due trial, the lower Court found PAL to have acted in bad faith and with malice and declared petitioner entitled to moral damages in the sum of P80,000.00, exemplary damages of P30,000.00, attorney's fees of P5,000.00, and costs. Both parties appealed to the Court of Appeals petitioner in so far as he was awarded only the sum of P80,000.00 as moral damages; and defendant because of the unfavorable judgment rendered against it. On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple negligence, reversed the judgment of the trial Court granting petitioner moral and exemplary damages, but ordered PAL to pay plaintiff the sum of P100.00, the baggage liability assumed by it under the condition of carriage printed at the back of the ticket. Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the following Assignments of Error: I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL GUILTY ONLY OF SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE BREACH OF ITS CONTRACT OF TRANSPORTATION WITH PETITIONER. II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND THE LAW WHEN IT REVERSED THE DECISION OF THE LOWER COURT AWARDING TO PETITIONER MORAL DAMAGES IN THE AMOUNT OF P80,000.00, EXEMPLARY DAMAGES OF P30,000.00, AND P5,000.00 REPRESENTING ATTORNEY'S FEES, AND ORDERED RESPONDENT PAL TO COMPENSATE PLAINTIFF THE SUM OF P100.00 ONLY, CONTRARY TO THE EXPLICIT PROVISIONS OF ARTICLES 2220, 2229, 2232 AND 2234 OF THE CIVIL CODE OF THE PHILIPPINES. On July 16, 1975, this Court gave due course to the Petition. There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The question is the correctness of respondent Court's conclusion that there was no gross negligence on the part of PAL and that it had not acted fraudulently or in bad faith as to entitle petitioner to an award of moral and exemplary damages. From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith. Bad faith means a breach of a known duty through some motive of interest or ill will. 2 It was the duty of PAL to look for petitioner's luggage which had been miscarried. PAL exerted due diligence in complying with such duty. As aptly stated by the appellate Court:

We do not find any evidence of bad faith in this. On the contrary, We find that the defendant had exerted diligent effort to locate plaintiff's baggage. The trial court saw evidence of bad faith because PAL sent the telegraphic message to Mactan only at 3:00 o'clock that same afternoon, despite plaintiff's indignation for the non-arrival of his baggage. The message was sent within less than one hour after plaintiff's luggage could not be located. Efforts had to be exerted to locate plaintiff's maleta. Then the Bancasi airport had to attend to other incoming passengers and to the outgoing passengers. Certainly, no evidence of bad faith can be inferred from these facts. Cebu office immediately wired Manila inquiring about the missing baggage of the plaintiff. At 3:59 P.M., Manila station agent at the domestic airport wired Cebu that the baggage was over carried to Manila. And this message was received in Cebu one minute thereafter, or at 4:00 P.M. The baggage was in fact sent back to Cebu City that same afternoon. His Honor stated that the fact that the message was sent at 3:59 P.M. from Manila and completely relayed to Mactan at 4:00 P.M., or within one minute, made the message appear spurious. This is a forced reasoning. A radio message of about 50 words can be completely transmitted in even less than one minute depending upon atmospheric conditions. Even if the message was sent from Manila or other distant places, the message can be received within a minute. that is a scientific fact which cannot be questioned. 3

Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith, The telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August 26, 1967. The PAL supervisor at Mactan Airport was notified of it only in the morning of the following day. At that time the luggage was already to be forwarded to Butuan City. There was no bad faith, therefore, in the assumption made by said supervisor that the plane carrying the bag would arrive at Butuan earlier than a reply telegram. Had petitioner waited or caused someone to wait at the Bancasi airport for the arrival of the morning flight, he would have been able to retrieve his luggage sooner. In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to moral damages. Art. 2217. 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 of omission. Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232 of the Civil Code, exemplary damages can be granted if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner, which has not been proven in this case.

Petitioner further contends that respondent Court committed grave error when it limited PAL's carriage liability to the amount of P100.00 as stipulated at the back of the ticket. In this connection, respondent Court opined:
As a general proposition, the plaintiff's maleta having been pilfered while in the custody of the defendant, it is presumed that the defendant had been negligent. The liability, however, of PAL for the loss, in accordance with the stipulation written on the back of the ticket, Exhibit 12, is limited to P100.00 per baggage, plaintiff not having declared a greater value, and not having called the attention of the defendant on its true value and paid the tariff therefor. The validity of this stipulation is not questioned by the plaintiff. They are printed in reasonably and fairly big letters, and are easily readable. Moreover, plaintiff had been a frequent passenger of PAL from Cebu to Butuan City and back, and he, being a lawyer and businessman, must be fully aware of these conditions. 4

We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the plane ticket reads: 8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damaged baggage of the passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher valuation in excess of P100.00, but not in excess, however, of a total valuation of P1,000.00 and additional charges are paid pursuant to Carrier's tariffs. There is no dispute that petitioner did not declare any higher value for his luggage, much less did he pay any additional transportation charge. But petitioner argues that there is nothing in the evidence to show that he had actually entered into a contract with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, and that Article 1750* of the Civil Code has not been complied with. While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless bound by the provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation". 5 It is what is known as a contract of "adhesion", in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent. 6 And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding one from contracting against his own negligence. Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be permitted a recovery in excess of P100.00.Besides,

passengers are advised not to place valuable items inside their baggage but "to avail of our V-cargo service " (Exh. "1"). I t is likewise to be noted that there is nothing in the evidence to show the actual value of the goods allegedly lost by petitioner. There is another matter involved, raised as an error by PAL the fact that on October 24, 1974 or two months after the promulgation of the Decision of the appellate Court, petitioner's widow filed a Motion for Substitution claiming that petitioner died on January 6, 1974 and that she only came to know of the adverse Decision on October 23, 1974 when petitioner's law partner informed her that he received copy of the Decision on August 28, 1974. Attached to her Motion was an Affidavit of petitioner's law partner reciting facts constitutive of excusable negligence. The appellate Court noting that all pleadings had been signed by petitioner himself allowed the widow "to take such steps as she or counsel may deem necessary." She then filed a Motion for Reconsideration over the opposition of PAL which alleged that the Court of Appeals Decision, promulgated on August 22, 1974, had already become final and executory since no appeal had been interposed therefrom within the reglementary period. Under the circumstances, considering the demise of petitioner himself, who acted as his own counsel, it is best that technicality yields to the interests of substantial justice. Besides, in the 'last analysis, no serious prejudice has been caused respondent PAL. In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are not erroneous. WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought to be reviewed hereby affirmed in toto. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 70462 August 11, 1988 PAN AMERICAN WORLD AIRWAYS, INC., petitioner, vs. INTERMEDIATE APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS PRODUCTIONS and ARCHER PRODUCTIONS, respondents.

Guerrero & Torres for petitioner. Jose B. Layug for private respondents.

CORTES, J.: Before the Court is a petition filed by an international air carrier seeking to limit its liability for lost baggage, containing promotional and advertising materials for films to be exhibited in Guam and the U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount specified in the airline ticket absent a declaration of a higher valuation and the payment of additional charges. The undisputed facts of the case, as found by the trial court and adopted by the appellate court, are as follows: On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the plaintiffs Sotang Bastos and Archer Production while in San Francisco, Califonia and Primo Quesada of Prime Films, San Francisco, California, entered into an agreement (Exh. A) whereby the former, for and in consideration of the amount of US $2,500.00 per picture, bound himself to supply the latter with three films. 'Ang Mabait, Masungit at ang Pangit,' 'Big Happening with Chikiting and Iking,' and 'Kambal Dragon' for exhibition in the United States. It was also their agreement that plaintiffs would provide the necessary promotional and advertising materials for said films on or before May 30, 1978. On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted Leo Slutchnick of the Hafa Adai Organization. Plaintiff Pangan likewise entered into a verbal agreement with Slutchnick for the exhibition of two of the films above-mentioned at the Hafa Adai Theater in Guam on May 30, 1978 for the consideration of P7,000.00 per picture (p. 11, tsn, June 20, 1979). Plaintiff Pangan undertook to provide the necessary promotional and advertising materials for said films on or before the exhibition date on May 30,1978. By virtue of the above agreements, plaintiff Pangan caused the preparation of the requisite promotional handbills and still pictures for which he paid the total sum of P12,900.00 (Exhs. B, B-1, C and C1). Likewise in preparation for his trip abroad to comply with his contracts, plaintiff Pangan purchased fourteen clutch bags, four capiz lamps and four barong tagalog, with a total value of P4,400.00 (Exhs. D, D-1, E, and F).

On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office, through the Your Travel Guide, an economy class airplane ticket with No. 0269207406324 (Exh. G) for passage from Manila to Guam on defendant's Flight No. 842 of May 27,1978, upon payment by said plaintiff of the regular fare. The Your Travel Guide is a tour and travel office owned and managed by plaintiffs witness Mila de la Rama. On May 27, 1978, two hours before departure time plaintiff Pangan was at the defendant's ticket counter at the Manila International Airport and presented his ticket and checked in his two luggages, for which he was given baggage claim tickets Nos. 963633 and 963649 (Exhs. H and H-1). The two luggages contained the promotional and advertising materials, the clutch bags, barong tagalog and his personal belongings. Subsequently, Pangan was informed that his name was not in the manifest and so he could not take Flight No. 842 in the economy class. Since there was no space in the economy class, plaintiff Pangan took the first class because he wanted to be on time in Guam to comply with his commitment, paying an additional sum of $112.00. When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did not arrive with his flight, as a consequence of which his agreements with Slutchnick and Quesada for the exhibition of the films in Guam and in the United States were cancelled (Exh. L). Thereafter, he filed a written claim (Exh. J) for his missing luggages. Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary representations to protest as to the treatment which he received from the employees of the defendant and the loss of his two luggages (Exh. M, O, Q, S, and T). Defendant Pan Am assured plaintiff Pangan that his grievances would be investigated and given its immediate consideration (Exhs. N, P and R). Due to the defendant's failure to communicate with Pangan about the action taken on his protests, the present complaint was filed by the plaintiff. (Pages 4-7, Record On Appeal). [Rollo, pp. 27-29.] On the basis of these facts, the Court of First Instance found petitioner liable and rendered judgment as follows: (1) Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum of P83,000.00, for actual damages, with interest thereon at the rate of 14% per annum from December 6, 1978, when the complaint was filed, until the same is fully paid, plus the further sum of P10,000.00 as attorney's fees; (2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan the sum of P8,123.34, for additional actual damages, with

interest thereon at the rate of 14% per annum from December 6, 1978, until the same is fully paid; (3) Dismissing the counterclaim interposed by defendant Pan American World Airways, Inc.; and (4) Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo, pp. 106-107.] On appeal, the then Intermediate Appellate Court affirmed the trial court decision. Hence, the instant recourse to this Court by petitioner. The petition was given due course and the parties, as required, submitted their respective memoranda. In due time the case was submitted for decision. In assailing the decision of the Intermediate Appellate Court petitioner assigned the following errors: 1. The respondent court erred as a matter of law in affirming the trial court's award of actual damages beyond the limitation of liability set forth in the Warsaw Convention and the contract of carriage. 2. The respondent court erred as a matter of law in affirming the trial court's award of actual damages consisting of alleged lost profits in the face of this Court's ruling concerning special or consequential damages as set forth inMendoza v. Philippine Airlines [90 Phil. 836 (1952).] The assigned errors shall be discussed seriatim 1. The airline ticket (Exh. "G') contains the following conditions: NOTICE If the passenger's journey involves an ultimate destination or stop in a country other than the country of departure the Warsaw Convention may be applicable and the Convention governs and in most cases limits the liability of carriers for death or personal injury and in respect of loss of or damage to baggage. See also notice headed "Advice to International Passengers on Limitation of Liability. CONDITIONS OF CONTRACT 1. As used in this contract "ticket" means this passenger ticket and baggage check of which these conditions and the notices form part, "carriage" is equivalent to "transportation," "carrier" means all air carriers

that carry or undertake to carry the passenger or his baggage hereunder or perform any other service incidental to such air carriage. "WARSAW CONVENTION" means the convention for the Unification of Certain Rules Relating to International Carriage by Air signed at Warsaw, 12th October 1929, or that Convention as amended at The Hague, 28th September 1955, whichever may be applicable. 2. Carriage hereunder is subject to the rules and limitations relating to liability established by the Warsaw Convention unless such carriage is not "international carriage" as defined by that Convention. 3. To the extent not in conflict with the foregoing carriage and other services performed by each carrier are subject to: (i) provisions contained in this ticket, (ii) applicable tariffs, (iii) carrier's conditions of carriage and related regulations which are made part hereof (and are available on application at the offices of carrier), except in transportation between a place in the United States or Canada and any place outside thereof to which tariffs in force in those countries apply. xxx xxx xxx NOTICE OF BAGGAGE LIABILITY LIMITATIONS Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is declared in advance and additional charges are paid: (1)for most international travel (including domestic portions of international journeys) to approximately $9.07 per pound ($20.00 per kilo) for checked baggage and $400 per passenger for unchecked baggage: (2) for travel wholly between U.S. points, to $750 per passenger on most carriers (a few have lower limits). Excess valuation may not be declared on certain types of valuable articles. Carriers assume no liability for fragile or perishable articles. Further information may be obtained from the carrier. [Emphasis supplied.]. On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends that its liability for the lost baggage of private respondent Pangan is limited to $600.00 ($20.00 x 30 kilos) as the latter did not declare a higher value for his baggage and pay the corresponding additional charges. To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-40597, June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a printed stipulation at the back of an airline ticket limiting the liability of the carrier for lost baggage to a specified amount and ruled that the carrier's liability was limited to said amount since the passenger did not declare a higher value, much less pay additional charges.

We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court, through Justice Melencio Herrera, stated: Petitioner further contends that respondent Court committed grave error when it limited PAL's carriage liability to the amount of P100.00 as stipulated at the back of the ticket.... We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of the plane ticket reads: 8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damage baggage of the passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher valuation in excess of P100.00, but not in excess, however, of a total valuation of Pl,000.00 and additional charges are paid pursuant to Carrier's tariffs. There is no dispute that petitioner did not declare any higher value for his luggage, much less (lid he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered into a contract with PAL limiting the latter's liability for loss or delay of the baggage of its passengers, and that Article 1750 *of the Civil Code has not been complied with.

While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless bound by the provisions thereof. "Such provisions have been held to be a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge or assent to the regulation." [Tannebaum v. National Airline, Inc., 13 Misc. 2d 450,176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v. Eastern Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a contract of "adhesion," in regards which it has been said that contracts of adhesion wherein one party imposes a ready made form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives his consent,[Tolentino, Civil Code, Vol. IV, 1962 ed., p. 462, citing Mr. Justice J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49]. And as held in Randolph v. American Airlines, 103 Ohio App. 172,144 N.E. 2d 878; Rosenchein v. Trans World Airlines, Inc., 349 S.W. 2d 483.] "a contract limiting liability upon an agreed valuation does not offend against the policy of the law forbidding one from contracting against his own negligence." Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he cannot be permitted a recovery in excess of P100.00....

