A.

COMMON CARRIERS

1. PHILIPPINE AMERICAN GENERAL INSURANCE

COMPANY, petitioner, vs. PKS SHIPPING COMPANY, respondent.
[G.R. No. 149038. April 9, 2003]

The petition before the Court seeks a review of the decision of the Court of
Appeals in C.A. G.R. CV No. 56470, promulgated on 25 June 2001, which has
affirmed in toto the judgment of the Regional Trial Court (RTC), Branch 65, of
Makati, dismissing the complaint for damages filed by petitioner insurance
corporation against respondent shipping company.

Davao Union Marketing Corporation (DUMC) contracted the services of

respondent PKS Shipping Company (PKS Shipping) for the shipment to
Tacloban City of seventy-five thousand (75,000) bags of cement worth Three
Million Three Hundred Seventy-Five Thousand Pesos (P3,375,000.00). DUMC
insured the goods for its full value with petitioner Philippine American
General Insurance Company (Philamgen). The goods were loaded aboard the
dumb barge Limar I belonging to PKS Shipping. On the evening of 22
December 1988, about nine oclock, while Limar I was being towed by
respondents tugboat, MT Iron Eagle, the barge sank a couple of miles off the
coast of Dumagasa Point, in Zamboanga del Sur, bringing down with it the
entire cargo of 75,000 bags of cement.
DUMC filed a formal claim with Philamgen for the full amount of the
insurance. Philamgen promptly made payment; it then sought
reimbursement from PKS Shipping of the sum paid to DUMC but the shipping
company refused to pay, prompting Philamgen to file suit against PKS
Shipping with the Makati RTC.
The RTC dismissed the complaint after finding that the total loss of the
cargo could have been caused either by a fortuitous event, in which case the
ship owner was not liable, or through the negligence of the captain and crew
of the vessel and that, under Article 587 of the Code of Commerce adopting
the Limited Liability Rule, the ship owner could free itself of liability by
abandoning, as it apparently so did, the vessel with all her equipment and
earned freightage.
Philamgen interposed an appeal to the Court of Appeals which affirmed in
toto the decision of the trial court. The appellate court ruled that evidence to
establish that PKS Shipping was a common carrier at the time it undertook to
transport the bags of cement was wanting because the peculiar method of
the shipping companys carrying goods for others was not generally held out
as a business but as a casual occupation. It then concluded that PKS
Shipping, not being a common carrier, was not expected to observe the
stringent extraordinary diligence required of common carriers in the care of
goods. The appellate court, moreover, found that the loss of the goods was
sufficiently established as having been due to fortuitous event, negating any
liability on the part of PKS Shipping to the shipper.
In the instant appeal, Philamgen contends that the appellate court has
committed a patent error in ruling that PKS Shipping is not a common carrier
and that it is not liable for the loss of the subject cargo. The fact that
respondent has a limited clientele, petitioner argues, does not militate
against respondents being a common carrier and that the only way by which
such carrier can be held exempt for the loss of the cargo would be if the loss
were caused by natural disaster or calamity. Petitioner avers that typhoon
"APIANG" has not entered the Philippine area of responsibility and that, even
if it did, respondent would not be exempt from liability because its
employees, particularly the tugmaster, have failed to exercise due diligence
to prevent or minimize the loss.
PKS Shipping, in its comment, urges that the petition should be denied
because what Philamgen seeks is not a review on points or errors of law but
a review of the undisputed factual findings of the RTC and the appellate
court. In any event, PKS Shipping points out, the findings and conclusions of
both courts find support from the evidence and applicable jurisprudence.
The determination of possible liability on the part of PKS Shipping boils
down to the question of whether it is a private carrier or a common carrier
and, in either case, to the other question of whether or not it has observed
the proper diligence (ordinary, if a private carrier, or extraordinary, if a
common carrier) required of it given the circumstances.
The findings of fact made by the Court of Appeals, particularly when such
findings are consistent with those of the trial court, may not at liberty be
reviewed by this Court in a petition for review under Rule 45 of the Rules of
Court.[1] The conclusions derived from those factual findings, however, are
not necessarily just matters of fact as when they are so linked to, or
inextricably intertwined with, a requisite appreciation of the applicable law. In
such instances, the conclusions made could well be raised as being
appropriate issues in a petition for review before this Court. Thus, an issue
whether a carrier is private or common on the basis of the facts found by a
trial court or the appellate court can be a valid and reviewable question of
law.
The Civil Code defines common carriers in the following terms:

Article 1732. Common carriers are persons, corporations, firms or

associations engaged in the business of carrying or transporting passengers
or goods or both, by land, water, or air for compensation, offering their
services to the public.
Complementary to the codal definition is Section 13, paragraph (b), of the
Public Service Act; it defines public service to be

x x x every person that now or hereafter may own, operate, manage, or

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

The prevailing doctrine on the question is that enunciated in the leading

case of De Guzman vs. Court of Appeals.[2] Applying Article 1732 of the Code,
in conjunction with Section 13(b) of the Public Service Act, this Court has
held:

The above article makes no distinction between one

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

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

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

Much of the distinction between a common or public carrier and a private

or special carrier lies in the character of the business, such that if the
undertaking is an isolated transaction, not a part of the business or
occupation, and the carrier does not hold itself out to carry the goods for the
general public or to a limited clientele, although involving the carriage of
goods for a fee,[3] the person or corporation providing such service could very
well be just a private carrier. A typical case is that of a charter party which
includes both the vessel and its crew, such as in a bareboat or demise, where
the charterer obtains the use and service of all or some part of a ship for a
period of time or a voyage or voyages [4] and gets the control of the vessel
and its crew.[5] Contrary to the conclusion made by the appellate court, its
factual findings indicate that PKS Shipping has engaged itself in the business
of carrying goods for others, although for a limited clientele, undertaking to
carry such goods for a fee. The regularity of its activities in this area
indicates more than just a casual activity on its part. [6] Neither can the
concept of a common carrier change merely because individual contracts are
executed or entered into with patrons of the carrier. Such restrictive
interpretation would make it easy for a common carrier to escape liability by
the simple expedient of entering into those distinct agreements with clients.
Addressing now the issue of whether or not PKS Shipping has exercised
the proper diligence demanded of common carriers, Article 1733 of the Civil
Code requires common carriers to observe extraordinary diligence in the
vigilance over the goods they carry. In case of loss, destruction or
deterioration of goods, common carriers are presumed to have been at fault
or to have acted negligently, and the burden of proving otherwise rests on
them.[7] The provisions of Article 1733, notwithstanding, common carriers are
exempt from liability for loss, destruction, or deterioration of the goods due
to any of the following causes:

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

calamity;

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

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

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

containers; and

(5) Order or act of competent public authority.[8]

The appellate court ruled, gathered from the testimonies and sworn
marine protests of the respective vessel masters of Limar I and MT Iron
Eagle, that there was no way by which the barges or the tugboats crew could
have prevented the sinking of Limar I. The vessel was suddenly tossed by
waves of extraordinary height of six (6) to eight (8) feet and buffeted by
strong winds of 1.5 knots resulting in the entry of water into the barges
hatches. The official Certificate of Inspection of the barge issued by the
Philippine Coastguard and the Coastwise Load Line Certificate would attest to
the seaworthiness of Limar I and should strengthen the factual findings of
the appellate court.
 Findings of fact of the Court of Appeals generally conclude this Court;
none of the recognized exceptions from the rule - (1) when the factual
findings of the Court of Appeals and the trial court are contradictory;
(2) when the conclusion is a finding grounded entirely on speculation,
surmises, or conjectures; (3) when the inference made by the Court of
Appeals from its findings of fact is manifestly mistaken, absurd, or
impossible; (4) when there is a grave abuse of discretion in the appreciation
of facts; (5) when the appellate court, in making its findings, went beyond
the issues of the case and such findings are contrary to the admissions of
both appellant and appellee; (6) when the judgment of the Court of Appeals
is premised on a misapprehension of facts; (7) when the Court of Appeals
failed to notice certain relevant facts which, if properly considered, would
justify a different conclusion; (8) when the findings of fact are themselves
conflicting; (9) when the findings of fact are conclusions without citation of
the specific evidence on which they are based; and (10) when the findings of
fact of the Court of Appeals are premised on the absence of evidence but
such findings are contradicted by the evidence on record would appear to be
clearly extant in this instance.
All given then, the appellate court did not err in its judgment absolving
PKS Shipping from liability for the loss of the DUMC cargo.
WHEREFORE, the petition is DENIED. No costs.

