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TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin

Arellano University School of Law


V. OBLIGATIONS OF THE SHIPPER, CONSIGNEE AND PASSENGERS

A. Effect of negligence of shipper or passenger


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

Article 1761. The passenger must observe the diligence of a good father of a family to avoid injury to himself.

Article 1762. The contributory negligence of the passenger does not bar recovery of damages for his death or
injuries, if the proximate cause thereof is the negligence of the common carrier, but the amount of damages shall
be equitably reduced.

B. Payment of Freight

C. Liability of demurrage

Cases:

G.R. No. L-9671 August 23, 1957

CESAR L. ISAAC, plaintiff-appellant,


vs.
A. L. AMMEN TRANSPORTATION CO., INC., defendant-appellee.

Angel S. Gamboa for appellant.


Manuel O. Chan for appellee.

BAUTISTA ANGELO, 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 plaintiff's 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
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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 diligence 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.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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 carrier's 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 judgement 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.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Labrador, Concepcion, Endencia and Felix, JJ., concur.

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

COMPAIA MARITIMA, petitioner,


vs.
COURT OF APPEALS and VICENTE CONCEPCION, respondents.

Rafael Dinglasan for petitioner.

Benjamin J. Molina for private respondent.

FERNAN, C.J.:

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

The facts of the case are as follows:

Private respondent Vicente E. Concepcion, a civil engineer doing business under the name and style of
Consolidated Construction with office address at Room 412, Don Santiago Bldg., Taft Avenue, Manila, had a
contract with the Civil Aeronautics Administration (CAA) sometime in 1964 for the construction of the airport in
Cagayan de Oro City Misamis Oriental.

Being a Manila based contractor, Vicente E. Concepcion had to ship his construction equipment to Cagayan de
Oro City. Having shipped some of his equipment through petitioner and having settled the balance of P2,628.77 with
respect to said shipment, Concepcion negotiated anew with petitioner, thru its collector, Pacifico Fernandez, on
August 28, 1964 for the shipment to Cagayan de Oro City of one (1) unit payloader, four (4) units 6x6 Reo trucks
and two (2) pieces of water tanks. He was issued Bill of Lading 113 on the same date upon delivery of the
equipment at the Manila North Harbor. 2

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

On September 7, 1964, Consolidated Construction, thru Vicente E. Concepcion, wrote Compaia Maritima to
demand a replacement of the payloader which it was considering as a complete loss because of the extent of
damage. 4 Consolidated Construction likewise notified petitioner of its claim for damages. Unable to elicit response, the
demand was repeated in a letter dated October 2, 1964. 5

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

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

After trial, the then Court of First Instance of Manila, Branch VII, dismissed on April 24, 1968 the complaint with
costs against therein plaintiff, herein private respondent Vicente E. Concepcion, stating that the proximate cause of
the fall of the payloader was Vicente E. Concepcion's act or omission in having misrepresented the weight of the
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
payloader as 2.5 tons instead of its true weight of 7.5 tons, which underdeclaration was intended to defraud
Compaia Maritima of the payment of the freight charges and which likewise led the Chief Officer of the vessel to
use the heel block of hatch No. 2 in unloading the payloader. 8

From the adverse decision against him, Vicente E. Concepcion appealed to the Court of Appeals which, on
December 5, 1965 rendered a decision, the dispositive portion of which reads:

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


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

Hence, the instant petition.

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

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

xxx xxx xxx

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

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

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

Corollary is the rule that mere proof of delivery of the goods in good order to a common carrier, and of their arrival at
the place of destination in bad order, makes out prima facie case against the common carrier, so that if no
explanation is given as to how the loss, deterioration or destruction of the goods occurred, the common carrier must
be held responsible. 10 Otherwise stated, it is incumbent upon the common carrier to prove that the loss, deterioration or
destruction was due to accident or some other circumstances inconsistent with its liability.