On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L20099, July 2, 1966, 17 SCRA 606], where the Court held that the stipulation limiting the carrier's liability to a specified amount was invalid, finds no application in the instant case, as the ruling in said case was premised on the finding that the conditions printed at the back of the ticket were so small and hard to read that they would not warrant the presumption that the passenger was aware of the conditions and that he had freely and fairly agreed thereto. In the instant case, similar facts that would make the case fall under the exception have not been alleged, much less shown to exist. In view thereof petitioner's liability for the lost baggage is limited to $20.00 per kilo or $600.00, as stipulated at the back of the ticket. At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state that the Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R. No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to apply the Warsaw Convention which limits a carrier's liability to US$9.07 per pound or US$20.00 per kilo in cases of contractual breach of carriage ** is against public policy" is utterly misplaced, to say the least. In said case, while the Court, as quoted in the Intermediate Appellate Court's decision, said: Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event of death of a passenger or injury suffered by him, or of destruction or loss of, or damages to any checked baggage or any goods, or of delay in the transportation by air of passengers, baggage or goods. This pretense is not borne out by the language of said Articles. The same merely declare the carrier liable for damages in enumerated cases, if the conditions therein specified are present. Neither said provisions nor others in the aforementioned Convention regulate or exclude liability for other breaches of contract by the carrier. Under petitioner's theory, an air carrier would be exempt from any liability for damages in the event of its absolute refusal, in bad faith, to comply with a contract of carriage, which is absurd. it prefaced this statement by explaining that: ...The case is now before us on petition for review by certiorari, upon the ground that the lower court has erred: (1) in holding that the Warsaw Convention of October 12, 1929, relative to transportation by air is not in force in the Philippines: (2) in not holding that respondent has no cause of action; and (3) in awarding P20,000 as nominal damages. We deem it unnecessary to pass upon the First assignment of error because the same is the basis of the second assignment of error, and the latter is devoid of merit, even if we assumed the former to be well taken. (Emphasis supplied.)

Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the validity of provisions of the Warsaw Convention. Consequently, by no stretch of the imagination may said quotation from Northwest be considered as supportive of the appellate court's statement that the provisions of the Warsaw Convention limited a carrier's liability are against public policy. 2. The Court finds itself unable to agree with the decision of the trial court, and affirmed by the Court of Appeals, awarding private respondents damages as and for lost profits when their contracts to show the films in Guam and San Francisco, California were cancelled. The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any clearer: ...Under Art.1107 of the Civil Code, a debtor in good faith like the defendant herein, may be held liable only for damages that were foreseen or might have been foreseen at the time the contract of transportation was entered into. The trial court correctly found that the defendant company could not have foreseen the damages that would be suffered by Mendoza upon failure to deliver the can of filmon the 17th of September, 1948 for the reason that the plans of Mendoza to exhibit that film during the town fiesta and his preparations, specially the announcement of said exhibition by posters and advertisement in the newspaper, were not called to the defendant's attention. In our research for authorities we have found a case very similar to the one under consideration. In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered motion picture films to the defendant Fargo, an express company, consigned and to be delivered to him in Utica. At the time of shipment the attention of the express company was called to the fact that the shipment involved motion picture films to be exhibited in Utica, and that they should be sent to their destination, rush. There was delay in their delivery and it was found that the plaintiff because of his failure to exhibit the film in Utica due to the delay suffered damages or loss of profits. But the highest court in the State of New York refused to award him special damages. Said appellate court observed: But before defendant could be held to special damages, such as the present alleged loss of profits on account of delay or failure of delivery, it must have appeared that he had notice at the time of delivery to him of the particular circumstances attending the shipment, and which probably would lead to such special loss if he defaulted. Or, as the rule has been stated in another form, in order to purpose on the defaulting party further liability than for damages naturally and directly, i.e., in the ordinary course of things, arising from a breach of contract, such unusual or extraordinary damages must have been brought within the contemplation of the parties

as the probable result of breach at the time of or prior to contracting. Generally, notice then of any special circumstances which will show that the damages to be anticipated from a breach would be enhanced has been held sufficient for this effect. As may be seen, that New York case is a stronger one than the present case for the reason that the attention of the common carrier in said case was called to the nature of the articles shipped, the purpose of shipment, and the desire to rush the shipment, circumstances and facts absent in the present case. [Emphasis supplied.] Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing that petitioner's attention was called to the special circumstances requiring prompt delivery of private respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of private respondents' contracts as it could not have foreseen such an eventuality when it accepted the luggages for transit. The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages based on the finding that "[tlhe undisputed fact is that the contracts of the plaintiffs for the exhibition of the films in Guam and California were cancelled because of the loss of the two luggages in question." [Rollo, p. 36] The evidence reveals that the proximate cause of the cancellation of the contracts was private respondent Pangan's failure to deliver the promotional and advertising materials on the dates agreed upon. For this petitioner cannot be held liable. Private respondent Pangan had not declared the value of the two luggages he had checked in and paid additional charges. Neither was petitioner privy to respondents' contracts nor was its attention called to the condition therein requiring delivery of the promotional and advertising materials on or before a certain date. 3. With the Court's holding that petitioner's liability is limited to the amount stated in the ticket, the award of attorney's fees, which is grounded on the alleged unjustified refusal of petitioner to satisfy private respondent's just and valid claim, loses support and must be set aside. WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate Appellate Court is SET ASIDE and a new judgment is rendered ordering petitioner to pay private respondents damages in the amount of US $600.00 or its equivalent in Philippine currency at the time of actual payment. SO ORDERED. Republic of the Philippines SUPREME COURT Manila

FIRST DIVISION

G.R. No. 60501. March 5, 1993. CATHAY PACIFIC AIRWAYS, LTD, petitioner, vs. COURT OF APPEALS and TOMAS L. ALCANTARA, respondents. Siguion-Reyna, Montecillo & Ongsiako and Tomacruz, Manguiat & Associates for petitioner. Tanjuatco, Oreta, Tanjuatco, Berenger & Corpus for private respondent. SYLLABUS 1. CIVIL LAW; CONTRACT OF CARRIAGE; BREACH THEREOF; PETITIONER BREACHED ITS CONTRACT OF CARRIAGE WITH PRIVATE RESPONDENT WHEN IT FAILED TO DELIVER HIS LUGGAGE AT THE DESIGNATED PLACE AND TIME. Petitioner breached its contract of carriage with private respondent when it failed to deliver his luggage at the designated place and time, it being the obligation of a common carrier to carry its passengers and their luggage safely to their destination, which includes the duty not to delay their transportation, and the evidence shows that petitioner acted fraudulently or in bad faith. 2. DAMAGES; MORAL AND EXEMPLARY DAMAGES PREDICATED UPON A BREACH OF CONTRACT OF CARRIAGE; RECOVERABLE ONLY IN INSTANCES WHERE THE MISHAP RESULTS IN DEATH OF A PASSENGER, OR WHERE THE CARRIER IS GUILTY OF FRAUD OR BAD FAITH; THE CONDUCT OF PETITIONER'S REPRESENTATIVE TOWARDS RESPONDENT JUSTIFIES THE GRANT OF MORAL AND EXEMPLARY DAMAGES IN CASE AT BAR. Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the mishap results in death of a passenger, or where the carrier is guilty of fraud or bad faith. The language and conduct of petitioner's representative towards respondent Alcantara was discourteous or arbitrary to justify the grant of moral damages. The CATHAY representative was not only indifferent and impatient; he was also rude and insulting. He simply advised Alcantara to buy anything he wanted. But even that was not sincere because the representative knew that the passenger was limited only to $20.00 which, certainly, was not enough to purchase comfortable clothings appropriate for an executive conference. Considering that Alcantara was not only a revenue passenger but even paid for a first class airline accommodation and accompanied at the time by the Commercial Attache of the Philippine Embassy who was assisting him in his problem, petitioner or its agents should have been more courteous and accommodating to private respondent, instead of giving him a curt reply,

"What can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can buy anything you need, charged to Cathay Pacific." Where in breaching the contract of carriage the defendant airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of obligation which the parties had foreseen or could have reasonably foreseen. In that case, such liability does not include moral and exemplary damages. Conversely, if the defendant airline is shown to have acted fraudulently or in bad faith, the award of moral and exemplary damages is proper. 3. TEMPERATE DAMAGES; RECOVERABLE ONLY UPON PROOF THAT THE CLAIMANT SUSTAINED SOME PECUNIARY LOSS. However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of the court a quo, in the absence of any showing that he sustained some pecuniary loss. It cannot be gainsaid that respondent's luggage was ultimately delivered to him without serious or appreciable damage. 4. WARSAW CONVENTION; DOES NOT OPERATE AS AN EXCLUSIVE ENUMERATION OF THE INSTANCES FOR DECLARING A CARRIER LIABLE FOR BREACH OF CONTRACT OF CARRIAGE OR AS AN ABSOLUTE LIMIT OF THE EXTENT OF THAT LIABILITY; DOES NOT PRECLUDE THE OPERATION OF THE CIVIL CODE AND OTHER PERTINENT LAWS. As We have repeatedly held, although the Warsaw Convention has the force and effect of law in this country, being a treaty commitment assumed by the Philippine government, said convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability. The Warsaw Convention declares the carrier liable for damages in the enumerated cases and under certain limitations. However, it must not be construed to preclude the operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from liability for damages for violating the rights of its passengers under the contract of carriage, especially if wilfull misconduct on the part of the carrier's employees is found or established, which is clearly the case before Us. DECISION BELLOSILLO, J p: This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed with modification that of the trial court by increasing the award of damages in favor of private respondent Tomas L. Alcantara. The facts are undisputed: On 19 October 1975, respondent Tomas L. Alcantara was a first class passenger of petitioner Cathay Pacific Airways, Ltd. (CATHAY for brevity) on its Flight No. CX-900 from Manila to Hongkong and onward from Hongkong to Jakarta on Flight No. CX-711. The purpose of his trip was to attend the following day, 20 October 1975, a conference with the Director General of Trade of Indonesia, Alcantara

being the Executive Vice-President and General Manager of Iligan Cement Corporation, Chairman of the Export Committee of the Philippine Cement Corporation, and representative of the Cement Industry Authority and the Philippine Cement Corporation. He checked in his luggage which contained not only his clothing and articles for personal use but also papers and documents he needed for the conference. Upon his arrival in Jakarta, respondent discovered that his luggage was missing. When he inquired about his luggage from CATHAY's representative in Jakarta, private respondent was told that his luggage was left behind in Hongkong. For this, respondent Alcantara was offered $20.00 as "inconvenience money" to buy his immediate personal needs until the luggage could be delivered to him. His luggage finally reached Jakarta more than twenty four (24) hours after his arrival. However, it was not delivered to him at his hotel but was required by petitioner to be picked up by an official of the Philippine Embassy. On 1 March 1976, respondent filed his complaint against petitioner with the Court of First Instance (now Regional Trial Court) of Lanao del Norte praying for temperate, moral and exemplary damages, plus attorney's fees. On 18 April 1976, the trial court rendered its decision ordering CATHAY to pay Plaintiff P20,000.00 for moral damages, P5,000.00 for temperate damages, P10,000.00 for exemplary damages, and P25,000.00 for attorney's fees, and the costs. 1 Both parties appealed to the Court of Appeals. CATHAY assailed the conclusion of the trial court that it was accountable for breach of contract and questioned the nonapplication by the court of the Warsaw Convention as well as the excessive damages awarded on the basis of its finding that respondent Alcantara was rudely treated by petitioner's employees during the time that his luggage could not be found. For his part, respondent Alcantara assigned as error the failure of the trial court to grant the full amount of damages sought in his complaint. On 11 November 1981, respondent Court of Appeals rendered its decision affirming the findings of fact of the trial court but modifying its award by increasing the moral damages to P80,000.00, exemplary damages to P20,000.00 and temperate or moderate damages to P10,000.00. The award of P25,000.00 for attorney's fees was maintained. The same grounds raised by petitioner in the Court of Appeals are reiterated before Us. CATHAY contends that: (1) the Court of Appeals erred in holding petitioner liable to respondent Alcantara for moral, exemplary and temperate damages as well as attorney's fees; and, (2) the Court of Appeals erred in failing to apply the Warsaw Convention on the liability of a carrier to its passengers.

On its first assigned error, CATHAY argues that although it failed to transport respondent Alcantara's luggage on time, the one-day delay was not made in bad faith so as to justify moral, exemplary and temperate damages. It submits that the conclusion of respondent appellate court that private respondent was treated rudely and arrogantly when he sought assistance from CATHAY's employees has no factual basis, hence, the award of moral damages has no leg to stand on. Petitioner's first assigned error involves findings of fact which are not reviewable by this Court. 2 At any rate, it is not impressed with merit. Petitioner breached its contract of carriage with private respondent when it failed to deliver his luggage at the designated place and time, it being the obligation of a common carrier to carry its passengers and their luggage safely to their destination, which includes the duty not to delay their transportation, 3 and the evidence shows that petitioner acted fraudulently or in bad faith. Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the mishap results in death of a passenger, 4 or where the carrier is guilty of fraud or bad faith. 5 In the case at bar, both the trial court and the appellate court found that CATHAY was grossly negligent and reckless when it failed to deliver the luggage of petitioner at the appointed place and time. We agree. CATHAY alleges that as a result of mechanical trouble, all pieces of luggage on board the first aircraft bound for Jakarta were unloaded and transferred to the second aircraft which departed an hour and a half later. Yet, as the Court of Appeals noted, petitioner was not even aware that it left behind private respondent's luggage until its attention was called by the Hongkong Customs authorities. More, bad faith or otherwise improper conduct may be attributed to the employees of petitioner. While the mere failure of CATHAY to deliver respondent's luggage at the agreed place and time did not ipso facto amount to willful misconduct since the luggage was eventually delivered to private respondent, albeit belatedly, 6 We are persuaded that the employees of CATHAY acted in bad faith. We refer to the deposition of Romulo Palma, Commercial Attache of the Philippine Embassy at Jakarta, who was with respondent Alcantara when the latter sought assistance from the employees of CATHAY. This deposition was the basis of the findings of the lower courts when both awarded moral damages to private respondent. Hereunder is part of Palma's testimony "Q: What did Mr. Alcantara say, if any? A. Mr. Alcantara was of course . . . . I could understand his position. He was furious for the experience because probably he was thinking he was going to meet the DirectorGeneral the following day and, well, he was with no change of proper clothes and so, I would say, he was not happy about the situation. Q: What did Mr. Alcantara say?