2. SINGAPORE AIRLINES LIMITED, petitioner, vs. ANDION

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

This is a petition for review on certiorari assailing the Decision[1] of the Court
of Appeals which affirmed in toto the decision[2] of
the Regional Trial Court of Pasig City, Branch 164 in Civil Case No. 60985 filed
by the respondent for damages.

The Case for the Respondent

Respondent Andion Fernandez is an acclaimed soprano here in

the Philippines and abroad. At the time of the incident, she was availing an
educational grant from the Federal Republic of Germany, pursuing a Masters
Degree in Music majoring in Voice.[3]
She was invited to sing before the King and Queen of Malaysia on
February 3 and 4, 1991. For this singing engagement, an airline passage
ticket was purchased from petitioner Singapore Airlines which would
transport her to Manila from Frankfurt, Germany on January 28,
1991. From Manila, she would proceed to Malaysia on the next day.[4] It was
necessary for the respondent to pass by Manila in order to gather her
wardrobe; and to rehearse and coordinate with her pianist her repertoire for
the aforesaid performance.
The petitioner issued the respondent a Singapore Airlines ticket for Flight
No. SQ 27, leaving Frankfurt, Germany on January 27, 1991 bound
for Singapore with onward connections from Singapore to Manila. Flight No.
SQ 27 was scheduled to leave Frankfurt at 1:45 in the afternoon of January
27, 1991, arriving at Singapore at 8:50 in the morning of January 28,
1991.The connecting flight from Singapore to Manila, Flight No. SQ 72, was
leaving Singapore at 11:00 in the morning of January 28, 1991, arriving
in Manila at 2:20 in the afternoon of the same day.[5]
On January 27, 1991, Flight No. SQ 27 left Frankfurt but arrived
in Singapore two hours late or at about 11:00 in the morning of January 28,
1991. By then, the aircraft bound for Manilahad left as scheduled, leaving the
respondent and about 25 other passengers stranded in
[6]
the Changi Airport in Singapore.
Upon disembarkation at Singapore, the respondent approached the
transit counter who referred her to the nightstop counter and told the lady
employee thereat that it was important for her to reach Manila on that
day, January 28, 1991. The lady employee told her that there were no more
flights to Manila for that day and that respondent had no choice but to stay
in Singapore. Upon respondents persistence, she was told that she can
actually fly to Hong Kong going to Manila but since her ticket was non-
transferable, she would have to pay for the ticket. The respondent could not
accept the offer because she had no money to pay for it. [7] Her pleas for the
respondent to make arrangements to transport her to Manila were unheeded.
[8]

The respondent then requested the lady employee to use their phone to
make a call to Manila. Over the employees reluctance, the respondent
telephoned her mother to inform the latter that she missed the connecting
flight. The respondent was able to contact a family friend who picked her up
from the airport for her overnight stay in Singapore.[9]
The next day, after being brought back to the airport, the respondent
proceeded to petitioners counter which says: Immediate Attention To
Passengers with Immediate Booking. There were four or five passengers in
line. The respondent approached petitioners male employee at the counter
to make arrangements for immediate booking only to be told: Cant you see I
am doing something. She explained her predicament but the male employee
uncaringly retorted: Its your problem, not ours.[10]
 The respondent never made it to Manila and was forced to take a direct
flight from Singapore to Malaysia on January 29, 1991, through the efforts of
her mother and travel agency in Manila. Her mother also had to travel
to Malaysia bringing with her respondents wardrobe and personal things
needed for the performance that caused them to incur an expense of about
P50,000.[11]
As a result of this incident, the respondents performance before the Royal
Family of Malaysia was below par. Because of the rude and unkind treatment
she received from the petitioners personnel in Singapore, the respondent
was engulfed with fear, anxiety, humiliation and embarrassment causing her
to suffer mental fatigue and skin rashes. She was thereby compelled to seek
immediate medical attention upon her return to Manila for acute urticaria.[12]
On June 15, 1993, the RTC rendered a decision with the following
dispositive portion:

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

pay herein plaintiff Andion H. Fernandez the sum of:

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

actual damages;

2. TWO HUNDRED and FIFTY THOUSAND (P250,000.00) PESOS as

moral damages considering plaintiffs professional standing
in the field of culture at home and abroad;

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

damages;

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

fees; and

5. To pay the costs of suit.

SO ORDERED.[13]

The petitioner appealed the decision to the Court of Appeals.

On June 10, 1998, the CA promulgated the assailed decision finding no
reversible error in the appealed decision of the trial court.[14]
Forthwith, the petitioner filed the instant petition for review, raising the
following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING IN TOTO THE
DECISION OF THE TRIAL COURT THAT AWARDED DAMAGES TO RESPONDENT
FOR THE ALLEGED FAILURE OF THE PETITIONER TO
EXERCISE EXTRAORDINARY DILIGENCE.

II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE

PETITIONER ACTED IN BAD FAITH.

III

THE HONORABLE COURT OF APPEALS ERRED IN DISMISSING THE

PETITIONERS COUNTERCLAIMS.[15]

The petitioner assails the award of damages contending that it exercised

the extraordinary diligence required by law under the given
circumstances. The delay of Flight No. SQ 27
from Frankfurt to Singapore on January 28, 1991 for more than two hours
was due to a fortuitous event and beyond petitioners control. Inclement
weather prevented the petitioners plane coming
from Copenhagen, Denmark to arrive in Frankfurt on time on January 27,
1991. The plane could not take off from the airport as the place was
shrouded with fog. This delay caused a snowball effect whereby the other
flights were consequently delayed. The plane carrying the respondent arrived
in Singapore two (2) hours behind schedule.[16] The delay was even
compounded when the plane could not travel the normal route which was
through the Middle East due to the raging Gulf War at that time. It had to
pass through the restricted Russian airspace which was more congested.[17]
Under these circumstances, petitioner therefore alleged that it cannot be
faulted for the delay in arriving in Singapore on January 28, 1991 and
causing the respondent to miss her connecting flight to Manila.
The petitioner further contends that it could not also be held in bad faith
because its personnel did their best to look after the needs and interests of
the passengers including the respondent. Because the respondent and the
other 25 passengers missed their connecting flight to Manila, the petitioner
automatically booked them to the flight the next day and gave them free
hotel accommodations for the night. It was respondent who did not take
petitioners offer and opted to stay with a family friend in Singapore.
The petitioner also alleges that the action of the respondent was baseless
and it tarnished its good name and image earned through the years for
which, it was entitled to damages in the amount of P1,000,000; exemplary
damages of P500,000; and attorneys fees also in the amount of P500,000.[18]
The petition is barren of merit.
 When an airline issues a ticket to a passenger, confirmed for a particular
flight on a certain date, a contract of carriage arises. The passenger then has
every right to expect that he be transported on that flight and on that date. If
he does not, then the carrier opens itself to a suit for a breach of contract of
carriage.[19]
The contract of air carriage is a peculiar one. Imbued with public interest,
the law requires common carriers to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very
cautious persons with due regard for all the circumstances. [20] In an action for
breach of contract of carriage, the aggrieved party does not have to prove
that the common carrier was at fault or was negligent. All that is necessary
to prove is the existence of the contract and the fact of its non-performance
by the carrier.[21]
In the case at bar, it is undisputed that the respondent carried a
confirmed ticket for the two-legged trip from Frankfurt to Manila: 1)
Frankfurt-Singapore; and 2) Singapore-Manila. In her contract of carriage with
the petitioner, the respondent certainly expected that she would fly
to Manila on Flight No. SQ 72 on January 28, 1991. Since the petitioner did
not transport the respondent as covenanted by it on said terms, the
petitioner clearly breached its contract of carriage with the respondent. The
respondent had every right to sue the petitioner for this breach. The defense
that the delay was due to fortuitous events and beyond petitioners control is
unavailing. In PAL vs. CA,[22] we held that:

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

...