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

Thus, Article 1733 of the Civil Code provides:

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

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

The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to
know and to follow the required precaution for avoiding damage to, or destruction of the goods entrusted to it for
safe carriage and delivery. It requires common carriers to render service with the greatest skill and foresight and "to
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise
due care in the handling and stowage including such methods as their nature requires." 11 Under Article 1736 of the
Civil Code, the responsibility to observe extraordinary diligence commences and lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person who has the right to receive them without
prejudice to the provisions of Article 1738.

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

It must be noted that the weight submitted by private respondent Concepcion appearing at the left-hand portion of
Exhibit 8 12 as an addendum to the original enumeration of equipment to be shipped was entered into the bill of lading by
petitioner, thru Pacifico Fernandez, a company collector, without seeing the equipment to be shipped. 13 Mr. Mariano
Gupana, assistant traffic manager of petitioner, confirmed in his testimony that the company never checked the
information entered in the bill of lading. 14 Worse, the weight of the payloader as entered in the bill of lading was assumed
to be correct by Mr. Felix Pisang, Chief Officer of MV Cebu. 15

The weights stated in a bill of lading are prima facie evidence of the amount received and the fact that the weighing
was done by another will not relieve the common carrier where it accepted such weight and entered it on the bill of
lading. 16 Besides, common carriers can protect themselves against mistakes in the bill of lading as to weight by
exercising diligence before issuing the same. 17

While petitioner has proven that private respondent Concepcion did furnish it with an inaccurate weight of the
payloader, petitioner is nonetheless liable, for the damage caused to the machinery could have been avoided by the
exercise of reasonable skill and attention on its part in overseeing the unloading of such a heavy equipment. And
circumstances clearly show that the fall of the payloader could have been avoided by petitioner's crew. Evidence on
record sufficiently show that the crew of petitioner had been negligent in the performance of its obligation by reason
of their having failed to take the necessary precaution under the circumstances which usage has established among
careful persons, more particularly its Chief Officer, Mr. Felix Pisang, who is tasked with the over-all supervision of
loading and unloading heavy cargoes and upon whom rests the burden of deciding as to what particular winch the
unloading of the payloader should be undertaken. 18 While it was his duty to determine the weight of heavy cargoes
before accepting them. Mr. Felix Pisang took the bill of lading on its face value and presumed the same to be correct by
merely "seeing" it. 19 Acknowledging that there was a "jumbo" in the MV Cebu which has the capacity of lifting 20 to 25 ton
cargoes, Mr. Felix Pisang chose not to use it, because according to him, since the ordinary boom has a capacity of 5 tons
while the payloader was only 2.5 tons, he did not bother to use the "jumbo" anymore. 20

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

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

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

We find equitable the conclusion of the Court of Appeals reducing the recoverable amount of damages by 20% or
1/5 of the value of the payloader, which at the time the instant case arose, was valued at P34,000. 00, thereby
reducing the recoverable amount at 80% or 4/5 of P34,000.00 or the sum of P27,200.00. Considering that the
freight charges for the entire cargoes shipped by private respondent amounting to P2,318.40 remained unpaid.. the
same would be deducted from the P27,000.00 plus an additional deduction of P228.63 representing the freight
charges for the undeclared weight of 5 tons (difference between 7.5 and 2.5 tons) leaving, therefore, a final
recoverable amount of damages of P24,652.97 due to private respondent Concepcion.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Notwithstanding the favorable judgment in his favor, private respondent assailed the Court of Appeals' decision
insofar as it limited the damages due him to only P24,652.97 and the cost of the suit. Invoking the provisions on
damages under the Civil Code, more particularly Articles 2200 and 2208, private respondent further seeks additional
damages allegedly because the construction project was delayed and that in spite of his demands, petitioner failed
to take any steps to settle his valid, just and demandable claim for damages.