A: He was trying to press the fellow to make the report and if possible make the delivery of his baggage as soon as possible. Q: And what did the agent or duty officer say, if any? A: The duty officer, of course, answered back saying 'What can we do, the baggage is missing. I cannot do anything.' something like it. 'Anyhow you can buy anything you need, charged to Cathay Pacific.' Q: What was the demeanor or comportment of the duty officer of Cathay Pacific when he said to Mr. Alcantara 'You can buy anything chargeable to Cathay Pacific'? A: If I had to look at it objectively, the duty officer would like to dismiss the affair as soon as possible by saying indifferently 'Don't worry. It can be found.'" 7 Indeed, the aforequoted testimony shows that the language and conduct of petitioner's representative towards respondent Alcantara was discourteous or arbitrary to justify the grant of moral damages. The CATHAY representative was not only indifferent and impatient; he was also rude and insulting. He simply advised Alcantara to buy anything he wanted. But even that was not sincere because the representative knew that the passenger was limited only to $20.00 which, certainly, was not enough to purchase comfortable clothings appropriate for an executive conference. Considering that Alcantara was not only a revenue passenger but even paid for a first class airline accommodation and accompanied at the time by the Commercial Attache of the Philippine Embassy who was assisting him in his problem, petitioner or its agents should have been more courteous and accommodating to private respondent, instead of giving him a curt reply, "What can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can buy anything you need, charged to Cathay Pacific." CATHAY's employees should have been more solicitous to a passenger in distress and assuaged his anxieties and apprehensions. To compound matters, CATHAY refused to have the luggage of Alcantara delivered to him at his hotel; instead, he was required to pick it up himself and an official of the Philippine Embassy. Under the circumstances, it is evident that petitioner was remiss in its duty to provide proper and adequate assistance to a paying passenger, more so one with first class accommodation. Where in breaching the contract of carriage the defendant airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of obligation which the parties had foreseen or could have reasonably foreseen. In that case, such liability does not include moral and exemplary damages. 8 Conversely, if the defendant airline is shown to have acted fraudulently or in bad faith, the award of moral and exemplary damages is proper. However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of the court a quo, in the absence of any showing that he sustained some

pecuniary loss. 9 It cannot be gainsaid that respondent's luggage was ultimately delivered to him without serious or appreciable damage. As regards its second assigned error, petitioner airline contends that the extent of its liability for breach of contract should be limited absolutely to that set forth in the Warsaw Convention. We do not agree. As We have repeatedly held, although the Warsaw Convention has the force and effect of law in this country, being a treaty commitment assumed by the Philippine government, said convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability. 10 The Warsaw Convention declares the carrier liable for damages in the enumerated cases and under certain limitations. 11 However, it must not be construed to preclude the operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from liability for damages for violating the rights of its passengers under the contract of carriage, 12 especially if wilfull misconduct on the part of the carrier's employees is found or established, which is clearly the case before Us. For, the Warsaw Convention itself provides in Art. 25 that "(1) The carrier shall not be entitled to avail himself of the provisions of this convention which exclude or limit his liability, if the damage is caused by his wilfull misconduct or by such default on his part as, in accordance with the law of the court to which the case is submitted, is considered to be equivalent to wilfull misconduct." (2) Similarly the carrier shall not be entitled to avail himself of the said provisions, if the damage is caused under the same circumstances by any agent of the carrier acting within the scope of his employment." When petitioner airline misplaced respondent's luggage and failed to deliver it to its passenger at the appointed place and time, some special species of injury must have been caused to him. For sure, the latter underwent profound distress and anxiety, and the fear of losing the opportunity to fulfill the purpose of his trip. In fact, for want of appropriate clothings for the occasion brought about by the delay of the arrival of his luggage, to his embarrassment and consternation respondent Alcantara had to seek postponement of his pre-arranged conference with the Director General of Trade of the host country. In one case, 13 this Court observed that a traveller would naturally suffer mental anguish, anxiety and shock when he finds that his luggage did not travel with him and he finds himself in a foreign land without any article of clothing other than what he has on. Thus, respondent is entitled to moral and exemplary damages. We however find the award by the Court of Appeals of P80,000.00 for moral damages excessive, hence, We reduce the amount to P30,000.00. The exemplary damages of P20,000.00 being reasonable is maintained, as well as the attorney's fees of P25,000.00 considering that

petitioner's act or omission has compelled Alcantara to litigate with third persons or to incur expenses to protect his interest. 14 WHEREFORE, the assailed decision of respondent Court of Appeals is AFFIRMED with the exception of the award of temperate damages of P10,000.00 which is deleted, while the award of moral damages of P80,000.00 is reduced to P30,000.00. The award of P20,000.00 for exemplary damages is maintained as reasonable together with the attorney's fees of P25,000.00. The moral and exemplary damages shall earn interest at the legal rate from 1 March 1976 when the complaint was filed until full payment. SO ORDERED.
Republic of the Philippines SUPREME COURT Manila EN BANC DECISION August 23, 1957 G.R. No. L-9671 CESAR L. ISAAC, plaintiff-appellant, vs. A. L. AMMEN TRANSPORTATION CO., INC., defendant-appellee. Angel S. Gamboa for appellant. Manuel O. Chan for appellee. , J.: A. L. Ammen Transportation Co., Inc., hereinafter referred to as defendant, is a corporation engaged in the business of transporting passengers by land for compensation in the Bicol provinces and one of the lines it operates is the one connecting Legaspi City, Albay with Naga City, Camarines Sur. One of the buses which defendant was operating is Bus No. 31. On May 31, 1951, plaintiff boarded said bus as a passenger paying the required fare from Ligao, Albay bound for Pili, Camarines Sur, but before reaching his destination, the bus collided with a motor vehicle of the pick-up type coming from the opposite direction, as a result of which plaintiffs left arm was completely severed and the severed portion fell inside the bus. Plaintiff was rushed to a hospital in Iriga, Camarines Sur where he was given blood transfusion to save his life. After four days, he was transferred to another hospital in Tabaco, Albay, where he under went treatment for three months. He was moved later to the Orthopedic Hospital where he was operated on and stayed there for another two months. For these services, he

incurred expenses amounting to P623.40, excluding medical fees which were paid by defendant. As an aftermath, plaintiff brought this action against defendants for damages alleging that the collision which resulted in the loss of his left arm was mainly due to the gross incompetence and recklessness of the driver of the bus operated by defendant and that defendant incurred in culpa contractual arising from its non-compliance with its obligation to transport plaintiff safely to his, destination. Plaintiff prays for judgment against defendant as follows: (1) P5,000 as expenses for his medical treatment, and P3,000 as the cost of an artificial arm, or a total of P8,000; (2) P6,000 representing loss of earning; (3) P75,000 for diminution of his earning capacity; (4) P50,000 as moral damages; and (5) P10,000 as attorneys fees and costs of suit. Defendant set up as special defense that the injury suffered by plaintiff was due entirely to the fault or negligence of the driver of the pick-up car which collided with the bus driven by its driver and to the contributory negligence of plaintiff himself. Defendant further claims that the accident which resulted in the injury of plaintiff is one which defendant could not foresee or, though foreseen, was inevitable. The after trial found that the collision occurred due to the negligence of the driver of the pick-up car and not to that of the driver of the bus it appearing that the latter did everything he could to avoid the same but that notwithstanding his efforts, he was not able to avoid it. As a consequence, the court dismissed complaint, with costs against plaintiff. This is an appeal from said decision. It appears that plaintiff boarded a bus of defendant as paying passenger from Ligao, Albay, bound for Pili, Camarines Sur, but before reaching his destination, the bus collided with a pick-up car which was coming from the opposite direction and, as a, result, his left arm was completely severed and fell inside the back part of the bus. Having this background in view, and considering that plaintiff chose to hold defendant liable on its contractual obligation to carry him safely to his place of destination, it becomes important to determine the nature and extent of the liability of a common carrier to a passenger in the light of the law applicable in this jurisdiction. In this connection, appellant invokes the rule that, when an action is based on a contract of carriage, as in this case, all that is necessary to sustain recovery is proof of the existence of the contract of the breach thereof by act or omission, and in support thereof, he cites several Philippine cases.1 With the ruling in mind, appellant seems to imply that once the contract of carriage is established and there is proof that the same was broken by failure of the carrier to transport the passenger safely to his destination, the liability of the former attaches. On the other hand, appellee claims that is a wrong presentation of the rule. It claims that the decisions of this Court in the cases cited do not warrant the construction sought to be placed upon, them by appellant for a mere perusal thereof would show that the liability of the carrier was predicated not upon mere breach of its contract of carriage but upon the finding that its negligence was found to be the direct or proximate cause of the injury complained of. Thus, appellee contends

that if there is no negligence on the part of the common carrier but that the accident resulting in injuries is due to causes which are inevitable and which could not have been avoided or anticipated notwithstanding the exercise of that high degree of care and skill which the carrier is bound to exercise for the safety of his passengers, neither the common carrier nor the driver is liable therefor. We believe that the law concerning the liability of a common carrier has now suffered a substantial modification in view of the innovations introduced by the new Civil Code. These innovations are the ones embodied in Articles 1733, 1755 and 1756 in so far as the relation between a common carrier and its passengers is concerned, which, for ready reference, we quote hereunder: ART. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extra ordinary 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. 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. ART. 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. The Code Commission, in justifying this extraordinary diligence required of a common carrier, says the following: A common carrier is bound to carry the passengers safely as far as human care and foresight can provide, using the utmost deligence of very cautions persons, with due regard for all circumstances. This extraordinary diligence required of common carriers is calculated to protect the passengers from the tragic mishaps that frequently occur in connection with rapid modern transportation. This high standard of care is imperatively demanded by the precariousness of human life and by the consideration that every person must in every way be safeguarded against all injury. (Report of the Code Commission, pp. 35-36) (Padilla, Civil Code of the Philippines, Vol. IV, 1956 ed., p. 197). From the above legal provisions, we can make the following restatement of the principles governing the liability of a common carrier: (1) the liability of a carrier is contractual and arises upon breach of its obligation. There is breach if it fails to exert extraordinary diligence according to all circumstances of each case; (2) a carrier is

obliged to carry its passenger with the utmost diligence of a very cautious person, having due regard for all the circumstances; (3) a carrier is presumed to be at fault or to have acted negligently in case of death of, or injury to, passengers, it being its duty to prove that it exercised extraordinary diligence; and (4) the carrier is not an insurer against all risks of travel. The question that now arises is: Has defendant observed extraordinary diligence or the utmost diligence of every cautious person, having due regard for all circumstances, in avoiding the collision which resulted in the injury caused to the plaintiff? After examining the evidence in connection with how the collision occurred, the lower court made the following finding: Hemos examinado muy detenidamente las pruebas presentadas en la vista, principalmente, las declaraciones que hemos acotado arriba, y hernos Ilegado a la conclusion de que el demandado ha hecho, todo cuanto estuviere de su parte para evitar el accidente, pero sin embargo, no ha podido evitarlo. EI hecho de que el demandado, antes del choque, tuvo que hacer pasar su truck encima de los montones de grava que estaban depositados en la orilla del camino, sin que haya ido mas alla, por el grave riesgo que corrian las vidas de sus pasajeros, es prueba concluyente de lo que tenemos dicho, a saber: que el cuanto esuba de su parte, para evitar el accidente, sin que haya podidoevitardo, por estar fuera de su control. The evidence would appear to support the above finding. Thus, it appears that Bus No. 31, immediately prior to the collision, was running at a moderate speed because it had just stopped at the school zone of Matacong, Polangui, Albay. The pick-up car was at full speed and was running outside of its proper lane. The driver of the bus, upon seeing the manner in which the pick-up was then running, swerved the bus to the very extreme right of the road until its front and rear wheels have gone over the pile of stones or gravel situated on the rampart of the road. Said driver could not move the bus farther right and run over a greater portion of the pile, the peak of which was about 3 feet high, without endangering the safety of his passengers. And notwithstanding all these efforts, the rear left side of the bus was hit by the pick-up car. Of course, this finding is disputed by appellant who cannot see eye to eye with the evidence for the appellee and insists that the collision took place because the driver of the bus was going at a fast speed. He contends that, having seen that a car was coming from the opposite direction at a distance which allows the use of moderate care and prudence to avoid an accident, and knowing that on the side of the road along which he was going there was a pile of gravel, the driver of the bus should have stopped and waited for the vehicle from the opposite direction to pass, and should have proceeded only after the other vehicle had passed. In other words, according to appellant, the act of the driver of the bus in squeezing his way through of the bus in squeezing his way through between the oncoming pick-up and the pile of gravel under the circumstances was considered negligent.

But this matter is one of credibility and evaluation of the evidence. This is evidence. This is the function of the trial court. The trial court has already spoken on this matter as we have pointed out above. This is also a matter of appreciation of the situation on the part of the driver. While the position taken by appellant appeals more to the sense of caution that one should observe in a given situation to avoid an accident or mishap, such however can not always be expected from one who is placed suddenly in a predicament where he is not given enough time to take the course of action as he should under ordinary circumstances. One who is placed in such a predicament cannot exercise such coolness or accuracy of judgment as is required of him under ordinary circumstances and he cannot therefore be expected to observe the same judgment, care and precaution as in the latter. For this reason, authorities abound where failure to observe the same degree of care that as ordinary prudent man would exercise under ordinary circumstances when confronted with a sadden emergency was held to be warranted and a justification to exempt the carrier from liability. Thus, it was held that where a carriers employee is confronted with a sudden emergency, the fact that he is obliged to act quickly and without a chance for deliberation must be taken into account, and he is held to the some degree of care that he would otherwise be required to exercise in the absence of such emergency but must exercise only such care as any ordinary prudent person would exercise under like circumstances and conditions, and the failure on his part to exercise the best judgment the case renders possible does not establish lack of care and skill on his part which renders the company, liable. . . . (13 C. J. S., 1412; 10 C.J.970). Considering all the circumstances, we are persuaded to conclude that the driver of the bus has done what a prudent man could have done to avoid the collision and in our opinion this relieves appellee from legibility under our law. A circumstances which miliates against the stand of appellant is the fact borne out by the evidence that when he boarded the bus in question, he seated himself on the left side thereof resting his left arm on the window sill but with his left elbow outside the window, this being his position in the bus when the collision took place. It is for this reason that the collision resulted in the severance of said left arm from the body of appellant thus doing him a great damage. It is therefore apparent that appellant is guilty of contributory negligence. Had he not placed his left arm on the window sill with a portion thereof protruding outside, perhaps the injury would have been avoided as is the case with the other passenger. It is to be noted that appellant was the only victim of the collision. It is true that such contributory negligence cannot relieve appellee of its liability but will only entitle it to a reduction of the amount of damage caused (Article 1762, new Civil Code), but this is a circumstance which further militates against the position taken by appellant in this case. It is the prevailing rule that it is negligence per se for a passenger on a railroad voluntarily or inadvertently to protrude his arm, hand, elbow, or any other part of his body through the window of a moving car beyond the outer edge of the window or outer surface of the car, so as to come in contact with objects or obstacles near the track, and

that no recovery can be had for an injury which but for such negligence would not have been sustained. (10 C. J. 1139) Plaintiff, (passenger) while riding on an interurban car, to flick the ashes, from his cigar, thrust his hand over the guard rail a sufficient distance beyond the side line of the car to bring it in contact with the trunk of a tree standing beside the track; the force of the blow breaking his wrist. Held, that he was guilty of contributory negligence as a matter of law. (Malakia vs. Rhode Island Co., 89 A., 337.) Wherefore, the decision appealed from is affirmed, with cost against appellant.

Republic of the Philippines SUPREME COURT Manila EN BANC

G.R. No. L-28014-15 May 29, 1970 SPOUSES MARCELO LANDINGIN and RACQUEL BOCASAS, plaintiffs-appellees, vs. PANGASINAN TRANSPORTATION CO. and MARCELO OLIGAN, defendantsappellants. SPOUSES PEDRO GARCIA and EUFRACIA LANDINGIN, plaintiffs-appellees, vs. PANGASINAN TRANSPORTATION CO. and MARCELO OLIGAN, defendantsappellants. Gabriel A. Zabala for plaintiffs-appellees. Vicente M. Erfe Law Office for defendants-appellants.

VILLAMOR, J.: Direct appeal on a question of law from the portion of the judgment of the Court of First Instance of Manila ordering the defendants Pangasinan Transportation Co. (PANTRANCO) and Marcelo Oligan to pay the plaintiffs in Civil Case No. D-1468 (L-28014) the sum of P6,500.00, and the plaintiffs in Civil Case No. 1470 (L-28015) the sum of P3,500.00.