...If the cause of non-fulfillment of the contract is due to a fortuitous event, it

has to be the sole and only cause (Art. 1755 C.C., Art. 1733 C.C.). Since part
of the failure to comply with the obligation of common carrier to deliver its
passengers safely to their destination lay in the defendants failure to provide
comfort and convenience to its stranded passengers using extraordinary
diligence, the cause of non-fulfillment is not solely and exclusively due to
fortuitous event, but due to something which defendant airline could have
prevented, defendant becomes liable to plaintiff.
 Indeed, in the instant case, petitioner was not without recourse to enable
it to fulfill its obligation to transport the respondent safely as scheduled as
far as human care and foresight can provide to her destination. Tagged as a
premiere airline as it claims to be and with the complexities of air travel, it
was certainly well-equipped to be able to foresee and deal with such
situation. The petitioners indifference and negligence by its absence and
insensitivity was exposed by the trial court, thus:
(a) Under Section 9.1 of its Traffic Manual (Exhibit 4) flights can be
delayed to await the uplift of connecting cargo and passengers
arriving on a late in-bound flight As adverted to by the trial
court,Flight SQ-27/28 maybe delayed for about half an hour to
transfer plaintiff to her connecting flight. As pointed out above,
delay is normal in commercial air transportation (RTC Decision, p.
22); or
(b) Petitioner airlines could have carried her on one of its flights
bound for Hongkong and arranged for a connecting flight from
Hongkong to Manila all on the same date. But then the airline
personnel who informed her of such possibility told her that she
has to pay for that flight. Regrettably, respondent did not have
sufficient funds to pay for it. (TSN, 30 March 1992, pp.8-9; RTC
Decision, pp. 22-23) Knowing the predicament of the respondent,
petitioner did not offer to shoulder the cost of the ticket for that
flight; or
(c) As noted by the trial court from the account of petitioners witness,
Bob Khkimyong, that a passenger such as the plaintiff could have
been accommodated in another international airline such as
Lufthansa to bring the plaintiff to Singapore early enough from
Frankfurt provided that there was prior communication from that
station to enable her to catch the connecting flight to Manila
because of the urgency of her business in Manila(RTC Decision, p.
23)
The petitioners diligence in communicating to its passengers the
consequences of the delay in their flights was wanting. As elucidated by the
trial court:

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

The respondent was not remiss in conveying her apprehension about the
delay of the flight when she was still in Frankfurt. Upon the assurance of
petitioners personnel in Frankfurt that she will be transported to Manila on
the same date, she had every right to expect that obligation fulfilled. She
testified, to wit:
Q: Now, since you were late, when the plane that arrived
from Frankfurt was late, did you not make arrangements so that
your flight from Singapore to Manila would be adjusted?
A: I asked the lady at the ticket counter, the one who gave the
boarding pass in Frankfurt and I asked her, Since my flight going
to Singapore would be late, what would happen to my Singapore-
Manila flight? and then she said, Dont worry, Singapore Airlines
would be responsible to bring you to Manila on the same
date. And then they have informed the name of the officer, or
whatever, that our flight is going to be late.[24]
When a passenger contracts for a specific flight, he has a purpose in
making that choice which must be respected. This choice, once exercised,
must not be impaired by a breach on the part of the airline without the latter
incurring any liability.[25] For petitioners failure to bring the respondent to her
destination, as scheduled, we find the petitioner clearly liable for the breach
of its contract of carriage with the respondent.
We are convinced that the petitioner acted in bad faith. Bad faith means
a breach of known duty through some motive of interest or ill will. Self-
enrichment or fraternal interest, and not personal ill will, may well have been
the motive; but it is malice nevertheless.[26] Bad faith was imputed by the
trial court when it found that the petitioners employees at
the Singapore airport did not accord the respondent the attention and
treatment allegedly warranted under the circumstances. The lady employee
at the counter was unkind and of no help to her. The respondent further
alleged that without her threats of suing the company, she was not allowed
to use the companys phone to make long distance calls to her mother
in Manila. The male employee at the counter where it says: Immediate
Attention to Passengers with Immediate Booking was rude to her when he
curtly retorted that he was busy attending to other passengers in line. The
trial court concluded that this inattentiveness and rudeness of petitioners
personnel to respondents plight was gross enough amounting to bad
faith. This is a finding that is generally binding upon the Court which we find
no reason to disturb.
Article 2232 of the Civil Code provides that in a contractual or quasi-
contractual relationship, exemplary damages may be awarded only if the
defendant had acted in a wanton, fraudulent, reckless, oppressive or
malevolent manner. In this case, petitioners employees acted in a wanton,
oppressive or malevolent manner. The award of exemplary damages is,
therefore, warranted in this case.
WHEREFORE, the Petition is DENIED. The Decision of the Court of
Appeals is AFFIRMED.
SO ORDERED.

FIRST DIVISION

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

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

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

DECISION
YNARES-SANTIAGO, J.:

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

respondent Caravan Travel and Tours International, Inc. to arrange and
facilitate her booking, ticketing and accommodation in a tour dubbed Jewels
of Europe. The package tour included the countries of England, Holland,
Germany, Austria, Liechstenstein, Switzerland and France at a total cost of
P74,322.70. Petitioner was given a 5% discount on the amount, which
included airfare, and the booking fee was also waived because petitioners
niece, Meriam Menor, was respondent companys ticketing manager.
Pursuant to said contract, Menor went to her aunts residence on June 12,
1991 a Wednesday to deliver petitioners travel documents and plane
tickets. Petitioner, in turn, gave Menor the full payment for the package
tour. Menor then told her to be at the Ninoy Aquino International Airport
(NAIA) on Saturday, two hours before her flight on board British Airways.
 Without checking her travel documents, petitioner went to NAIA on
Saturday, June 15, 1991, to take the flight for the first leg of her journey from
Manila to Hongkong. To petitioners dismay, she discovered that the flight she
was supposed to take had already departed the previous day. She learned
that her plane ticket was for the flight scheduled on June 14, 1991. She thus
called up Menor to complain.
Subsequently, Menor prevailed upon petitioner to take another tour the
British Pageant which included England, Scotland and Wales in its itinerary.
For this tour package, petitioner was asked anew to pay US$785.00 or
P20,881.00 (at the then prevailing exchange rate of P26.60). She gave
respondent US$300 or P7,980.00 as partial payment and commenced the
trip in July 1991.
Upon petitioners return from Europe, she demanded from respondent the
reimbursement of P61,421.70, representing the difference between the sum
she paid for Jewels of Europe and the amount she owed respondent for the
British Pageant tour. Despite several demands, respondent company refused
to reimburse the amount, contending that the same was non-refundable.
[1]
Petitioner was thus constrained to file a complaint against respondent for
breach of contract of carriage and damages, which was docketed as Civil
Case No. 92-133 and raffled to Branch 59 of the Regional Trial Court of
Makati City.
In her complaint,[2] petitioner alleged that her failure to join Jewels of
Europe was due to respondents fault since it did not clearly indicate the
departure date on the plane ticket.Respondent was also negligent in
informing her of the wrong flight schedule through its employee Menor. She
insisted that the British Pageant was merely a substitute for the Jewels of
Europe tour, such that the cost of the former should be properly set-off
against the sum paid for the latter.
For its part, respondent company, through its Operations Manager,
Concepcion Chipeco, denied responsibility for petitioners failure to join the
first tour. Chipeco insisted that petitioner was informed of the correct
departure date, which was clearly and legibly printed on the plane ticket. The
travel documents were given to petitioner two days ahead of the scheduled
trip.Petitioner had only herself to blame for missing the flight, as she did not
bother to read or confirm her flight schedule as printed on the ticket.
Respondent explained that it can no longer reimburse the amount paid
for Jewels of Europe, considering that the same had already been remitted to
its principal in Singapore, Lotus Travel Ltd., which had already billed the
same even if petitioner did not join the tour. Lotus European tour organizer,
Insight International Tours Ltd., determines the cost of a package tour based
on a minimum number of projected participants. For this reason, it is
accepted industry practice to disallow refund for individuals who failed to
take a booked tour.[3]
 Lastly, respondent maintained that the British Pageant was not a
substitute for the package tour that petitioner missed. This tour was
independently procured by petitioner after realizing that she made a mistake
in missing her flight for Jewels of Europe. Petitioner was allowed to make a
partial payment of only US$300.00 for the second tour because her niece
was then an employee of the travel agency. Consequently, respondent
prayed that petitioner be ordered to pay the balance of P12,901.00 for the
British Pageant package tour.
After due proceedings, the trial court rendered a decision, [4] the
dispositive part of which reads:

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

1. Ordering the defendant to return and/or refund to the plaintiff the

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

2. Ordering the defendant to pay the plaintiff the amount of Five

Thousand (P5,000.00) Pesos as and for reasonable attorneys
fees;

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

4. With costs against the defendant.

SO ORDERED.[5]

The trial court held that respondent was negligent in erroneously advising
petitioner of her departure date through its employee, Menor, who was not
presented as witness to rebut petitioners testimony. However, petitioner
should have verified the exact date and time of departure by looking at her
ticket and should have simply not relied on Menors verbal representation.
The trial court thus declared that petitioner was guilty of contributory
negligence and accordingly, deducted 10% from the amount being claimed
as refund.
Respondent appealed to the Court of Appeals, which likewise found both
parties to be at fault. However, the appellate court held that petitioner is
more negligent than respondent because as a lawyer and well-traveled
person, she should have known better than to simply rely on what was told
to her. This being so, she is not entitled to any form of damages. Petitioner
also forfeited her right to the Jewels of Europe tour and must therefore pay
respondent the balance of the price for the British Pageant tour. The
dispositive portion of the judgment appealed from reads as follows:
WHEREFORE, premises considered, the decision of the Regional Trial Court
dated October 26, 1995 is hereby REVERSED and SET ASIDE. A new
judgment is hereby ENTERED requiring the plaintiff-appellee to pay to the
defendant-appellant the amount of P12,901.00, representing the balance of
the price of the British Pageant Package Tour, the same to earn legal interest
at the rate of SIX PERCENT (6%) per annum, to be computed from the time
the counterclaim was filed until the finality of this decision. After this decision
becomes final and executory, the rate of TWELVE PERCENT (12%) interest
per annum shall be additionally imposed on the total obligation until
payment thereof is satisfied. The award of attorneys fees is DELETED. Costs
against the plaintiff-appellee.

SO ORDERED.[6]

Upon denial of her motion for reconsideration, [7] petitioner filed the
instant petition under Rule 45 on the following grounds:
I

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

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

II

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

III

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

Petitioner contends that respondent did not observe the standard of care
required of a common carrier when it informed her wrongly of the flight
schedule. She could not be deemed more negligent than respondent since
the latter is required by law to exercise extraordinary diligence in the
fulfillment of its obligation. If she were negligent at all, the same is merely
contributory and not the proximate cause of the damage she suffered. Her
loss could only be attributed to respondent as it was the direct consequence
of its employees gross negligence.
Petitioners contention has no merit.
By definition, a contract of carriage or transportation is one whereby a
certain person or association of persons obligate themselves to transport
persons, things, or news from one place to another for a fixed price. [9] Such
person or association of persons are regarded as carriers and are classified
as private or special carriers and common or public carriers. [10] A common
carrier is defined under Article 1732 of the Civil Code as persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public.
It is obvious from the above definition that respondent is not an entity
engaged in the business of transporting either passengers or goods and is
therefore, neither a private nor a common carrier. Respondent did not
undertake to transport petitioner from one place to another since its
covenant with its customers is simply to make travel arrangements in their
behalf. Respondents services as a travel agency include procuring tickets and
facilitating travel permits or visas as well as booking customers for tours.
While petitioner concededly bought her plane ticket through the efforts of
respondent company, this does not mean that the latter ipso facto is a
common carrier. At most, respondent acted merely as an agent of the airline,
with whom petitioner ultimately contracted for her carriage to Europe.
Respondents obligation to petitioner in this regard was simply to see to it
that petitioner was properly booked with the airline for the appointed date
and time. Her transport to the place of destination, meanwhile, pertained
directly to the airline.
The object of petitioners contractual relation with respondent is the
latters service of arranging and facilitating petitioners booking, ticketing
and accommodation in the package tour. In contrast, the object of a contract
of carriage is the transportation of passengers or goods. It is in this sense
that the contract between the parties in this case was an ordinary one for
services and not one of carriage. Petitioners submission is premised on a
wrong assumption.
The nature of the contractual relation between petitioner and respondent
is determinative of the degree of care required in the performance of the
latters obligation under the contract. For reasons of public policy, a common
carrier in a contract of carriage is bound by law to carry passengers as far as
human care and foresight can provide using the utmost diligence of very
cautious persons and with due regard for all the circumstances. [11] As earlier
stated, however, respondent is not a common carrier but a travel agency. It
is thus not bound under the law to observe extraordinary diligence in the
performance of its obligation, as petitioner claims.
Since the contract between the parties is an ordinary one for services,
the standard of care required of respondent is that of a good father of a
family under Article 1173 of the Civil Code. [12] This connotes reasonable care
consistent with that which an ordinarily prudent person would have observed
when confronted with a similar situation. The test to determine whether
negligence attended the performance of an obligation is: did the defendant
in doing the alleged negligent act use that reasonable care and caution
which an ordinarily prudent person would have used in the same situation? If
not, then he is guilty of negligence.[13]
In the case at bar, the lower court found Menor negligent when she
allegedly informed petitioner of the wrong day of departure. Petitioners
testimony was accepted as indubitable evidence of Menors alleged negligent
act since respondent did not call Menor to the witness stand to refute the
allegation. The lower court applied the presumption under Rule 131, Section
3 (e)[14] of the Rules of Court that evidence willfully suppressed would be
adverse if produced and thus considered petitioners uncontradicted
testimony to be sufficient proof of her claim.
On the other hand, respondent has consistently denied that Menor was
negligent and maintains that petitioners assertion is belied by the evidence
on record. The date and time of departure was legibly written on the plane
ticket and the travel papers were delivered two days in advance precisely so
that petitioner could prepare for the trip. It performed all its obligations to
enable petitioner to join the tour and exercised due diligence in its dealings
with the latter.
We agree with respondent.
Respondents failure to present Menor as witness to rebut petitioners
testimony could not give rise to an inference unfavorable to the former.
Menor was already working in France at the time of the filing of the
complaint,[15] thereby making it physically impossible for respondent to
present her as a witness. Then too, even if it were possible for respondent to
secure Menors testimony, the presumption under Rule 131, Section 3(e)
would still not apply. The opportunity and possibility for obtaining Menors
testimony belonged to both parties, considering that Menor was not just
respondents employee, but also petitioners niece. It was thus error for the
lower court to invoke the presumption that respondent willfully suppressed
evidence under Rule 131, Section 3(e). Said presumption would logically be
inoperative if the evidence is not intentionally omitted but is simply
unavailable, or when the same could have been obtained by both parties.[16]
In sum, we do not agree with the finding of the lower court that Menors
negligence concurred with the negligence of petitioner and resultantly
caused damage to the latter. Menors negligence was not sufficiently proved,
considering that the only evidence presented on this score was petitioners
uncorroborated narration of the events. It is well-settled that the party
alleging a fact has the burden of proving it and a mere allegation cannot take
the place of evidence.[17] If the plaintiff, upon whom rests the burden of
proving his cause of action, fails to show in a satisfactory manner facts upon
which he bases his claim, the defendant is under no obligation to prove his
exception or defense.[18]
Contrary to petitioners claim, the evidence on record shows that
respondent exercised due diligence in performing its obligations under the
contract and followed standard procedure in rendering its services to
petitioner. As correctly observed by the lower court, the plane ticket [19] issued
to petitioner clearly reflected the departure date and time, contrary to
petitioners contention. The travel documents, consisting of the tour itinerary,
vouchers and instructions, were likewise delivered to petitioner two days
prior to the trip. Respondent also properly booked petitioner for the tour,
prepared the necessary documents and procured the plane tickets. It
arranged petitioners hotel accommodation as well as food, land transfers and
sightseeing excursions, in accordance with its avowed undertaking.
Therefore, it is clear that respondent performed its prestation under the
contract as well as everything else that was essential to book petitioner for
the tour. Had petitioner exercised due diligence in the conduct of her affairs,
there would have been no reason for her to miss the flight. Needless to say,
after the travel papers were delivered to petitioner, it became incumbent
upon her to take ordinary care of her concerns. This undoubtedly would
require that she at least read the documents in order to assure herself of the
important details regarding the trip.
The negligence of the obligor in the performance of the obligation
renders him liable for damages for the resulting loss suffered by the obligee.
Fault or negligence of the obligor consists in his failure to exercise due care
and prudence in the performance of the obligation as the nature of the
obligation so demands.[20] There is no fixed standard of diligence applicable
to each and every contractual obligation and each case must be determined
upon its particular facts. The degree of diligence required depends on the
circumstances of the specific obligation and whether one has been negligent
is a question of fact that is to be determined after taking into account the
particulars of each case.[21]
The lower court declared that respondents employee was negligent. This
factual finding, however, is not supported by the evidence on record. While
factual findings below are generally conclusive upon this court, the rule is
subject to certain exceptions, as when the trial court overlooked,
misunderstood, or misapplied some facts or circumstances of weight and
substance which will affect the result of the case.[22]
 In the case at bar, the evidence on record shows that respondent
company performed its duty diligently and did not commit any contractual
breach. Hence, petitioner cannot recover and must bear her own damage.
WHEREFORE, the instant petition is DENIED for lack of merit. The
decision of the Court of Appeals in CA-G.R. CV No. 51932 is
AFFIRMED. Accordingly, petitioner is ordered to pay respondent the amount
of P12,901.00 representing the balance of the price of the British Pageant
Package Tour, with legal interest thereon at the rate of 6% per annum, to be
computed from the time the counterclaim was filed until the finality of this
Decision. After this Decision becomes final and executory, the rate of 12%
per annum shall be imposed until the obligation is fully settled, this interim
period being deemed to be by then an equivalent to a forbearance of credit.
[23]