The complaints in said Civil Cases Nos. D-1468 and D-1470 were filed by the spouses Marcelo Landingin and Racquel Bocasas, and the spouses Pedro Garcia and Eufracia Landingin, respectively, for damages allegedly suffered by them in connection with the death of their respective daughter, Leonila Landingin and Estrella Garcia, due to the alleged negligence of the defendants and/or breach of contract of carriage. In their complaints, plaintiffs averred, among others, that in the morning of April 20, 1963, their above-mentioned daughters were among the passengers in the bus driven by defendant Marcelo Oligan and owned and operated by defendant PANTRANCO on an excursion trip from Dagupan City to Baguio City and back, that the bus was open on one side and enclosed on the other, in gross violation of the rules of the Public Service Commission; that defendant PANTRANCO acted with negligence, fraud and bad faith in pretending to have previously secured a special permit for the trip when in truth it had not done so; that upon reaching an uphill point at Camp 8, Kennon Road, Baguio City, on the onward trip, defendant driver, through utter lack of foresight, experience and driving knowledge, caused the bus to stall and stop for a few moments; that through the said defendant's fault and mishandling, the motor ceased to function, causing the bus to slide back unchecked; that when the said defendant suddenly swerved and steered the bus toward the mountainside, Leonila and Estrella, together with several other passengers, were thrown out of the bus through its open side unto the road, suffering serious injuries as a result of which Leonila and Estrella died at the hospital and the same day; and that in connection with the incident, defendant driver had been charged with and convicted of multiple homicide and multiple slight physical injuries on account of the death of Leonila and Estrella and of the injuries suffered by four others, although it may be said, by way of parenthesis, that this case is now pending appeal in a higher court. The plaintiffs prayed for awards of moral, actual and exemplary damages in the total sum of P40,000.00 in Civil Case No. D-1468, and in the total sum of P25,000.00 in Civil Case No. D-1470 as well as attorney's fees in the amounts of P5,000.00 and P4,000.00, respectively. Defendants filed a joint answer to each of the two complaints alleging, among others, that at the time of the accident, defendant driver was driving the bus at, the slow speed of about 10 kilometers per hour; that while the said defendant was steering his bus toward the mountainside after hearing a sound coming from under the rear end of the bus, Leonila and Estrella recklessly, and in disobedience to his shouted warnings and advice, jumped out of the bus causing their heads to hit the road or pavement; that the bus was then being driven with extraordinary care, prudence and diligence; that defendant PANTRANCO observed the care and diligence of a good father of a family to prevent the accident as well as in the selection and supervision of its employees, particularly of defendant driver; and that the decision convicting the said defendant was not yet final, the same having been appealed to the Court of Appeals where it was still pending. By agreement of the parties, the two cases were tried jointly. On October 17, 1966, the court a quo rendered its decision therein in which it made the following findings; that

upon reaching the fatal spot at Camp 8, a sudden snapping or breaking of metal below the floor of the bus was heard, and the bus abruptly stopped, rolling back a few moments later; that as a result, some of the passengers jumped out of the bus, while others stepped down; that defendant driver maneuvered the bus safely to and against the side of the mountain where its rear end was made to rest, ensuring the safety of the many passengers still inside the bus; that while defendant driver as steering the bus towards the mountainside, he advised the passengers not to jump, but to remain seated; that Leonila and Estrella were not thrown out of the bus, but that they panicked and jumped out; that the malfunctioning of the motor resulted from the breakage of the cross-joint; that there was no negligence on the part of either of the defendants; that only the day before, the said cross-joint was duly inspected and found to be in order; and that defendant PANTRANCO had exercised the requisite care in the selection and supervision of its employees, including the defendant driver. The court concluded that "the accident was caused by a fortuitous event or an act of God brought about by some extra-ordinary circumstances independent of the will of the Pantranco or its employees." One would wonder why in the face of such factual findings and conclusion of the trial court, the defendants, instead of the plaintiffs, should come to this Court on appeal. The answer lies in the dispositive portion of the decision, to wit: IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment: (a) Absolving the defendants from any liability on account of negligence on their part and therefore dismissing the complaints in these two cases; (b) However, as stated above, the Court hereby orders the defendant Pantranco to pay to the plaintiffs spouses Marcelo Tandingin and Racquel Bocasas in Civil Case No. D-1468 the amount of P6,500.00; and the amount of P3,500.00 to the spouses Pedro Garcia and Eufracia Landingin in Civil Case No. D-1470, not in payment of liability because of any negligence on the part of the defendants but as an expression of sympathy and goodwill. (Emphasis supplied.) As to what impelled the court below to include item (b) in the dispositive portion of its decision, can be gathered from the penultimate paragraph of the decision, which reads: However, there is evidence to the effect that an offer of P8,500.00 in the instant cases without any admission of fault or negligence had been made by the defendant Pantranco and that actually in Civil Case No. D-1469 for the death of Pacita Descalso, the other deceased passenger of the bus in question, the heirs of the decease received P3,000.00 in addition to hospital and medical bills and the coffin of the deceased for the dismissal of the said case without Pantranco accepting liability. There was as a matter of fact during the pre-trial of these two cases a continuing offer of settlement on the part of the defendant Pantranco without accepting any

liability for such damages, and the Court understood that the Pantranco would be willing still to pay said amounts even if these cases were to be tried on the merits. It is well-known that the defendant Pantranco is zealous in the preservation of its public relations. In the spirit therefore of the offer of the defendant Pantranco aforesaid, to assuage the feelings of the herein plaintiffs an award of P6,500.00 for the spouses Marcelo Landingin and Racquel Bocasas in Civil Case No. D-1468 whose daughter Leonila was, when she died, a third-year Commerce student at the Far Eastern University, and P3,500.00 for the spouses Pedro Garcia and Eufracia Landingin in Civil Case No. D-1470 whose daughter Estrella was in the fourth year High at the Dagupan Colleges when she died, is hereby made in their favor. This award is in addition to what Pantranco might have spent to help the parents of both deceased after the accident. Defendants-appellants complain that having found them to be absolutely free from fault or negligence, and having in fact dismissed the complaints against them, the court should not have ordered them to assume any pecuniary liability. There would be merit in his argument but for the fact that defendant-appellant PANTRANCO was guilty of breach of contract of carriage. It will be noted that in each of the two complaints it is averred that two buses including the one in which the two deceased girls were riding, were hired to transport the excursionist passengers from Dagupan City to Baguio City, and return, and that the said two passengers did not reach destination safely. As a common carrier, defendant-appellant PANTRANCO was duty bound to carry its 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 1755, Civil Code.) Did defendant-appellant PANTRANCO measure up to the degree of care and foresight required it under the circumstances? We think not. The court below found that the cross-joint of the bus in which the deceased were riding broke, which caused the malfunctioning of the motor, which in turn resulted in panic among some of the passengers. This is a finding of fact which this Court may not disturb. We are of the opinion, however, that the lower court's conclusion drawn from that fact, i.e., that "the accident was caused by a fortuitous event or an act of God brought about by some extraordinary circumstances independent of the will of the Pantranco or its employees," is in large measure conjectural and speculative, and was arrived at without due regard to all the circumstances, as required by Article 1755. In Lasam vs. Smith (45 Phil. 660), this Court held that an accident caused by defects in the automobile is not a caso fortuito. The rationale of the carrier's liability is the fact that "the passenger has neither the choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier." (Necesito, et al. vs. Paras, et al., 104 Phil. 75.) When a passenger dies or is injured, the presumption is that the common carrier is at fault or that it acted negligently (Article 1756). This presumption is only rebutted by proof on the carrier's part that it observed the "extraordinary diligence" required in Article 1733 and the "utmost diligence of very cautious persons" required in Article

1755 (Article 1756). In the instant case it appears that the court below considered the presumption rebutted on the strength of defendants-appellants' evidence that only the day before the incident, the crossjoint in question was duly inspected and found to be in order. It does not appear, however, that the carrier gave due regard for all the circumstances in connection with the said inspection. The bus in which the deceased were riding was heavily laden with passengers, and it would be traversing mountainous, circuitous and ascending roads. Thus the entire bus, including its mechanical parts, would naturally be taxed more heavily than it would be under ordinary circumstances. The mere fact that the bus was inspected only recently and found to be in order would not exempt the carrier from liability unless it is shown that the particular circumstances under which the bus would travel were also considered. In the premises, it was error for the trial court to dismiss the complaints. The awards made by the court should be considered in the concept of damages for breach of contracts of carriage. IN VIEW OF THE FOREGOING CONSIDERATIONS, the judgment appealed from is modified as indicated above, and defendant-appellant PANTRANCO is ordered to pay to plaintiffs-appellees the amounts stated in the judgment appealed from, as damages for breach of contracts, with interest thereon at the legal rate from the date of the filing of the complaints. Costs against defendant-appellant PANTRANCO.
Republic of the Philippines SUPREME COURT Manila EN BANC DECISION June 30, 1958 G.R. No. L-10606 GERMAN NECESITO, ET AL., plaintiffs-appellants, vs. NATIVIDAD PARAS, ET AL., defendants-appellees. Tomas Besa and Federico Agrava for appellants. Jose W. Diokno for appellees. , J.: These cases involve ex contractu against the owners and operators of the common carrier known as Philippine Rabbit Bus Lines, filed by one passenger, and the heirs of another, who injured as a result of the fall into a river of the vehicle in which they were riding.

In the morning of January 28, 1964, Severina Garces and her one-year old son, Precillano Necesito, carrying vegetables, boarded passenger auto truck or bus No. 199 of the Philippine Rabbit Bus Lines at Agno, Pangasinan. The passenger truck, driven by Francisco Bandonell, then proceeded on its regular run from Agno to Manila. After passing Mangatarem, Pangasinan truck No. 199 entered a wooden bridge, but the front wheels swerved to the right; the driver lost control, and after wrecking the bridges wooden rails, the truck fell on its right side into a creek where water was breast deep. The mother, Severina Garces, was drowned; the son, Precillano Necesito, was injured, suffering abrasions and fracture of the left femur. He was brought to the Provincial Hospital at Dagupan, where the fracture was set but with fragments one centimeter out of line. The money, wrist watch and cargo of vegetables were lost. Two actions for damages and attorneys fees totalling over P85,000 having been filed in the Court of First Instance of Tarlac (Cases Nos. 908 and 909) against the carrier, the latter pleaded that the accident was due to engine or mechanical trouble independent or beyond the control of the defendants or of the driver Bandonell. After joint trial, the Court of First Instance found that the bus was proceeding slowly due to the bad condition of the road; that the accident was caused by the fracture of the right steering knuckle, which was defective in that its center or core was not compact but bubbled and cellulous, a condition that could not be known or ascertained by the carrier despite the fact that regular thirty-day inspections were made of the steering knuckle, since the steel exterior was smooth and shiny to the depth of 3/16 of an inch all around; that the knuckles are designed and manufactured for heavy duty and may last up to ten years; that the knuckle of bus No. 199 that broke on January 28, 1954, was last inspected on January 5, 1954, and was due to be inspected again on February 5th. Hence, the trial court, holding that the accident was exclusively due to fortuitous event, dismissed both actions. Plaintiffs appealed directly to this Court in view of the amount in controversy. We are inclined to agree with the trial court that it is not likely that bus No. 199 of the Philippine Rabbit Lines was driven over the deeply rutted road leading to the bridge at a speed of 50 miles per hour, as testified for the plaintiffs. Such conduct on the part of the driver would have provoked instant and vehement protest on the part of the passengers because of the attendant discomfort, and there is no trace of any such complaint in the records. We are thus forced to assume that the proximate cause of the accident was the reduced strength of the steering knuckle of the vehicle caused by defects in casting it. While appellants hint that the broken knuckle exhibited in court was not the real fitting attached to the truck at the time of the accident, the records they registered no objection on that ground at the trial below. The issue is thus reduced to the question whether or not the carrier is liable for the manufacturing defect of the steering knuckle, and whether the evidence discloses that in regard thereto the carrier exercised the diligence required by law (Art. 1755, new Civil Code).

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 the all the circumstances. It is clear that the carrier is not an insurer of the passengers safety. His liability rests upon negligence, his failure to exercise the utmost degree of diligence that the law requires, and by Art. 1756, in case of a passengers death or injury the carrier bears the burden of satisfying the court that he has duly discharged the duty of prudence required. In the American law, where the carrier is held to the same degree of diligence as under the new Civil Code, the rule on the liability of carriers for defects of equipment is thus expressed: The preponderance of authority is in favor of the doctrine that a passenger is entitled to recover damages from a carrier for an injury resulting from a defect in an appliance purchased from a manufacturer, whenever it appears that the defect would have been discovered by the carrier if it had exercised the degree of care which under the circumstances was incumbent upon it, with regard to inspection and application of the necessary tests. For the purposes of this doctrine, the manufacturer is considered as being in law the agent or servant of the carrier, as far as regards the work of constructing the appliance. According to this theory, the good repute of the manufacturer will not relieve the carrier from liability (10 Am. Jur. 205, s, 1324; see also Pennsylvania R. Co. vs. Roy, 102 U. S. 451; 20 L. Ed. 141; Southern R. Co. vs. Hussey, 74 ALR 1172; 42 Fed. 2d 70; and Ed Note, 29 ALR 788; Ann. Cas. 1916E 929). The rationale of the carriers liability is the fact that the passenger has neither choice nor control over the carrier in the selection and use of the equipment and appliances in use by the carrier. Having no privity whatever with the manufacturer or vendor of the defective equipment, the passenger has no remedy against him, while the carrier usually has. It is but logical, therefore, that the carrier, while not in insurer of the safety of his passengers, should nevertheless be held to answer for the flaws of his equipment if such flaws were at all discoverable. Thus Hannen, J., in Francis vs. Cockrell, LR 5 Q. B. 184, said: In the ordinary course of things, the passenger does not know whether the carrier has himself manufactured the means of carriage, or contracted with someone else for its manufacture. If the carrier has contracted with someone else the passenger does not usually know who that person is, and in no case has he any share in the selection. The liability of the manufacturer must depend on the terms of the contract between him and the carrier, of which the passenger has no knowledge, and over which he can have no control, while the carrier can introduce what stipulations and take what securities he may think proper. For injury resulting to the carrier himself by the manufacturers want of care, the carrier has a remedy against the manufacturer; but the passenger has no remedy against the manufacturer for damage arising from a mere breach of contract with the carrier . . . . Unless, therefore, the presumed intention of the parties be that the passenger should, in the event of his being injured by the breach of the manufacturers contract, of which he has no knowledge, be without remedy, the only way in which effect can be given to a different intention is by supposing that the carrier

is to be responsible to the passenger, and to look for his indemnity to the person whom he selected and whose breach of contract has caused the mischief. (29 ALR 789) And in the leading case of Morgan vs. Chesapeake & O. R. Co. 15 LRA (NS) 790, 16 Ann. Cas. 608, the Court, in holding the carrier responsible for damages caused by the fracture of a car axle, due to a sand hole in the course of moulding the axle, made the following observations. The carrier, in consideration of certain well-known and highly valuable rights granted to it by the public, undertakes certain duties toward the public, among them being to provide itself with suitable and safe cars and vehicles in which carry the traveling public. There is no such duty on the manufacturer of the cars. There is no reciprocal legal relation between him and the public in this respect. When the carrier elects to have another build its cars, it ought not to be absolved by that facts from its duty to the public to furnish safe cars. The carrier cannot lessen its responsibility by shifting its undertaking to anothers shoulders. Its duty to furnish safe cars is side by side with its duty to furnish safe track, and to operate them in a safe manner. None of its duties in these respects can be sublet so as to relieve it from the full measure primarily exacted of it by law. The carrier selects the manufacturer of its cars, if it does not itself construct them, precisely as it does those who grade its road, and lay its tracks, and operate its trains. That it does not exercise control over the former is because it elects to place that matter in the hands of the manufacturer, instead of retaining the supervising control itself. The manufacturer should be deemed the agent of the carrier as respects its duty to select the material out of which its cars and locomotive are built, as well as in inspecting each step of their construction. If there be tests known to the crafts of car builders, or iron moulders, by which such defects might be discovered before the part was incorporated into the car, then the failure of the manufacturer to make the test will be deemed a failure by the carrier to make it. This is not a vicarious responsibility. It extends, as the necessity of this business demands, the rule of respondeat superior to a situation which falls clearly within its scope and spirit. Where an injury is inflicted upon a passenger by the breaking or wrecking of a part of the train on which he is riding, it is presumably the result of negligence at some point by the carrier. As stated by Judge Story, in Story on Bailments, sec. 601a: When the injury or damage happens to the passenger by the breaking down or overturning of the coach, or by any other accident occurring on the ground, the presumption prima facie is that it occurred by the negligence of the coachmen, and onus probandi is on the proprietors of the coach to establish that there has been no negligence whatever, and that the damage or injury has been occasioned by inevitable casualty, or by some cause which human care and foresight could not prevent; for the law will, in tenderness to human life and limb, hold the proprietors liable for the slightest negligence, and will compel them to repel by satisfactory proofs every imputation thereof. When the passenger has proved his injury as the result of a breakage in the car or the wrecking of the train on which he was being carried, whether the defect was in the particular car in which he was riding or not, the burden is then cast upon the carrier to show that it was due to a cause or causes which the exercise of the utmost human skill and foresight could not prevent. And the carrier in this connection must show, if the accident was due to a latent defect in the material

or construction of the car, that not only could it not have discovered the defect by the exercise of such care, but that the builders could not by the exercise of the same care have discovered the defect or foreseen the result. This rule applies the same whether the defective car belonged to the carrier or not. In the case now before us, the record is to the effect that the only test applied to the steering knuckle in question was a purely visual inspection every thirty days, to see if any cracks developed. It nowhere appears that either the manufacturer or the carrier at any time tested the steering knuckle to ascertain whether its strength was up to standard, or that it had no hidden flaws would impair that strength. And yet the carrier must have been aware of the critical importance of the knuckles resistance; that its failure or breakage would result in loss of balance and steering control of the bus, with disastrous effects upon the passengers. No argument is required to establish that a visual inspection could not directly determine whether the resistance of this critically important part was not impaired. Nor has it been shown that the weakening of the knuckle was impossible to detect by any known test; on the contrary, there is testimony that it could be detected. We are satisfied that the periodical visual inspection of the steering knuckle as practiced by the carriers agents did not measure up to the required legal standard of utmost diligence of very cautious persons as far as human care and foresight can provide, and therefore that the knuckles failure can not be considered a fortuitous event that exempts the carrier from responsibility (Lasam vs. Smith, 45 Phil. 657; Son vs. Cebu Autobus Co., 94 Phil. 892.) It may be impracticable, as appellee argues, to require of carriers to test the strength of each and every part of its vehicles before each trip; but we are of the opinion that a due regard for the carriers obligations toward the traveling public demands adequate periodical tests to determine the condition and strength of those vehicle portions the failure of which may endanger the safe of the passengers. As to the damages suffered by the plaintiffs, we agree with appellee that no allowance may be made for moral damages, since under Article 2220 of the new Civil Code, in case of suits for breach of contract, moral damages are recoverable only where the defendant acted fraudulently or in bad faith, and there is none in the case before us. As to exemplary damages, the carrier has not acted in a wanton, fraudulent, reckless, oppressive or malevolent manner to warrant their award. Hence, we believe that for the minor Precillano Necesito (G. R. No. L-10605), an indemnity of P5,000 would be adequate for the abrasions and fracture of the femur, including medical and hospitalization expenses, there being no evidence that there would be any permanent impairment of his faculties or bodily functions, beyond the lack of anatomical symmetry. As for the death of Severina Garces (G. R. No. L-10606) who was 33 years old, with seven minor children when she died, her heirs are obviously entitled to indemnity not only for the incidental loses of property (cash, wrist watch and merchandise) worth P394 that she carried at the time of the accident and for the burial expenses of P490, but also for the loss of her earnings (shown to average P120 a month) and for the deprivation of her protection, guidance and company. In our judgment, an award of P15,000 would be adequate (cf Alcantara vs. Surro, 49 O.G. 2769; 93 Phil. 472).

The low income of the plaintiffs-appellants makes an award for attorneys fees just and equitable (Civil Code, Art. 2208, par. 11). Considering that he two cases filed were tried jointly, a fee of P3,500 would be reasonable. In view of the foregoing, the decision appealed from is reversed, and the defendantsappellees are sentenced to indemnify the plaintiffs-appellants in the following amounts: P5,000 to Precillano Necesito, and P15,000 to the heirs of the deceased Severina Garces, plus P3,500 by way of attorneys fees and litigation expenses. Costs against defendants-appellees. So ordered. Paras, C.J. Bengzon, Reyes, A., Bautista Angelo, Concepcion, and Endencia, JJ., concur. Felix, J., concurs in the result. RESOLUTION September 11, 1958 REYES, J. B. L., J.: Defendants-appellees have Submitted a motion asking this Court to reconsider its decision of June 30, 1958, and that the same be modified with respect to (1) its holding the carrier liable for the breakage of the steering knuckle that caused the autobus No. 199 to overturn, whereby the passengers riding in it were injured; (2) the damages awarded, that appellees argue to be excessive; and (3) the award of attorneys fees. (1) The rule prevailing in this jurisdiction as established in previous decisions of this Court, cited in our main opinion, is that a carrier is liable to its passengers for damages caused by mechanical defects of the conveyance. As early as 1924, in Lasam vs. Smith, 45 Phil. 659 this Court ruled: As far as the record shows, the accident was caused either by defects in the automobile or else through the negligence of its driver. That is not caso fortuito. And in Son vs. Cebu Autobus Company, 94 Phil. 892, this Court held a common carrier liable in damages to passenger for injuries cause by an accident due to the breakage of a faulty drag-link spring. It can be seen that while the courts of the United States are at variance on the question of a carriers liability for latent mechanical defects, the rule in this jurisdiction has been consistent in holding the carrier responsible. This Court has quoted from American and English decisions, not because it felt bound to follow the same, but merely in approval of the rationale of the rule as expressed therein, since the previous Philippine cases did not enlarge on the ideas underlying the doctrine established thereby.

The new evidence sought to be introduced do not warrant the grant of a new trial, since the proposed proof available when the original trial was held. Said evidence is not newly discovered. (2) With regard to the indemnity awarded to the child Precilliano Necesito, the injuries suffered by him are incapable of accurate pecuniary estimation, particularly because the full effect of the injury is not ascertainable immediately. This uncertainty, however, does not preclude the right to an indemnity, since the injury is patent and not denied (Civil Code, Art. 2224). The reasons behind this award are expounded by the Code Commission in its report: There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although the court is convinced that there has been such loss. For instance, injury to ones commercial credit or to the goodwill of a business firm is often hard to show with certainty in terms of money. Should damages be denied for that reason? The judge should be empowered to calculate moderate damages in such cases, rather than that the plaintiff should suffer, without redress, from the defendants wrongful act. (Report of the Code Commission, p. 75) In awarding to the heirs of the deceased Severina Garces an indemnity for the loss of her guidance, protection and company, although it is but moral damage, the Court took into account that the case of a passenger who dies in the course of an accident, due to the carriers negligence constitutes an exception to the general rule. Whi le, as pointed out in the main decision, under Article 2220 of the new Civil Code there can be no recovery of moral damages for a breach of contract in the absence of fraud malice or bad faith, the case of a violation of the contract of carriage leading to a passengers death escapes this general rule, in view of Article 1764 in connection with Article 2206, No. 3 of the new Civil Code. ART. 1764. Damages in cases comprised in this Section shall be awarded in accordance with Title XVIII of this Book, concerning Damages. Article 2206 shall also apply to the death of a passenger caused by the breach of contract by a comman carrier. ART. 2206. ... (3) The spouse, legitimate and eligimate descendants and ascendants of the deceased may demand moral damages for mental anguish by reason of the death of the deceased. Being a special rule limited to cases of fatal injuries, these articles prevail over the general rule of Art. 2220. Special provisions control general ones (Lichauco & Co. vs. Apostol, 44 Phil. 138; Sancio vs. Lizarraga, 55 Phil. 601). It thus appears that under the new Civil Code, in case of accident due to a carriers negligence, the heirs of a deceased passenger may recover moral damages, even though a passenger who is injured, but manages to survive, is not entitled to them. There is, therefore, no conflict between our main decision in the instant case and that of