SO ORDERED.
EN BANC

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

ANTONIA MARANAN, plaintiff-appellant,

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

Pedro Panganiban for plaintiff-appellant.

Magno T. Bueser for defendant-appellant.

BENGZON, J.P., J.:

Rogelio Corachea, on October 18, 1960, was a passenger in a taxicab owned

and operated by Pascual Perez when he was stabbed and killed by the driver,
Simeon Valenzuela.

Valenzuela was prosecuted for homicide in the Court of First Instance of

Batangas. Found guilty, he was sentenced to suffer imprisonment and to
indemnify the heirs of the deceased in the sum of P6,000. Appeal from said
conviction was taken to the Court of Appeals.1wph1.t

On December 6 1961, while appeal was pending in the Court of Appeals,

Antonia Maranan, Rogelio's mother, filed an action in the Court of First
Instance of Batangas to recover damages from Perez and Valenzuela for the
death of her son. Defendants asserted that the deceased was killed in self-
defense, since he first assaulted the driver by stabbing him from behind.
Defendant Perez further claimed that the death was a caso fortuito for which
the carrier was not liable.

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

Defendant-appellant relies solely on the ruling enunciated in Gillaco v. Manila

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

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

Now here, the killing was perpetrated by the driver of the very cab
transporting the passenger, in whose hands the carrier had entrusted the
duty of executing the contract of carriage. In other words, unlike
the Gillaco case, the killing of the passenger here took place in the course of
duty of the guilty employee and when the employee was acting within the
scope of his duties.
Moreover, the Gillaco case was decided under the provisions of the Civil
Code of 1889 which, unlike the present Civil Code, did not impose upon
common carriers absolute liability for the safety of passengers against wilful
assaults or negligent acts committed by their employees. The death of the
passenger in the Gillaco case was truly a fortuitous event which exempted
the carrier from liability. It is true that Art. 1105 of the old Civil Code on
fortuitous events has been substantially reproduced in Art. 1174 of the Civil
Code of the Philippines but both articles clearly remove from their exempting
effect the case where the law expressly provides for liability in spite of the
occurrence of force majeure. And herein significantly lies the statutory
difference between the old and present Civil Codes, in the backdrop of the
factual situation before Us, which further accounts for a different result in
the Gillaco case. Unlike the old Civil Code, the new Civil Code of the
Philippines expressly makes the common carrier liable for intentional
assaults committed by its employees upon its passengers, by the wording of
Art. 1759 which categorically states that

Common carriers are liable for the death of or injuries to passengers

through the negligence or willful acts of the former's employees,
although such employees may have acted beyond the scope of their
authority or in violation of the orders of the common carriers.

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

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

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

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

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

Applying this stringent norm to the facts in this case, therefore, the lower
court rightly adjudged the defendant carrier liable pursuant to Art. 1759 of
the Civil Code. The dismissal of the claim against the defendant driver was
also correct. Plaintiff's action was predicated on breach of contract of
carriage7 and the cab driver was not a party thereto. His civil liability is
covered in the criminal case wherein he was convicted by final judgment.

In connection with the award of damages, the court a quo granted only
P3,000 to plaintiff-appellant. This is the minimum compensatory damages
amount recoverable under Art. 1764 in connection with Art. 2206 of the Civil
Code when a breach of contract results in the passenger's death. As has
been the policy followed by this Court, this minimal award should be
increased to P6,000. As to other alleged actual damages, the lower court's
finding that plaintiff's evidence thereon was not convincing, 8 should not be
disturbed. Still, Arts. 2206 and 1764 award moral damages in addition to
compensatory damages, to the parents of the passenger killed to
compensate for the mental anguish they suffered. A claim therefor, having
been properly made, it becomes the court's duty to award moral
damages.9 Plaintiff demands P5,000 as moral damages; however, in the
circumstances, We consider P3,000 moral damages, in addition to the P6,000
damages afore-stated, as sufficient. Interest upon such damages are also
due to plaintiff-appellant. 10

Wherefore, with the modification increasing the award of actual damages in

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

FIRST DIVISION

[G.R. No. 150843. March 14, 2003]

CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. SPOUSES DANIEL

VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ, respondents.