Cachero vs. Manila Yellow Taxi Cab Co., 101 Phil. 523, where the passenger suffered injuries, but did not lose his life. (3) In the Cachero case this Court disallowed attorneys fees to the injured plaintiff because the litigation arose out of his exaggerated and unreasonable deeds for an indemnity that was out of proportion with the compensatory damages to which he was solely entitled. But in the present case, plaintiffs original claims can not be deemed a priori wholly unreasonable, since they had a right to indemnity for moral damages besides compensatory ones, and moral damages are not determined by set and invariable bounds. Neither does the fact that the contract between the passengers and their counsel was on a contingent basis affect the formers right to counsel fees. As pointed out for appellants, the Courts award is an party and not to counsel. A litigant who improvidently stipulate higher counsel fees than those to which he is lawfully entitled, does not for that reason earn the right to a larger indemnity; but, by parity of reasoning, he should not be deprived of counsel fees if by law he is entitled to recover them. We find no reason to alter the main decision heretofore rendered. Ultimately, the position taken by this Court is that a common carriers contract is not to be regarded as a game of chance wherein the passenger stakes his limb and life against the carriers property and profits. Wherefore, the motion for reconsideration is hereby denied. So ordered. Paras, C.J. Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Concepcion, Endencia, and Felix, JJ., concur.
FIRST DIVISION [G.R. No. L-46558 : July 31, 1981.] PHILIPPINE AIR LINES, INC., Petitioner, vs. THE COURT OF APPEALS and JESUS V. SAMSON, Respondents. DECISION GUERRERO, J.: This is a petition for review on Certiorari of the decision of the Court of Appeals 1 dated April 18, 1977, affirming with modification the decision of the Court of First Instance of Albay in Civil Case No. 1279, entitled Jesus V. Samson, plaintiff, vs. Philippine Air Lines, Inc., defendant, for damages. The dispositive portion of the trial courts decision reads: WHEREFORE, for all the foregoing considerations, judgment is hereby rendered in favor of the plaintiff and against the defendant ordering the defendant to pay the plaintiff, the following sums: P1988,000.00 as unearned income or damages; P50,000.00 for moral dama ges; P20,000.00 as attorneys fees and P5,000.00 as expenses of litigation, or a total of P273,000.00. Costs against the defendant. The appellate court modified the above decision, to wit: However, Plaintiff-Appellee, who has been deprived of his job since 1954, is entitled to the legal rate of interest on the P198,000.00 unearned income from the filing of the complaint (Sec. 8, Rule 51, Rules of Court). WHEREFORE, with the modification indicated above, the judgment appealed from is affirmed, with costs against defendant-appellant.
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The complaint filed on July 1, 1954 by plaintiff Jesus V. Samson, private respondent herein, averred that on January 8, 1951, he flew as co-pilot on a regular flight from Manila to Legaspi with stops at Daet, Camarines Norte and Pili, Camarines Sur, with Captain Delfin Bustamante as commanding pilot of a C-47 plane belonging to defendant Philippine Air Lines, Inc., now the herein petitioner; that on attempting to land the plane at Daet airport, Captain Delfin Bustamante due to his very slow reaction and poor judgment overshot the airfield and as a result, notwithstanding the diligent efforts of the plaintiff co-pilot to avert an accident, the airplane crashlanded beyond the runway; that the jolt caused the head of the plaintiff to hit and break through the thick front windshield of the airplane causing him severe brain concussion, wounds and abrasions on the forehead with intense pain and suffering (par. 6, complaint). The complaint further alleged that instead of giving plaintiff expert and proper medical treatment called for by the nature and severity of his injuries, defendant simply referred him to a company physician, a general medical practitioner, who limited the treatment to the exterior injuries without examining the severe brain concussion of plaintiff (par. 7, complaint); that several days after the accident, defendant Philippine Air Lines called back the plaintiff to active duty as co-pilot, and inspite of the latters repeated request for expert medical assistance, defendant had not given him any (par. 8, complaint); that as a consequence of the brain injury sustained by plaintiff from the crash, he had been having periodic dizzy spells and had been suffering from general debility and nervousness (par. 9, complaint); that defendant airline company instead of submitting the plaintiff to expert medical treatment, discharged the latter from its employ on December 21, 1953 on grounds of physical disability, thereby causing plaintiff not only to lose his job but to become physically unfit to continue as aviator due to defendants negligence in not giving him the proper medical attention (pars. 10-11, complaint). Plaintiff prayed for damages in the amount of P180,000.00 representing his unearned income, P50,000.00 as moral damages, P20,000.00 as attorneys fees and P5,000.00 as expenses, or a total of P255,000.00. In its answer filed on July 28, 1954, defendant PAL denied the substantial averments in the complaint, alleging among others, that the accident was due solely and exclusively to inevitable unforeseen circumstances whereby plaintiff sustained only superficial wounds and minor injuries which were promptly treated by defendants medical personnel (par. 5, answer); that plaintiff did not sustain brain injury or cerebral concussion from the accident since he passed the annual physical and medical examination given thereafter on April 24, 1951; that the headaches and dizziness experienced by plaintiff were due to emotional disturbance over his inability to pass the required up-grading or promotional course given by defendant company (par. 6, answer), and that, as confirmed by an expert neuro-surgeon, plaintiff was suffering-from neurosis and in view of this unfitness and disqualification from continuing as a pilot, defendant had to terminate plaintiffs employment (pars. 7, 9, answer). Further, defendant alleged that by the very nature of its business as a common carrier, it is bound to employ only pilots who are proficient and in good mental, emotional and physical condition; that the pilot, Captain Delfin Bustamante, was a competent and proficient pilot, and although he was already afflicted with a tumor of the nasopharynx even before the accident of January 8, 1951, the Civil Aeronautics Administration, in passing upon the fitness of pilots, gave Capt. Bustamante a waiver of physical standards to enable him to retain his first class airman certificate since the affliction had not in the least affected his proficiency (pars. 16-17, answer). By way of counterclaim, defendant prayed for P10,000.00 as expenses for the litigation. On March 25, 1958, defendant filed a Motion to Dismiss on the ground that the complaint is essentially a Workmens Compensation claim, stating a cause of action not cognizable within the general jurisdiction of the court. The Motion to Dismiss was denied in the order of April 14, 1958. After the reception of evidence, the trial court rendered on January 15, 1973 the decision, the dispositive portion of which has been earlier cited. The defendant Philippine Air Lines, Inc. appealed the decision to the Court of Appeals as being contrary to law and unsupported by the evidence. It raised as errors of the trial court (a) the holding that the damages allegedly suffered by plaintiff are attributable to the accident of January 8, 1951 which was due to the negligence of defendant in having allowed Capt. Delfin Bustamante to continue flying despite his alleged slow reaction and poor judgment; (b) the finding that defendant was negligent in not having given plaintiff proper and adequate expert medical treatment and assistance for the injuries allegedly sustained in the accident of January 8, 1951; and (c) in ordering defendant to pay actual or compensatory damages, moral damages and attorneys fees to the plaintiff. On April 18, 1977, the Court of Appeals rendered its decision affirming the judgment of the lower court but modified the award of damages by imposing legal rate of interest on the P198,000.00 unearned income from the filing of the complaint, citing Sec. 8, Rule 51 of the Rules of Court. Its motion for reconsideration of the above judgment having been denied, Philippine Air Lines, Inc. filed this instant petition for Certiorari on the ground that the decision is not in accord with law or with the
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applicable jurisprudence, aside from its being replete with findings in the nature of speculation, surmises and conjectures not borne out by the evidence on record thereby resulting to misapprehension of facts and amounting to a grave abuse of discretion (p. 7, Petition). Petitioner raises the fundamental question in the case at bar as follows: Is there a causal connection between the injuries suffered by private respondent during the accident on 8 January 1951 and the subsequent periodic dizzy spells, headache and general debility of which private respondent complained every now and then, on the one hand, and such periodic dizzy spells, headache and general debility allegedly caused by the accident and private respondents eventual discharge from employment, on the other? PAL submits that respondent courts award of damages to private respondent is anchored on findings in the nature of speculations, surmises and conjectures and not borne out by the evidence on record, thereby resulting in a misapprehension of facts and amounting to a grave abuse of discretion. Petitioners submission is without merit. As found by the respondent court, the following are the essential facts of the case: It appears that plaintiff, a licensee aviator, was employed by defendant a few years prior to January 8, 1951 as a regular co-pilot on a guaranteed basic salary of P750.00 a month. He was assigned to and/or paired with pilot Delfin Bustamante. Sometime in December 1950, he complained to defendant through its authorized official about the slow reaction and poor judgment of pilot Delfin Bustamante. Notwithstanding said complaint, defendant allowed the pilot to continue flying. On January 8, 1951, the two manned the regular afternoon flight of defendants plane from Manila to Legaspi, with stops at Daet, Camarines Norte, and Pili, Camarines Sur. Upon making a landing at Daet, the pilot, with his slow reaction and poor judgment, overshot the airfield and, as a result of and notwithstanding diligent efforts of plaintiff to avert an accident, the airplane crash-landed beyond the runway into a mangrove. The jolt and impact caused plaintiff to hit his head upon the front windshield of the plane thereby causing his brain concussions and wounds on the forehead, with concomittant intense pain. Plaintiff was not given proper medical attention and treatment demanded by the nature and severity of his injuries. Defendant merely referred him to its clinic attended by general practitioners on his external injuries. His brain injury was never examined, much less treated. On top of that negligence, defendant recalled plaintiff to active duty as a co-pilot, completely ignoring his plea for expert medical assistance. Suffering periodic dizzy spells, headache and general debility, plaintiff every now and then complained to defendant. To make matters worst for plaintiff, defendant discharged him from his employment on December 21, 1953. In consequence, plaintiff has been beset with additional worries, basically financial. He is now a liability instead of a provider, of his family. On July 1, 1954, plaintiff filed a complaint for damages. Defendant vainly sought to dismiss the complaint after filing an answer. Then, the judgment and this appeal. Continuing, the respondent Court of Appeals further held: There is no question about the employment of plaintiff by defendant, his age and salary, the overshooting by pilot Bustamante of the airfield and crashlanding in a mangrove, his hitting his head on the front windshield of the plane, his intermittent dizzy spells, headache and general debility for which he was discharged from his employment on December 21, 1953. As the lower court aptly stated: From the evidence adduced by the parties, the Court finds the following facts to be uncontroverted: That the plaintiff Jesus V. Samson, on January 8, 1951 and a few years prior thereto, December 21, 1953, was a duly licensed pilot employed as a regular co-pilot of the defendant with assignment in its domestic air service in the Philippines; that on January 8, 1951, the defendants airplane met an accident in crashlanding at the Daet Airport, Camarines Norte by overshooting the runway and reaching the mangroves at the edge of the landing strip; that the jolt caused plaintiffs head to hit the front windshield of the airplane causing him to suffer wounds and abrasion on the forehead; that the defendant, instead of giving the plaintiff expert and proper medical treatment called for by the nature and severity of the injuries of the plaintiff, simply referred him to the clinic of the defendants physicians who are only general medical practitioners and not brain specialists; that the defendants physicians limited their treatment to the exterior injuries on the forehead of the plaintiff and made no examination of the severe concussion of the brain of the plaintiff; that the Medical Director and Flight Surgeon of the defendant were not able to definitely determine the cause of the complaint of the plaintiff as to the periodic attack of dizziness, spells and headache; that due to this laxity of the defendants physician and the
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continuous suffering of the ailment of the plaintiff complained of, he demanded for expert medical assistance for his brain injury and to send him to the United States, which demand was turned down and in effect denied by the defendant; that instead the defendant referred the plaintiff to a neurologist, Dr. Victor Reyes; that from the time that said accident occurred on January 21, 1953, he was ordered grounded on several occasions because of his complaint of dizzy spells and headache; that instead of submitting the plaintiff to expert medical treatment as demanded by him and denied by the defendant, he was discharged from its employment on December 21, 1953 on the ground of physical disability, and that the plaintiff, at the time when the defendants plane met the accident, up to the time he was discharged, was regularly employed as a co-pilot and receiving a basic salary of P750.00 a month plus extra pay for flying time, and bonuses amounting to P300.00 a month. Even defendant-appellant itself admits as not controverted the following facts which generally admit what have been stated above as not controverted. In the case at bar, the following facts are not the subject of controversy: (1) First, that from July 1950 to 21 December 1953, plaintiff was employed with defendant company as a first officer or co-pilot and served in that capacity in defendants domestic services. (2) Second, that on January 1951, plaintiff did fly on defendants PI-C 94, as first officer or co-pilot, with the late Capt. Delfin Bustamante in command as pilot; that while making a landing at the Daet airport on that date, PI-C 94 did meet an accident as stated above. (3) Third, that at or about the time of the discharge from defendant company, plaintiff had complained of spells of dizziness, headaches and nervousness, by reason of which he was grounded from flight duty. In short, that at that time, or approximately from November 1953 up to the date of his discharge on 21 December 1953, plaintiff was actually physically unfit to discharge his duties as pilot. (4) Fourth, that plaintiffs unfitness for flight duty was properly established after a thorough medical examination by competent medical experts. (pp. 11-12, appellants brief) hence, there can hardly be an issue, factual, legal or medical. Taking exception from the rest of the essential facts of the case as found by the respondent court PAL claims said facts are not fully borne out by the evidence on record and insists that the injuries suffered by private respondent during the accident on January 8, 1951 were superficial in nature; that the periodic spells, headache, and general debility complaint of every now and then by private respondent subsequent to the Jan. 8, 1951 incident were due to emotional disturbances and that no negligence can be attributed to Capt. Delfin Bustamante much less to PAL for the occurrence on January 8, 1951, hence PAL cannot be held liable for damages. Petitioner claims absence of any causal connection between private respondents superficial injuries and his alleged subsequent periodic spells, headache and general debility, pointing out that these subsequent ailments were found by competent physician, including an expert neuro-surgeon, to be due to emotional disturbances insights the conclusions of Dr. Trajano V. Bernardo that respondents complaints were psychosomatic symptoms on the basis of declarat ions made by respondent himself, which conclusions are supported by similar diagnosis made by Drs. Damaceno J. Ago and Villaraza stating that respondent Samson was suffering from neurosis as well as the report of Dr. Victor Reyes, a neurological specialist, indicating that the symptoms were probably, most probably due to psychogenic factors and have no organic basis. In claiming that there is no factual basis for the finding of the respondent court that the crash-landing caused respondents brain concussion . ., with concomittant intense pain, for on the contrary, testimonial evidence establish the superficiality of the injuries sustained by respondent during the accident of January 8, 1951, petitioner quotes portions of the testimony of Dr. Manuel S. Sayas, who declared that he removed the band-aid on the forehead of respondent and that he found out after removal that the latter had two contussed superficial wounds over the supra orbiter regions or just above the eyes measuring one centimeter long and one millimeter deep. He examined and found his blood pressure normal, no discharges from the nose and ears. Dr. Trajano V. Bernardo also testified that when he examined respondent Samson three days after the accident, the wound was already healed and found nothing wrong with his ears, nose and throat so that he was declared fit for duty after the sixth day. Petitioner goes further. It contends that there is no causal connection between respondents superficial injuries sustained during the accident on January 8, 1951 and plaintiffs discharge from employment with PAL on December 21, 1953. According to PAL, it was the repeated recurrence of respondents neurasthenic symptoms (dizzy spells, headache, nervousness) which prompted PALs Flight Surgeon, Dr.
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Bernardo, to recommend that plaintiff be grounded permanently as respondent was psychologically unfit to resume his duties as pilot. PAL concludes that respondents eventual discharge from employment with PAL was effected for absolutely valid reasons, and only after he was thoroughly examined and found unfit to carry out his responsibilities and duties as a pilot. We agree with the respondent court in finding that the dizzy spells, headache and general debility of private respondent Samson was an after-effect of the crash-landing and We find that such holding is supported by substantial evidence, which We quote from the courts decision, to wit: Defendant would imply that plaintiff suffered only superficial wounds which were treated and not brain injury. It would, by the opinion of its company doctors, Dr. Bernardo and Dr. Reyes, attribute the dizzy spells and headache to organic or as phychosomatic, neurasthenic or psychogenic, which we find outlandishly exaggerated. That plaintiffs condition as psychosomatic rather than organic in nature is allegedly confirmed by the fact that on six (6) separate occasions after the accident he passed the required CAA physical examination for airmans certificate. (Exhs. 78, 79, 80, 81, 83 and 92). We noticed, however, that there were other similar physical examinations conducted by the CAA on the person of plaintiff the report on which were not presented in evidence. Obviously, only those which suited defendants cause were hand-picked and offered in evidence. We hesitate to accept the opinion of the defendants two physicians, considering that Dr. Bernardo admittedly referred to Dr. Reyes because he could not determine the cause of the dizzy spells and headache and the latter admitted that it is extremely hard to be certain of the cause of his dizzy spells, and suggested a possibility that it was due to postraumatic syndrome, evidently due to the injuries suffered by the plaintiff in hitting the forehead against the windshield of the plane during the accident. Judgment are not based on possibilities. The admitted difficulty of defendants doctors in determining the cause of the dizzy spells and headache cannot be a sound basis for finding against the plaintiff and in favor of defendant. Whatever it might be, the fact is that such dizzy spells, headache and general debility was an aftereffect of the crash-landing. Be it brain injury or psychosomatic, neurasthenic or psychogenic, there is no gainsaying the fact that it was caused by the crash-landing. As an effect of the cause, not fabricated or concocted, plaintiff has to be indemnified. The fact is that such effect caused his discharge. We are prone to believe the testimony of the plaintiffs doctors. Dr. Morales, a surgeon, found that blood was comin g from plaintiffs ears and nose. He testified that plaintiff was suffering from cerebral concussion as a result of traumatic injury to the brain caused by his head hitting on the windshield of the plane during the crash-landing (Exhibit G). Dr. Conrado Aramil, a neurologist and psychiatrist with experience in two hospitals abroad, found abnormality reflected by the electroencephalogram examination in the frontal area on both sides of plaintiffs head (Exhibits K, K-1). The opinion of these two specialist renders unnecessary that of plaintiffs wife who is a physician in her own right and because of her relation to the plaintiff, her testimony and opinion may not be discussed here, although her testimony is crystallized by the opinions of Dr. Ador Dionisio, Dr. Marquez, Dr. Jose O. Chan, Dr. Yambao and Dr. Sandico. Even the doctors presented by defendant admit vital facts about plaintiffs brain injury. Dr. Bernardo admits that due to the incident, the plaintiff continuously complained of his fainting spells, dizziness and headache everytime he flew as a co-pilot and everytime he went to defendants clinic no less than 25 times (Exhibits 15 to 36), that he complained of the same to Dr. Reyes; that he promised to help send plaintiff to the United States for expert medical assistance provided that whatever finding thereat should not be attributed to the crash-landing incident to which plaintiff did not agree and that plaintiff was completely ignored by the defendant in his plea for expert medical assistance. They admitted that they could not determine definitely the cause of the fainting spells, dizziness and headache, which justifies the demand for expert medical assistance. We also find the imputation of gross negligence by respondent court to PAL for having allowed Capt. Delfin Bustamante to fly on that fateful day of the accident on January 8, 1951 to be correct, and We affirm the same, duly supported as it is by substantial evidence, clearly established and cited in the decision of said court which states as follows: The pilot was sick. He admittedly had tumor of the nasopharynx (nose). He is now in the Great Beyond. The spot is very near the brain and the eyes. Tumor on the spot will affect the sinus, the breathing, the eyes which are very near it. No one will certify the fitness to fly a plane of one suffering from the disease.
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. . The fact First Pilot Bustamante has a long standing tumor of the Nasopharynx for which reason he was grounded since November 1947 is admitted in the letter (Exh. 69-A) of Dr. Bernardo to the Medical Director of the CAA requesting waiver of physical standards. The request for waiver of physical standards is itself a positive proof that the physical condition of Capt. Bustamante is short of the standard set by the CAA. The Deputy Administrator of the CAA granted the request relying on the representation and recommendation made by Dr. Bernardo (See Exh. 69). We noted, however, that the request (Exh. 69-A) says that it is believed that his continuing to fly as a copilot does not involve any hazard. (Italics supplied). Flying as a First Officer entails a very different responsibility than flying as a mere co-pilot. Defendant requested the CAA to allow Capt. Bustamante to fly merely as a co-pilot and it is safe to conclude that the CAA approved the request thus allowing Bustamante to fly only as a co-pilot. For having allowed Bustamante to fly as a First Officer on January 8, 1951, defendant is guilty of gross negligence and therefore should be made liable for the resulting accident. As established by the evidence, the pilot used to get treatments from Dr. Sycangco. He used to complain of pain in the face more particularly in the nose which caused him to have slee pless nights. Plaintiffs observation of the pilot was reported to the Chief Pilot who did nothing about it. Captain Carbonel of the defendant corroborated plaintiff of this matter. The complaint against the slow reaction of the pilot at least proved the observation. The observation could be disregarded. The fact that the complaint was not in writing does not detract anything from the seriousness thereof, considering that a miscalculation would not only cause the death of the crew but also of the passengers. One month prior to the crash-landing, when the pilot was preparing to land in Daet, plaintiff warned him that they were not in the vicinity of Daet but above the town of Ligao. The plane hit outside the airstrip. In another instance, the pilot would hit the Mayon Volcano had not plaintiff warned him. These more than prove what plaintiff had complained of. Disregard thereof by defendant is condemnable. To bolster the claim that Capt. Bustamante has not suffered from any kind of sickness which hampered his flying ability, appellant contends that for at least one or more years following the accident of January 8, 1951, Capt. Bustamante continued to fly for defendant company as a pilot, and did so with great skill and proficiency, and without any further accident or mishap, citing tsn. pp. 756-765, January 20, 1965. We have painstakingly perused the records, particularly the transcript of stenographic notes cited, but found nothing therein to substantiate appellants contention. Instead, We discovered that the citation covers the testimony of Dr. Bernardo on the physical condition of Bustamante and nothing about his skills or proficiency to fly nor on the mishaps or accidents, matters which are beyond Dr. Bernardos competence anyway. Assuming that the pilot was not sick or that the tumor did not affect the pilot in managing the plane, the evidence shows that the overshooting of the runway and crash-landing at the mangrove was caused by the pilot for which acts the defendant must answer for damages caused thereby. And for this negligence of defendants employee, it is liable (Joaquin vs. Aniceto, 12 SCRA 308). At least, the law presumes the employer negligent imposing upon it the burden of proving that it exercised the diligence of a good father of a family in the supervision of its employees. Defendant would want to tie plaintiff to the report he signed about the crash-landing. The report was prepared by his pilot and because the latter pleaded that he had a family too and would have nowhere to go if he lost his job, plaintiffs compassion would not upturn the truth about the crash -landing. We are for the truth not logic of any argumentation. At any rate, it is incorrect to say that the Accident Report (Exh. 12 & 12-A), signed by plaintiff, exculpated Capt. Bustamante from any fault. We observed that the Report does not categorically state that Capt. Bustamante was not at fault. It merely relates in chronological sequence what Capt. Bustamante and plaintiff did from the take-off from Manila to the landing in Daet which resulted in an accident. On the contrary, we may infer the negligence of Bustamante from the following portion of the Report, to wit: . . I felt his brakes strong but as we neared the intersection of the NE-SW runway, the brakes were not as strong and I glanced at the system pressure which indicated 900 lbs. per sq. m. It was during the above precise instance that Capt. Bustamante lost his bearing and disposition. Had he maintained the pressure on the brakes the plane would not have overshot the runway. Verily, Bustamante displayed slow reaction and poor judgment. (CA decision, pp. 8-12). This Court is not impressed by, much less can We accept petitioners invocation to calibrate once again the evidence testified to in detail and plucked from the voluminous transcript to support petitioners own conclusion. It is not the task of this Court to discharge the functions of a trier of facts much less to enter into a calibration of the evidence, notwithstanding petitioners wail that the judgment of the respondent
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court is based entirely on speculations, surmises and conjectures. We are convinced that respondent courts judgment is supported by strong, clear and substantial evidence. Petitioner is a common carrier 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, as defined in Art. 1732, New Civil Code. The law is clear in requiring a common carrier to exercise the highest degree of care in the discharge of its duty and business of carriage and transportation under Arts. 1733, 1755 and 1756 of the New Civil Code. These Articles provide: 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, 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. Art. 1755. A common carrier is bound to carry the passenger 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. Art. 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. The duty to exercise the utmost diligence on the part of common carriers is for the safety of passengers as well as for the members of the crew or the complement operating the carrier, the airplane in the case at bar. And this must be so for any omission, lapse or neglect thereof will certainly result to the damage, prejudice, nay injuries and even death to all aboard the plane, passengers and crew members alike. Now to the damages. The Court of Appeals affirmed the award of damages made by the trial court, stating that the damages awarded plaintiff by the lower court are in accordance with the facts, law and jurisprudence. The court further observed that defendant-appellant is still fortunate, considering that the unearned income was reckoned with only up to 1968 and not up to the present as plaintiff-appellee is still living. Whatever mathematical error defendant-appellant could show by abstract argumentation, the same must be compensated by such deficiency of the damages awarded to plaintiff-appellee. As awarded by the trial court, private respondent was entitled to P198,000.00 as unearned income or compensatory damages; P50,000.00 for moral damages, P20,000.00 as attorneys fees and P5,000.00 as expenses of litigation, or a total of P273,000.00. The trial court arrived at the sum of P198,000.00 as unearned income or damages by considering that respondent Samson could have continued t o work as airline pilot for fifteen more years, he being only 38 years at the time the services were terminated by the defendant (PAL) and he would have earned P120,000.00 from 1954 to 1963 or a period of ten (10) years at the rate of one thousand per month (P750.00 basic salary plus P300.00 extra pay for extra flying time and bonuses; and considering further that in 1964 the basic pay of defendants pilot was increased to P12,000.00 annually, the plaintiff could have earned from 1964 to 1968 the sum of P60,000.00 in the form of salaries and another P18,000.00 as bonuses and extra pay for extra flying time at the same rate of P300 a month, or a grand total of P198,000.00 for the entire period. This claim of the plaintiff for loss or impairment of earning capacity is based on the provision of Article 2205 of the New Civil Code of the Philippines which provides that damages may be recovered for loss or impairment of earning capacity in cases of temporary or permanent personal injury. This provision of law has been construed and interpreted in the case of Aureliano Ropato, et al. vs. La Mallorca General Partnership, 56 O.G., 7812, which rules that law allows the recovery of damages for loss or impairment of earning capacity in cases of temporary or permanent personal injury. (Decision, CFI, pp. 98-99, Record on Appeal) The respondent appellate court modified the above award by ordering payment of legal interest on the P198,000.00 unearned income from the filing of the claim, citing Sec. 8, Rule 51 of the Rules of Court. Petitioner assails the award of the total sum of P198,000.00 as unearned income up to 1968 as being tenuous because firstly, the trial courts finding affirmed by the respondent court is allegedly base d on pure speculation and conjecture and secondly, the award of P300.00 a month as extra pay for extra flying time from 1954 to 1968 is likewise speculative. PAL likewise rejects the award of moral damages in the amount of P50,000.00 on the ground that pri vate respondents action before the trial court does not fall under any of the cases enumerated in the law (Art. 2219 of the New Civil Code) for which moral damages are recoverable and that although private respondents action gives the appearance th at it is covered under quasi-delict as provided in Art. 21 of the New Civil Code, the definition of quasi-delict in Art. 2176 of the New Civil Code expressly excludes cases where there is a pre-existing contractual relation between the parties, as in the case under consideration, where an employer-employee relationship existed between
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PAL and private respondent. It is further argued that private respondents action cannot be deemed to be covered by Art. 21, inasmuch as there is no evidence on record to show that PAL wilfully cause(d) loss or injury to (private respondent) in a manner that is contrary to morals, good customs or public policy . . Nor can private respondents action be considered analogous to either of the foregoing, for the reasons are obvious that it is not. (Memorandum of petitioner, pp. 418-421, Records) Having affirmed the gross negligence of PAL in allowing Capt. Delfin Bustamante to fly the plane to Daet on January 8, 1951 whose slow reaction and poor judgment was the cause of the crash-landing of the plane which resulted in private respondent Samson hitting his head against the windshield and causing him injuries for which reason PAL terminated his services and employment as pilot after refusing to provide him with the necessary medical treatment of respondents periodic spells, headache and general debility produced from said injuries, We must necessarily affirm likewise the award of damages or compensation under the provisions of Art. 1711 and Art. 1712 of the New Civil Code which provide: Art. 1711. Owners of enterprises and other employers are obliged to pay compensation for the death or injuries to their laborers, workmen, mechanics or other employees, even though the event may have been purely accidental or entirely due to a fortuitous cause, if the death or personal injury arose out of and in the course of the employment. The employer is also liable for compensation if the employee contracts any illness or disease caused by such employment or as the result of the nature of the employment. If the mishap was due to the employees own notorious negligence, or voluntary act, or drunkenness, the employer shall not be liable for compensation. When the employees lack of due care contributed to hi s death or injury, the compensation shall be equitably reduced. Art. 1712. If the death or injury is due to the negligence of a fellow-worker, the latter and the employer shall be solidarily liable for compensation. If a fellow-workers intentional or malicious act is the only cause of the death or injury, the employer shall not be answerable, unless it should be shown that the latter did not exercise due diligence in the selection or supervision of the plaintiffs fellow-worker. The grant of compensatory damages to the private respondent made by the trial court and affirmed by the appellate court by computing his basic salary per annum at P750.00 a month as basic salary and P300.00 a month for extra pay for extra flying time including bonus given in December every year is justified. The correct computation however should be P750 plus P300 x 12 months = P12,600 per annum x 10 years = P126,000.00 (not P120,000.00 as computed by the court a quo). The further grant of increase in the basic pay of the pilots to P12,000 annually for 1964 to 1968 totalling P60,000.00 and another P18,000.00 as bonuses and extra pay for extra flying time at the same rate of P300.00 a month totals P78,000.00. Adding P126,000.00 (1964 to 1968 compensation) makes a grand total of P204,000.00 (not P198,000.00 as originally computed). As to the grant of moral damages in the sum of P50,000.00 We also approve the same. We have noted and considered the holding of the appellate court in the matter of bad faith on the part of PAL, stated hereunder, this wise: None of the essential facts material to the determination of the case have been seriously assailed: the overshooting of runway and crash-landing into the mangroves; the hitting of plaintiffs head to the front windshield of the plane; the oozing of blood out of his ears, nose and mouth; the intermittent dizzy spells, headaches and general debility thereafter for which he was discharged from his employment; the condition of not to attribute the cause of the ailment to the crashlanding imposed in bad faith for a demanded special medical service abroad; and the resultant brain injury which defendants doctors could not understand nor diagnose. xxx The act of defendant-appellant in unjustly refusing plaintiff-appellees demand for special medical service abroad for the reason that plaintiff-appellees deteriorating physical condition was not due to the accident violates the provisions of Article 19 of the Civil Code on human relations to act with justice, give everyone his due, and observe honesty and good faith. (CA Resolution, pp. 151-152, Records) We reject the theory of petitioner that private respondent is not entitled to moral damages. Under the facts found by the trial court and affirmed by the appellate court and under the law and jurisprudence cited and applied, the grant of moral damages in the amount of P50,000.00 is proper and justified. The fact that private respondent suffered physical injuries in the head when the plane crash-landed due to the negligence of Capt. Bustamante is undeniable. The negligence of the latter is clearly a quasi-delict and therefore Article 2219, (2) New Civil Code is applicable, justifying the recovery of moral damages. Even from the standpoint of the petitioner that there is an employer-employee relationship between it and private respondent arising from the contract of employment, private respondent is still entitled to moral damages in view of the finding of bad faith or malice by the appellate court, which finding We hereby affirm, applying the provisions of Art. 2220, New Civil Code which provides that willful injury to property
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may be a legal ground for awarding moral damages if the court should find that, under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the defendant acted fraudulently or in bad faith. The justification in the award of moral damages under Art. 19 of the New Civil Code on Human Relations which requires that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith, as applied by respondent court is also well-taken and We hereby give Our affirmance thereto. With respect to the award of attorneys fees in the sum of P20,000.00 the same is likewise correct. As pointed out in the decision of the Court of Appeals, the plaintiff is entitled to attorneys fees because he was forced to litigate in order to enforce his valid claim (Ganaban vs. Bayle, 30 SCRA 365; De la Cruz vs. De la Cruz, 22 SCRA 33; and many others); defendant acted in bad faith in refusing plaintiffs valid claim (Filipino Pipe Foundry Corporation vs. Central Bank, 23 SCRA 1044); and plaintiff was dismissed and was forced to go to court to vindicate his right (Nadura vs. Benguet Consolidated, Inc., 5 SCRA 879). We also agree with the modification made by the appellate court in ordering payment of legal interest from the date judicial demand was made by Pilot Samson against PAL with the filing of the complaint in the lower court. We affirm the ruling of the respondent court which reads: Lastly, the defendant-appellant claims that the legal rate of interest on the unearned compensation should be computed from the date of the judgment in the lower court, not from the filing of the complaint, citing a case where the issue raised in the Supreme Court was limited to when the judgment was rendered in the lower court or in the appellate court, which does not mean that it should not be computed from the filing of the complaint. Articles 1169, 2209 and 2212 of the Civil Code govern when interest shall be computed. Thereunder interest begins to accrue upon demand, extrajudicial or judicial. A complaint is a judicial demand (Cabarroguis vs. Vicente, 107 Phil. 340). Under Article 2212 of the Civil Code, interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. (CA Resolution, pp. 153-154, Records). The correct amount of compensatory damages upon which legal interest shall accrue from the filing of the complaint is P204,000.00 as herein computed and not P198,000.00. WHEREFORE, in view of all the foregoing, the judgment of the appellate court is hereby affirmed with slight modification in that the correct amount of compensatory damages is P204,000.00. With costs against petitioner. SO ORDERED.
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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 113578 July 14, 1995 SULPICIO LINES, INC., Petitioner, vs. The Honorable COURT OF APPEALS and TITO DURAN TABUQUILDE and ANGELINA DE PAZ TABUQUILDE, respondents.