DECISION
DAVIDE, JR., C.J.:

Is an involuntary upgrading of an airline passengers accommodation from

one class to a more superior class at no extra cost a breach of contract of
carriage that would entitle the passenger to an award of damages? This is a
novel question that has to be resolved in this case.
The facts in this case, as found by the Court of Appeals and adopted by
petitioner Cathay Pacific Airways, Ltd., (hereinafter Cathay) are as follows:
Cathay is a common carrier engaged in the business of transporting
passengers and goods by air. Among the many routes it services is the
Manila-Hongkong-Manila course. As part of its marketing strategy, Cathay
accords its frequent flyers membership in its Marco Polo Club. The members
enjoy several privileges, such as priority for upgrading of booking without
any extra charge whenever an opportunity arises. Thus, a frequent flyer
booked in the Business Class has priority for upgrading to First Class if the
Business Class Section is fully booked.
Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa
Madrigal Vazquez are frequent flyers of Cathay and are Gold Card members
of its Marco Polo Club. On 24 September 1996, the Vazquezes, together with
their maid and two friends Pacita Cruz and Josefina Vergel de Dios, went to
Hongkong for pleasure and business.
For their return flight to Manila on 28 September 1996, they were booked
on Cathays Flight CX-905, with departure time at 9:20 p.m. Two hours before
their time of departure, the Vazquezes and their companions checked in their
luggage at Cathays check-in counter at Kai Tak Airport and were given their
respective boarding passes, to wit, Business Class boarding passes for the
Vazquezes and their two friends, and Economy Class for their maid. They
then proceeded to the Business Class passenger lounge.
When boarding time was announced, the Vazquezes and their two friends
went to Departure Gate No. 28, which was designated for Business Class
passengers. Dr. Vazquez presented his boarding pass to the ground
stewardess, who in turn inserted it into an electronic machine reader or
computer at the gate. The ground stewardess was assisted by a ground
attendant by the name of Clara Lai Han Chiu. When Ms. Chiu glanced at the
computer monitor, she saw a message that there was a seat change from
Business Class to First Class for the Vazquezes.
Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes
accommodations were upgraded to First Class. Dr. Vazquez refused the
upgrade, reasoning that it would not look nice for them as hosts to travel in
First Class and their guests, in the Business Class; and moreover, they were
going to discuss business matters during the flight. He also told Ms. Chiu that
she could have other passengers instead transferred to the First Class
Section. Taken aback by the refusal for upgrading, Ms. Chiu consulted her
supervisor, who told her to handle the situation and convince the Vazquezes
to accept the upgrading. Ms. Chiu informed the latter that the Business Class
was fully booked, and that since they were Marco Polo Club members they
had the priority to be upgraded to the First Class. Dr. Vazquez continued to
refuse, so Ms. Chiu told them that if they would not avail themselves of the
privilege, they would not be allowed to take the flight. Eventually, after
talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez then
proceeded to the First Class Cabin.
Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996
addressed to Cathays Country Manager, demanded that they be indemnified
in the amount of P1million for the humiliation and embarrassment caused by
its employees. They also demanded a written apology from the management
of Cathay, preferably a responsible person with a rank of no less than the
Country Manager, as well as the apology from Ms. Chiu within fifteen days
from receipt of the letter.
In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathays
Country Manager Argus Guy Robson, informed the Vazquezes that Cathay
would investigate the incident and get back to them within a weeks time.
On 8 November 1996, after Cathays failure to give them any feedback
within its self-imposed deadline, the Vazquezes instituted before the Regional
Trial Court of Makati City an action for damages against Cathay, praying for
the payment to each of them the amounts of P250,000 as temperate
damages; P500,000 as moral damages; P500,000 as exemplary or corrective
damages; and P250,000 as attorneys fees.
In their complaint, the Vazquezes alleged that when they informed Ms.
Chiu that they preferred to stay in Business Class, Ms. Chiu obstinately,
uncompromisingly and in a loud, discourteous and harsh voice threatened
that they could not board and leave with the flight unless they go to First
Class, since the Business Class was overbooked. Ms. Chius loud and stringent
shouting annoyed, embarrassed, and humiliated them because the incident
was witnessed by all the other passengers waiting for boarding. They also
claimed that they were unjustifiably delayed to board the plane, and when
they were finally permitted to get into the aircraft, the forward storage
compartment was already full. A flight stewardess instructed Dr. Vazquez to
put his roll-on luggage in the overhead storage compartment. Because he
was not assisted by any of the crew in putting up his luggage, his bilateral
carpal tunnel syndrome was aggravated, causing him extreme pain on his
arm and wrist. The Vazquezes also averred that they belong to the
uppermost and absolutely top elite of both Philippine Society and the
Philippine financial community, [and that] they were among the wealthiest
persons in the Philippine[s].
In its answer, Cathay alleged that it is a practice among commercial
airlines to upgrade passengers to the next better class of accommodation,
whenever an opportunity arises, such as when a certain section is fully
booked. Priority in upgrading is given to its frequent flyers, who are
considered favored passengers like the Vazquezes. Thus, when the Business
Class Section of Flight CX-905 was fully booked, Cathays computer sorted out
the names of favored passengers for involuntary upgrading to First Class.
When Ms. Chiu informed the Vazquezes that they were upgraded to First
Class, Dr. Vazquez refused. He then stood at the entrance of the boarding
apron, blocking the queue of passengers from boarding the plane, which
inconvenienced other passengers. He shouted that it was impossible for him
and his wife to be upgraded without his two friends who were traveling with
them. Because of Dr. Vazquezs outburst, Ms. Chiu thought of upgrading the
traveling companions of the Vazquezes. But when she checked the
computer, she learned that the Vazquezes companions did not have priority
for upgrading. She then tried to book the Vazquezes again to their original
seats. However, since the Business Class Section was already fully booked,
she politely informed Dr. Vazquez of such fact and explained that the
upgrading was in recognition of their status as Cathays valued passengers.
Finally, after talking to their guests, the Vazquezes eventually decided to
take the First Class accommodation.
Cathay also asserted that its employees at the Hong Kong airport acted
in good faith in dealing with the Vazquezes; none of them shouted,
humiliated, embarrassed, or committed any act of disrespect against them
(the Vazquezes). Assuming that there was indeed a breach of contractual
obligation, Cathay acted in good faith, which negates any basis for their
claim for temperate, moral, and exemplary damages and attorneys
fees. Hence, it prayed for the dismissal of the complaint and for payment
of P100,000 for exemplary damages and P300,000 as attorneys fees and
litigation expenses.
 During the trial, Dr. Vazquez testified to support the allegations in the
complaint. His testimony was corroborated by his two friends who were with
him at the time of the incident, namely, Pacita G. Cruz and Josefina Vergel de
Dios.
For its part, Cathay presented documentary evidence and the testimonies
of Mr. Yuen; Ms. Chiu; Norma Barrientos, Comptroller of its retained counsel;
and Mr. Robson. Yuen and Robson testified on Cathays policy of upgrading
the seat accommodation of its Marco Polo Club members when an
opportunity arises. The upgrading of the Vazquezes to First Class was done in
good faith; in fact, the First Class Section is definitely much better than the
Business Class in terms of comfort, quality of food, and service from the
cabin crew. They also testified that overbooking is a widely accepted practice
in the airline industry and is in accordance with the International Air
Transport Association (IATA) regulations. Airlines overbook because a lot of
passengers do not show up for their flight. With respect to Flight CX-905,
there was no overall overbooking to a degree that a passenger was bumped
off or downgraded. Yuen and Robson also stated that the demand letter of
the Vazquezes was immediately acted upon. Reports were gathered from
their office in Hong Kong and immediately forwarded to their counsel Atty.
Remollo for legal advice. However, Atty. Remollo begged off because his
services were likewise retained by the Vazquezes; nonetheless, he undertook
to solve the problem in behalf of Cathay. But nothing happened until Cathay
received a copy of the complaint in this case. For her part, Ms. Chiu denied
that she shouted or used foul or impolite language against the
Vazquezes. Ms. Barrientos testified on the amount of attorneys fees and
other litigation expenses, such as those for the taking of the depositions of
Yuen and Chiu.
In its decision[1] of 19 October 1998, the trial court found for the
Vazquezes and decreed as follows:

WHEREFORE, finding preponderance of evidence to sustain the instant

complaint, judgment is hereby rendered in favor of plaintiffs Vazquez
spouses and against defendant Cathay Pacific Airways, Ltd., ordering the
latter to pay each plaintiff the following:

a) Nominal damages in the amount of P100,000.00 for each

plaintiff;

b) Moral damages in the amount of P2,000,000.00 for each

plaintiff;

c) Exemplary damages in the amount of P5,000,000.00 for each

plaintiff;
 d) Attorneys fees and expenses of litigation in the amount
of P1,000,000.00 for each plaintiff; and

e) Costs of suit.

SO ORDERED.

According to the trial court, Cathay offers various classes of seats from
which passengers are allowed to choose regardless of their reasons or
motives, whether it be due to budgetary constraints or whim. The choice
imposes a clear obligation on Cathay to transport the passengers in the class
chosen by them. The carrier cannot, without exposing itself to liability, force
a passenger to involuntarily change his choice. The upgrading of the
Vazquezes accommodation over and above their vehement objections was
due to the overbooking of the Business Class. It was a pretext to pack as
many passengers as possible into the plane to maximize Cathays
revenues. Cathays actuations in this case displayed deceit, gross negligence,
and bad faith, which entitled the Vazquezes to awards for damages.
On appeal by the petitioners, the Court of Appeals, in its decision of 24
July 2001,[2] deleted the award for exemplary damages; and it reduced the
awards for moral and nominal damages for each of the Vazquezes
to P250,000 and P50,000, respectively, and the attorneys fees and litigation
expenses to P50,000 for both of them.
The Court of Appeals ratiocinated that by upgrading the Vazquezes to
First Class, Cathay novated the contract of carriage without the formers
consent. There was a breach of contract not because Cathay overbooked the
Business Class Section of Flight CX-905 but because the latter pushed
through with the upgrading despite the objections of the Vazquezes.
However, the Court of Appeals was not convinced that Ms. Chiu shouted
at, or meant to be discourteous to, Dr. Vazquez, although it might seemed
that way to the latter, who was a member of the elite in Philippine society
and was not therefore used to being harangued by anybody. Ms. Chiu was a
Hong Kong Chinese whose fractured Chinese was difficult to understand and
whose manner of speaking might sound harsh or shrill to Filipinos because of
cultural differences. But the Court of Appeals did not find her to have acted
with deliberate malice, deceit, gross negligence, or bad faith. If at all, she
was negligent in not offering the First Class accommodations to other
passengers. Neither can the flight stewardess in the First Class Cabin be said
to have been in bad faith when she failed to assist Dr. Vazquez in lifting his
baggage into the overhead storage bin. There is no proof that he asked for
help and was refused even after saying that he was suffering from bilateral
carpal tunnel syndrome. Anent the delay of Yuen in responding to the
demand letter of the Vazquezes, the Court of Appeals found it to have been
sufficiently explained.
 The Vazquezes and Cathay separately filed motions for a reconsideration
of the decision, both of which were denied by the Court of Appeals.
Cathay seasonably filed with us this petition in this case. Cathay
maintains that the award for moral damages has no basis, since the Court of
Appeals found that there was no wanton, fraudulent, reckless and oppressive
display of manners on the part of its personnel; and that the breach of
contract was not attended by fraud, malice, or bad faith. If any damage had
been suffered by the Vazquezes, it was damnum absque injuria, which is
damage without injury, damage or injury inflicted without injustice, loss or
damage without violation of a legal right, or a wrong done to a man for which
the law provides no remedy. Cathay also invokes our decision in United
Airlines, Inc. v. Court of Appeals[3] where we recognized that, in accordance
with the Civil Aeronautics Boards Economic Regulation No. 7, as amended, an
overbooking that does not exceed ten percent cannot be considered
deliberate and done in bad faith. We thus deleted in that case the awards for
moral and exemplary damages, as well as attorneys fees, for lack of proof of
overbooking exceeding ten percent or of bad faith on the part of the airline
carrier.
On the other hand, the Vazquezes assert that the Court of Appeals was
correct in granting awards for moral and nominal damages and attorneys
fees in view of the breach of contract committed by Cathay for transferring
them from the Business Class to First Class Section without prior notice or
consent and over their vigorous objection. They likewise argue that the
issuance of passenger tickets more than the seating capacity of each section
of the plane is in itself fraudulent, malicious and tainted with bad faith.
The key issues for our consideration are whether (1) by upgrading the
seat accommodation of the Vazquezes from Business Class to First Class
Cathay breached its contract of carriage with the Vazquezes; (2) the
upgrading was tainted with fraud or bad faith; and (3) the Vazquezes are
entitled to damages.
We resolve the first issue in the affirmative.
A contract is a meeting of minds between two persons whereby one
agrees to give something or render some service to another for a
consideration. There is no contract unless the following requisites concur: (1)
consent of the contracting parties; (2) an object certain which is the subject
of the contract; and (3) the cause of the obligation which is established.
[4]
Undoubtedly, a contract of carriage existed between Cathay and the
Vazquezes. They voluntarily and freely gave their consent to an agreement
whose object was the transportation of the Vazquezes from Manila to Hong
Kong and back to Manila, with seats in the Business Class Section of the
aircraft, and whose cause or consideration was the fare paid by the
Vazquezes to Cathay.
 The only problem is the legal effect of the upgrading of the seat
accommodation of the Vazquezes. Did it constitute a breach of contract?
Breach of contract is defined as the failure without legal reason to comply
with the terms of a contract. [5] It is also defined as the [f]ailure, without legal
excuse, to perform any promise which forms the whole or part of the
contract.[6]
In previous cases, the breach of contract of carriage consisted in either
the bumping off of a passenger with confirmed reservation or the
downgrading of a passengers seat accommodation from one class to a lower
class. In this case, what happened was the reverse. The contract between
the parties was for Cathay to transport the Vazquezes to Manila on a
Business Class accommodation in Flight CX-905. After checking-in their
luggage at the Kai Tak Airport in Hong Kong, the Vazquezes were given
boarding cards indicating their seat assignments in the Business Class
Section. However, during the boarding time, when the Vazquezes presented
their boarding passes, they were informed that they had a seat change from
Business Class to First Class. It turned out that the Business Class was
overbooked in that there were more passengers than the number of
seats. Thus, the seat assignments of the Vazquezes were given to waitlisted
passengers, and the Vazquezes, being members of the Marco Polo Club, were
upgraded from Business Class to First Class.
We note that in all their pleadings, the Vazquezes never denied that they
were members of Cathays Marco Polo Club. They knew that as members of
the Club, they had priority for upgrading of their seat accommodation at no
extra cost when an opportunity arises. But, just like other privileges, such
priority could be waived. The Vazquezes should have been consulted first
whether they wanted to avail themselves of the privilege or would consent to
a change of seat accommodation before their seat assignments were given
to other passengers. Normally, one would appreciate and accept an
upgrading, for it would mean a better accommodation. But, whatever their
reason was and however odd it might be, the Vazquezes had every right to
decline the upgrade and insist on the Business Class accommodation they
had booked for and which was designated in their boarding passes. They
clearly waived their priority or preference when they asked that other
passengers be given the upgrade. It should not have been imposed on them
over their vehement objection. By insisting on the upgrade, Cathay breached
its contract of carriage with the Vazquezes.
We are not, however, convinced that the upgrading or the breach of
contract was attended by fraud or bad faith. Thus, we resolve the second
issue in the negative.
Bad faith and fraud are allegations of fact that demand clear and
convincing proof. They are serious accusations that can be so conveniently
and casually invoked, and that is why they are never presumed. They
amount to mere slogans or mudslinging unless convincingly substantiated by
whoever is alleging them.
Fraud has been defined to include an inducement through insidious
machination. Insidious machination refers to a deceitful scheme or plot with
an evil or devious purpose. Deceit exists where the party, with intent to
deceive, conceals or omits to state material facts and, by reason of such
omission or concealment, the other party was induced to give consent that
would not otherwise have been given.[7]
Bad faith does not simply connote bad judgment or negligence; it imports
a dishonest purpose or some moral obliquity and conscious doing of a wrong,
a breach of a known duty through some motive or interest or ill will that
partakes of the nature of fraud.[8]
We find no persuasive proof of fraud or bad faith in this case. The
Vazquezes were not induced to agree to the upgrading through insidious
words or deceitful machination or through willful concealment of material
facts. Upon boarding, Ms. Chiu told the Vazquezes that their
accommodations were upgraded to First Class in view of their being Gold
Card members of Cathays Marco Polo Club. She was honest in telling them
that their seats were already given to other passengers and the Business
Class Section was fully booked. Ms. Chiu might have failed to consider the
remedy of offering the First Class seats to other passengers. But, we find no
bad faith in her failure to do so, even if that amounted to an exercise of poor
judgment.
Neither was the transfer of the Vazquezes effected for some evil or
devious purpose. As testified to by Mr. Robson, the First Class Section is
better than the Business Class Section in terms of comfort, quality of food,
and service from the cabin crew; thus, the difference in fare between the
First Class and Business Class at that time was $250. [9] Needless to state, an
upgrading is for the better condition and, definitely, for the benefit of the
passenger.
We are not persuaded by the Vazquezes argument that the overbooking
of the Business Class Section constituted bad faith on the part of Cathay.
Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics Board, as
amended, provides:

Sec 3. Scope. This regulation shall apply to every Philippine and foreign air
carrier with respect to its operation of flights or portions of flights originating
from or terminating at, or serving a point within the territory of the Republic
of the Philippines insofar as it denies boarding to a passenger on a flight, or
portion of a flight inside or outside the Philippines, for which he holds
confirmed reserved space.Furthermore, this Regulation is designed to cover
only honest mistakes on the part of the carriers and excludes deliberate and
willful acts of non-accommodation. Provided, however, that overbooking not
exceeding 10% of the seating capacity of the aircraft shall not be considered
as a deliberate and willful act of non-accommodation.

It is clear from this section that an overbooking that does not exceed ten
percent is not considered deliberate and therefore does not amount to bad
faith.[10] Here, while there was admittedly an overbooking of the Business
Class, there was no evidence of overbooking of the plane beyond ten
percent, and no passenger was ever bumped off or was refused to board the
aircraft.
Now we come to the third issue on damages.
The Court of Appeals awarded each of the Vazquezes moral damages in
the amount of P250,000. Article 2220 of the Civil Code provides:

Article 2220. Willful injury to property may be a legal ground for awarding
moral damages if the court should find that, under the circumstances, such
damages are justly due. The same rule applies to breaches of contract where
the defendant acted fraudulently or in bad faith.

Moral damages include physical suffering, mental anguish, fright, serious

anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury. Although incapable of pecuniary computation,
moral damages may be recovered if they are the proximate result of the
defendants wrongful act or omission.[11] Thus, case law establishes the
following requisites for the award of moral damages: (1) there must be an
injury clearly sustained by the claimant, whether physical, mental or
psychological; (2) there must be a culpable act or omission factually
established; (3) the wrongful act or omission of the defendant is the
proximate cause of the injury sustained by the claimant; and (4) the award
for damages is predicated on any of the cases stated in Article 2219 of the
Civil Code.[12]
Moral damages predicated upon a breach of contract of carriage may
only be recoverable in instances where the carrier is guilty of fraud or bad
faith or where the mishap resulted in the death of a passenger. [13] Where in
breaching the contract of carriage the airline is not shown to have acted
fraudulently or in bad faith, liability for damages is limited to the natural and
probable consequences of the breach of the obligation which the parties had
foreseen or could have reasonably foreseen. In such a case the liability does
not include moral and exemplary damages.[14]
In this case, we have ruled that the breach of contract of carriage, which
consisted in the involuntary upgrading of the Vazquezes seat
accommodation, was not attended by fraud or bad faith. The Court of
Appeals award of moral damages has, therefore, no leg to stand on.
 The deletion of the award for exemplary damages by the Court of
Appeals is correct. It is a requisite in the grant of exemplary damages that
the act of the offender must be accompanied by bad faith or done in wanton,
fraudulent or malevolent manner.[15] Such requisite is absent in this case.
Moreover, to be entitled thereto the claimant must first establish his right to
moral, temperate, or compensatory damages. [16] Since the Vazquezes are not
entitled to any of these damages, the award for exemplary damages has no
legal basis. And where the awards for moral and exemplary damages are
eliminated, so must the award for attorneys fees.[17]
The most that can be adjudged in favor of the Vazquezes for Cathays
breach of contract is an award for nominal damages under Article 2221 of
the Civil Code, which reads as follows:

Article 2221 of the Civil Code provides:

Article 2221. Nominal damages are adjudicated in order that a right of the
plaintiff, which has been violated or invaded by the defendant, may be
vindicated or recognized, and not for the purpose of indemnifying the
plaintiff for any loss suffered by him.

Worth noting is the fact that in Cathays Memorandum filed with this
Court, it prayed only for the deletion of the award for moral damages. It
deferred to the Court of Appeals discretion in awarding nominal damages;
thus:

As far as the award of nominal damages is concerned, petitioner respectfully

defers to the Honorable Court of Appeals discretion. Aware as it is that
somehow, due to the resistance of respondents-spouses to the normally-
appreciated gesture of petitioner to upgrade their accommodations,
petitioner may have disturbed the respondents-spouses wish to be with their
companions (who traveled to Hong Kong with them) at the Business Class on
their flight to Manila. Petitioner regrets that in its desire to provide the
respondents-spouses with additional amenities for the one and one-half (1
1/2) hour flight to Manila, unintended tension ensued.[18]

Nonetheless, considering that the breach was intended to give more benefit
and advantage to the Vazquezes by upgrading their Business Class
accommodation to First Class because of their valued status as Marco Polo
members, we reduce the award for nominal damages to P5,000.
Before writing finis to this decision, we find it well-worth to quote the apt
observation of the Court of Appeals regarding the awards adjudged by the
trial court:

We are not amused but alarmed at the lower courts unbelievable alacrity,
bordering on the scandalous, to award excessive amounts as damages. In
their complaint, appellees asked for P1 million as moral damages but the
lower court awarded P4 million; they asked for P500,000.00 as exemplary
damages but the lower court cavalierly awarded a whooping P10 million;
they asked for P250,000.00 as attorneys fees but were awarded P2 million;
they did not ask for nominal damages but were awarded P200,000.00. It is as
if the lower court went on a rampage, and why it acted that way is beyond all
tests of reason. In fact the excessiveness of the total award invites the
suspicion that it was the result of prejudice or corruption on the part of the
trial court.

The presiding judge of the lower court is enjoined to hearken to the Supreme
Courts admonition in Singson vs. CA (282 SCRA 149 [1997]), where it said:

The well-entrenched principle is that the grant of moral damages depends

upon the discretion of the court based on the circumstances of each
case. This discretion is limited by the principle that the amount awarded
should not be palpably and scandalously excessive as to indicate that it was
the result of prejudice or corruption on the part of the trial court.

and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:

Nonetheless, we agree with the injunction expressed by the Court of Appeals

that passengers must not prey on international airlines for damage awards,
like trophies in a safari. After all neither the social standing nor prestige of
the passenger should determine the extent to which he would suffer because
of a wrong done, since the dignity affronted in the individual is a quality
inherent in him and not conferred by these social indicators. [19]

We adopt as our own this observation of the Court of Appeals.

WHEREFORE, the instant petition is hereby partly GRANTED. The
Decision of the Court of Appeals of 24 July 2001 in CA-G.R. CV No. 63339 is
hereby MODIFIED, and as modified, the awards for moral damages and
attorneys fees are set aside and deleted, and the award for nominal
damages is reduced to P5,000.
No pronouncement on costs.
SO ORDERED.