QUIASON, J.:

This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court of the decision of the Court of Appeals in CA-G.R. CV No. 32864, which affirmed the decision of the Regional Trial Court, Branch 85, Quezon City in Civil Case No. Q-89-3048. I The Court of Appeals found: On October 23, 1988, plaintiff Tito Duran Tabuquilde (hereinafter, "Tito") and his three-year old daughter Jennifer Anne boarded the M/V Dona Marilyn at North Harbor, Manila, bringing with them several pieces of luggage. In the morning of October 24, 1988, the M/V Dona Marilyn, while in transit, encountered inclement weather which caused huge waves due to Typhoon Unsang. Notwithstanding the fact that Storm Signal No. 2 had been raised by the PAG-ASA authorities over Leyte as early as 5:30 P.M. of October 23, 1988 and which signal was raised to Signal No. 3 by 10 P.M. of the same day, the ship captain ordered the vessel to proceed to Tacloban when prudence dictated that he should have taken it to the nearest port for shelter, thus violating his duty to exercise extraordinary diligence in the carrying of passengers safely to their destination. At about the same time, plaintiff-appellee Angelina Tabuquilde (hereinafter, "Angelina") mother of Jennifer Anne, contacted the Sulpicio Office to verify radio reports that the vessel M/V Dona Marilyn was missing. Employees of said Sulpicio Lines assured her that the ship was merely "hiding" thereby assuaging her anxiety. At around 2:00 P.M. of October 24, 1988, said vessel capsized, throwing plaintiff-appellee Tito and Jennifer Anne, along with hundreds of passengers, into the tumultuous sea. Tito tried to keep himself and his daughter afloat but to no avail as the waves got stronger and he was subsequently separated from his daughter despite his efforts. He found himself on Almagro Island in Samar the next day at round (sic) 11:00 A.M. and immediately searched for his daughter among the survivors in the island, but the search proved fruitless. In the meantime, Angelina tried to seek the assistance of the Sulpicio Lines in Manila to no avail, the latter refusing to entertain her and hundreds of

relatives of the other passengers who waited long hours outside the Manila Office. Angelina spent sleepless nights worrying about her husband Tito and daughter Jennifer Anne in view of the refusal of Sulpicio Lines to release a verification of the sinking of the ship. On October 26, 1988, Tito and other survivors in the Almagro Island were fetched and were brought to Tacloban Medical Center for treatment. On October 31, 1988, Tito reported the loss of his daughter, was informed that the corpse of a child with his daughter's description had been found. Subsequently, Tito wrote a letter to his wife, reporting the sad fact that Jennifer Anne was dead. Angelina suffered from shock and severe grief upon receipt of the news. On November 3, 1988, the coffin bearing the corpse of Jennifer Anne was buried in Tanauan, Leyte. On November 24, 1988, a claim for damages was filed by Tito with the defendant Sulpicio Lines in connection with the death of the plaintiffappellee's daughter and the loss of Tito's belongings worth P27,580.00. (Appellees' Brief, pp. 2-4) ( Rollo, pp. 52-54). On January 3, 1991, the trial court rendered a decision in Civil Case No. Q-89-3048 in favor of the plaintiffs Tito Duran Tabuquilde and Angelina de Paz Tabuquilde (private respondents herein) and against defendant Sulpicio Lines, Inc. (petitioner herein) ordering defendant to pay P27,580.00 as actual damages, P30,000.00 for the death of Jennifer Tabuquilde, P100,000.00 as moral damages, P50,000.00 as exemplary damages, and P50,000.00 as attorney's fees, and costs. Petitioner appealed to the Court of Appeals which affirmed the decision of the trial court. Petitioner then filed a motion for reconsideration which was denied. Hence, this petition. II Generally, the findings of fact of the trial court are entitled to great weight and not disturbed except for cogent reasons (Gatmaitan v. Court of Appeals, 200 SCRA 37 [1991]). One of the accepted reasons is when the findings of fact are not supported by the evidence (Sandoval Shipyard, Inc. v. Clave, 94 SCRA 472 [1979]). Corollary to this is the rule that actual or compensatory damages, to be recovered, must be proved; otherwise, if the proof is flimsy, no damages will be awarded (Dichoso v. Court of Appeals, 192 SCRA 169 [1990]). In the case at bench, the trial court merely mentioned the fact of the loss and the value of the contents of the pieces of baggage without stating the evidence on which it based

its findings. There is no showing that the value of the contents of the lost pieces of baggage was based on the bill of lading or was previously declared by respondent Tito D. Tabuquilde before he boarded the ship. Hence, there can be no basis to award actual damages in the amount of P27,850.00. The Court of Appeals was correct in confirming the award of damages for the death of the daughter of private respondents, a passenger on board the stricken vessel of petitioner. It is true that under Article 2206 of the Civil Code of the Philippines, only deaths caused by a crime as quasi delict are entitled to actual and compensatory damages without the need of proof of the said damages. Said Article provides: 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. . . . Deducing alone from said provision, one can conclude that damages arising from culpa contractual are not compensable without proof of special damages sustained by the heirs of the victim. However, the Civil Code, in Article 1764 thereof, expressly makes Article 2206 applicable "to the death of a passenger caused by the breach of contract by a common carrier." Accordingly, a common carrier is liable for actual or compensatory damages under Article 2206 in relation to Article 1764 of the Civil Code for deaths of its passengers caused by the breach of the contract of transportation. The trial court awarded an indemnity of P30,000.00 for the death of the daughter of private respondents. The award of damages under Article 2206 has been increased to P50,000.00 (People v. Flores, 237 SCRA 653 [1994]). With respect to the award of moral damages, the general rule is that said damages are not recoverable in culpa contractual except when the presence of bad faith was proven (Trans World Air Lines v. Court of Appeals, 165 SCRA 143 [1988]). However, in breach of contract of carriage, moral damages may be recovered when it results in the death of a passenger (Philippine Rabbit Bus Lines, Inc. v. Esguerra, 117 SCRA 741 [1982]; Vasquez v. Court of Appeals, 138 SCRA 553 [1985]). With respect to the award of exemplary damages, Article 2232 of the Civil Code of the Philippines gives the Court the discretion to grant said damages in breach of contract when the defendant acted in a wanton, fraudulent and reckless manner (Air France v. Carrascoso, 18 SCRA 155 [1966]). Furthermore, in the case of Mecenas v. Court of Appeals, 180 SCRA 83 (1989), we ruled that:

. . . . The Court will take judicial notice of the dreadful regularity with which grievous maritime disasters occur in our waters with massive loss of life. The bulk of our population is too poor to afford domestic air transportation. So it is that notwithstanding the frequent sinking of passenger in our waters, crowds of people continue to travel by sea. This Court is prepared to use the instruments given to it by the law for securing the ends of law and public policy. One of those instruments is the institution of exemplary damages; one of those ends, of special importance in an archipelagic state like the Philippines, is the safe and reliable carriage of people and goods by sea. . . . (at p. 100). A common carrier is obliged to transport its passengers to their destinations with the utmost diligence of a very cautious person (Laguna Tayabas Bus Co. v. Tiongson, 16 SCRA 940 [1966]). The trial court found that petitioner failed to exercise the extraordinary diligence required of a common carrier, which resulted in the sinking of the M/V Dona Marilyn. The trial court correctly concluded that the sinking of M/V Dona Marilyn was due to gross negligence, thus: . . . [i]t is undisputed that Typhoon Unsang entered the Philippine Area of Responsibility on October 21, 1988. The rain in Metro Manila started after lunch of October 23, 1988, and at about 5:00 p.m. Public Storm Signal No. 1 was hoisted over Metro Manila, Signal No. 2 in Leyte and Signal No. 3 in Samar. But at 10:00 o'clock (sic) in the morning of October 23, 1988, Public Storm Signal No. 1 was already hoisted over the province of Leyte, which is the destination of M/V Dona Marilyn. This was raised to Signal No. 2 at 4:00 p.m. and Signal No. 3 at 10:00 p.m. on the same date. The following day, October 24, 1988, at 4:00 a.m. and 10:00 a.m., Storm Signal No. 3 remained hoisted in Leyte. At 4 p.m. on October 24, 1988, Storm Signal No. 3 remained hoisted in Leyte but was reduced to Storm Signal No. 2 (Exh. G). Signal No. 1 has maximum winds at 60 kph within 36 hours; Signal No. 2 has maximum winds of from 60 kph to 100 kph within a period of 24 hours; and Signal No. 3 has maximum winds of 100 kph and above within a period of 12 hours. Warnings of the storm signal are issued by PAG-ASA thru DZZA, Office of Civil Defense, Philippine Navy, Coast Guard, Radio Stations, and other offices, every six (6) hours as soon as a cyclone enters the Philippine Area of Responsibility. At 10:30 a.m. on October 24, 1988, the vessel was estimated to be between Mindoro and Masbate, and the center of the typhoon then was around 130 degrees longitude with maximum winds of 65 kph (Exh. G-3), with a "radius of rough to phenomenal sea at that time of 450 kms. North

and 350 kms. elsewhere; 350 kms. North center and all throughout the rest" (p. 12, TSN, Lumalda, Feb. 19, 1990). xxx xxx xxx In the same manner, (referring to the negligence of the crew of the ship that sank in Vasquez v. Court of Appeals, 138 SCRA 553 [1985]) the crew of the vessel M/V Dona Marilyn took a calculated risk when it proceeded despite the typhoon brewing somewhere in the general direction to which the vessel was going. The crew assumed a greater risk when, instead of dropping anchor in or at the periphery of the Port of Calapan, or returning to the port of Manila which is nearer, proceeded on its voyage on the assumption that it will be able to beat and race with the typhoon and reach its destination before it (Unsang) passes ( Rollo, pp. 45-47). The award of attorney's fees by the trial court to respondents is also assailed by petitioner, citing Mirasol v. De la Cruz, 84 SCRA 337 (1978). In this case, the petitioner filed before the Municipal Court an action for forcible entry against the private respondent. The said court dismissed the complaint. On appeal, the Court of First Instance of Camarines Sur sustained the decision of the lower court, dismissed the appeal and awarded attorney's fees in the sum of not less than P500.00 in favor of private respondent. Upon appeal to us, we deleted the award of attorney's fees because the text of the appealed decision was bereft of any findings of fact and law to justify such an award. Moreover, there was no proof, other than the bare allegation of harassment that the adverse party had acted in bad faith. The aforementioned decision is inapposite to the instant case where the decision clearly mentions the facts and the law upon which the award of attorney's fees were based. WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the MODIFICATION that the award of P27,580.00 as actual damages for the loss of the contents of the pieces of baggage is deleted and that the award of P30,000.00 under Article 2206 in relation Article 1764 is increased to P50,000.00. SO ORDERED.
[G.R. No. 161730. January 28, 2005] JAPAN AIRLINES, petitioner, vs. MICHAEL ASUNCION ASUNCION, respondents. DECISION
YNARES-SANTIAGO, J.:

and

JEANETTE

This petition for review seeks to reverse and set aside the October 9, 2002 decision[1] of the Court of Appeals and its January 12, 2004 resolution,[2] which affirmed in toto the June 10, 1997 decision of the Regional Trial Court of Makati City, Branch 61 in Civil Case No. 92-3635.[3] On March 27, 1992, respondents Michael and Jeanette Asuncion left Manila on board Japan Airlines (JAL) Flight 742 bound for Los Angeles. Their itinerary included a stop-

over in Narita and an overnight stay at Hotel Nikko Narita. Upon arrival at Narita, Mrs. Noriko Etou-Higuchi of JAL endorsed their applications for shore pass and directed them to the Japanese immigration official.[4] A shore pass is required of a foreigner aboard a vessel or aircraft who desires to stay in the neighborhood of the port of call for not more than 72 hours. During their interview, the Japanese immigration official noted that Michael appeared shorter than his height as indicated in his passport. Because of this inconsistency, respondents were denied shore pass entries and were brought instead to the Narita Airport Rest House where they were billeted overnight. The immigration official also handed Mrs. Higuchi a Notice[5] where it was stated that respondents were to be watched so as not to escape. Mr. Atsushi Takemoto of the International Service Center (ISC), the agency tasked by Japans Immigration Department to handle passengers who were denied shore pass entries, brought respondents to the Narita Airport Rest House where they stayed overnight until their departure the following day for Los Angeles. Respondents were charged US$400.00 each for their accommodation, security service and meals. On December 12, 1992, respondents filed a complaint for damages[6] claiming that JAL did not fully apprise them of their travel requirements and that they were rudely and forcibly detained at Narita Airport. JAL denied the allegations of respondents. It maintained that the refusal of the Japanese immigration authorities to issue shore passes to respondents is an act of state which JAL cannot interfere with or prevail upon. Consequently, it cannot impose upon the immigration authorities that respondents be billeted at Hotel Nikko instead of the airport resthouse.[7] On June 10, 1997, the trial court rendered its decision, the dispositive portion of which reads: WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiffs ordering defendant JAL to pay plaintiffs as follows: 1. the sum of US$800.00 representing the expenses incurred at the Narita Airport with interest at 12% per annum from March 27, 1992 until the sum is fully paid; 2. the sum of P200,000.00 for each plaintiff as moral damages; 3. the amount of P100,000.00 for each plaintiff as exemplary damages; 4. the amount of P100,000.00 as attorneys fees; and
5. costs of suit.

SO ORDERED.[8] The trial court dismissed JALs counterclaim for litigation expenses, exemplary damages and attorneys fees. On October 9, 2002, the Court of Appeals affirmed in toto the decision of the trial court. Its motion for reconsideration having been denied,[9] JAL now files the instant petition. The basic issue for resolution is whether JAL is guilty of breach of contract. Under Article 1755 of the Civil Code, a common carrier such as JAL is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard for all the circumstances. When an airline issues a ticket to a passenger, confirmed for a particular flight on a certain date, a contract of carriage arises. The passenger has every right to expect that he be

transported on that flight and on that date and it becomes the carriers obligation to carry him and his luggage safely to the agreed destination.[10] If the passenger is not so transported or if in the process of transporting he dies or is injured, the carrier may be held liable for a breach of contract of carriage.[11] We find that JAL did not breach its contract of carriage with respondents. It may be true that JAL has the duty to inspect whether its passengers have the necessary travel documents, however, such duty does not extend to checking the veracity of every entry in these documents. JAL could not vouch for the authenticity of a passport and the correctness of the entries therein. The power to admit or not an alien into the country is a sovereign act which cannot be interfered with even by JAL. This is not within the ambit of the contract of carriage entered into by JAL and herein respondents. As such, JAL should not be faulted for the denial of respondents shore pass applications. Prior to their departure, respondents were aware that upon arrival in Narita, they must secure shore pass entries for their overnight stay. Respondents mother, Mrs. Imelda Asuncion, insisted though that Ms. Linda Villavicencio of JAL assured her that her children would be granted the passes.[12] This assertion was satisfactorily refuted by Ms. Villavicencios testimony during the cross examination, to wit: ATTY. GONZAGA: Q I will show to you Exh. 9 which is the TIM and on page 184 hereof, particularly number 10, and I quote, Those holding tickets with confirmed seats and other documents for their onward journey and continuing their journey to a third country provided that they obtain an indorsement with an application of shore pass or transit pass from the airline ground personnel before clearing the immigration formality? WITNESS: A Yes, Sir. Q Did you tell this provision to Mrs. Asuncion? A Yes, Sir. I did. Q Are you sure? A Yes, Sir. Q Did you give a copy? A No, Sir, I did not give a copy but verbally I explained to her the procedure they have to undergo when they get to narita airport. . Q And you read the contents of this [TIM]? A No, Sir, I did not read it to her but I explained to her the procedure that each passenger has to go through before when they get to narita airport before they line up in the immigration counter. Q In other words, you told Mrs. Asuncion the responsibility of securing shore passes bears solely on the passengers only? A Yes, Sir. Q That the airline has no responsibility whatsoever with regards (sic) to the application for shore passes? A Yes, Sir.[13] Next, respondents claimed that petitioner breached its contract of carriage when it failed to explain to the immigration authorities that they had overnight vouchers at the

Hotel Nikko Narita. They imputed that JAL did not exhaust all means to prevent the denial of their shore pass entry applications. To reiterate, JAL or any of its representatives have no authority to interfere with or influence the immigration authorities. The most that could be expected of JAL is to endorse respondents applications, which Mrs. Higuchi did immediately upon their arrival in Narita. As Mrs. Higuchi stated during her deposition: ATTY. QUIMBO Q: Madam Witness, what assistance did you give, if any, to the plaintiffs during this interview? A: No, I was not present during their interview. I cannot assist. Q: Why not? A: It is forbidden for a civilian personnel to interfere with the Immigration agents duties.[14] . Q: During the time that you were in that room and you were given this notice for you to sign, did you tell the immigration agent that Michael and Jeanette Asuncion should be allowed to stay at the Hotel Nikko Narita because, as passengers of JAL, and according to the plaintiff, they had vouchers to stay in that hotel that night? A: No, I couldnt do so. Q: Why not? A: This notice is evidence which shows the decision of immigration authorities. It shows there that the immigration inspector also designated Room 304 of the Narita Airport Resthouse as the place where the passengers were going to wait for their outbound flight. I cannot interfere with that decision.[15] Mrs. Higuchi did all she could to assist the respondents. Upon being notified of the denial of respondents applications, Mrs. Higuchi immediately made reservations for respondents at the Narita Airport Rest House which is really more a hotel than a detention house as claimed by respondents.[16] More importantly, nowhere in respondent Michaels testimony did he state categorically that Mrs. Higuchi or any other employee of JAL treated them rudely or exhibited improper behavior throughout their stay. We therefore find JAL not remiss in its obligations as a common carrier. Moral damages may be recovered in cases where one willfully causes injury to property, or in cases of breach of contract where the other party acts fraudulently or in bad faith. Exemplary damages are imposed by way of example or correction for the public good, when the party to a contract acts in wanton, fraudulent, oppressive or malevolent manner. Attorneys fees are allowed when exemplary damages are awarded and when the party to a suit is compelled to incur expenses to protect his interest. [17] There being no breach of contract nor proof that JAL acted in wanton, fraudulent or malevolent manner, there is no basis for the award of any form of damages. Neither should JAL be held liable to reimburse respondents the amount of US$800.00. It has been sufficiently proven that the amount pertained to ISC, an agency separate and distinct from JAL, in payment for the accommodations provided to respondents. The payments did not in any manner accrue to the benefit of JAL.

However, we find that the Court of Appeals correctly dismissed JALs counterclaim for litigation expenses, exemplary damages and attorneys fees. The action was filed by respondents in utmost good faith and not manifestly frivolous. Respondents honestly believed that JAL breached its contract. A persons right to litigate should not be penalized by holding him liable for damages. This is especially true when the filing of the case is to enforce what he believes to be his rightful claim against another although found to be erroneous.[18] WHEREFORE, in view of the foregoing, the instant petition is PARTLY GRANTED. The October 9, 2002 decision of the Court of Appeals and its January 12, 2004 resolution in CA-G.R. CV No. 57440, are REVERSED and SET ASIDE insofar as the finding of breach on the part of petitioner and the award of damages, attorneys fees and costs of the suit in favor of respondents is concerned. Accordingly, there being no breach of contract on the part of petitioner, the award of actual, moral and exemplary damages, as well as attorneys fees and costs of the suit in favor of respondents Michael and Jeanette Asuncion, is DELETED for lack of basis. However, the dismissal for lack of merit of petitioners counterclaim for litigation expenses, exemplary damages and attorneys fees, is SUSTAINED. No pronouncement as to costs. SO ORDERED.