We find private respondent's submission erroneous. It is well- settled that an appellee, who is not an appellant, may
assign errors in his brief where his purpose is to maintain the judgment on other grounds, but he may not do so if his
purpose is to have the judgment modified or reversed, for, in such case, he must appeal. 22 Since private respondent
did not appeal from the judgment insofar as it limited the award of damages due him, the reduction of 20% or 1/5 of the
value of the payloader stands.

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

Gutierrez, Jr., Feliciano, Bidin and Cortes JJ., concur.

G.R. No. L-55347 October 4, 1985

PHILIPPINE NATIONAL RAILWAYS, petitioner,


vs.
THE HONORABLE COURT OF APPEALS and ROSARIO TUPANG, respondents.

Arturo Samaniego for private respondent.

ESCOLIN, J.:

Invoking the principle of state immunity from suit, the Philippine National Railways, PNR for short, instituted this
petition for review on certiorari to set aside the decision of the respondent Appellate Court which held petitioner PNR
liable for damages for the death of Winifredo Tupang, a paying passenger who fell off a train operated by the
petitioner.

The pertinent facts are summarized by the respondent court as follows:

The facts show that on September 10, 1972, at about 9:00 o'clock in the evening, Winifredo Tupang,
husband of plaintiff Rosario Tupang, boarded 'Train No. 516 of appellant at Libmanan, Camarines
Sur, as a paying passenger bound for Manila. Due to some mechanical defect, the train stopped at
Sipocot, Camarines Sur, for repairs, taking some two hours before the train could resume its trip to
Manila. Unfortunately, upon passing Iyam Bridge at Lucena, Quezon, Winifredo Tupang fell off the
train resulting in his death.The train did not stop despite the alarm raised by the other passengers
that somebody fell from the train. Instead, the train conductor Perfecto Abrazado, called the station
agent at Candelaria, Quezon, and requested for verification of the information. Police authorities of
Lucena City were dispatched to the Iyam Bridge where they found the lifeless body of Winifredo
Tupang.

As shown by the autopsy report, Winifredo Tupang died of cardio-respiratory failure due to massive
cerebral hemorrhage due to traumatic injury [Exhibits B and C, Folder of Exhibits],Tupang was later
buried in the public cemetery of Lucena City by the local police authorities. [Rollo, pp. 91-92]

Upon complaint filed by the deceased's widow, Rosario Tupang, the then Court of First Instance of Rizal, after trial,
held the petitioner PNR liable for damages for breach of contract of carriage and ordered "to pay the plaintiff the
sum of P12,000,00 for the death of Winifredo Tupang, plus P20,000.00 for loss of his earning capacity and the
further sum of P10,000.00 as moral damages, and P2,000.00 as attorney's fees, and costs. 1

On appeal, the Appellate Court sustained the holding of the trial court that the PNR did not exercise the utmost
diligence required by law of a common carrier. It further increased the amount adjudicated by the trial court by
ordering PNR to pay the plaintiff an additional sum of P5,000.00 as exemplary damages.

Moving for reconsideration of the above decision, the PNR raised for the first time, as a defense, the doctrine of
state immunity from suit. It alleged that it is a mere agency of the Philippine government without distinct or separate
personality of its own, and that its funds are governmental in character and, therefore, not subject to garnishment or
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
execution. The motion was denied; the respondent court ruled that the ground advanced could not be raised for the
first time on appeal.

Hence, this petition for review.

The petition is devoid of merit. The PNR was created under Rep. Act 4156, as amended. Section 4 of the said Act
provides:

The Philippine national Railways shall have the following powers:

a. To do all such other things and to transact all such business directly or indirectly necessary,
incidental or conducive to the attainment of the purpose of the corporation; and

b. Generally, to exercise all powers of a corporation under the Corporation Law.

Under the foregoing section, the PNR has all the powers, the characteristics and attributes of a corporation under
the Corporation Law. There can be no question then that the PNR may sue and be sued and may be subjected to
court processes just like any other corporation. 2

The petitioner's contention that the funds of the PNR are not subject to garnishment or execution hardly raises a
question of first impression. In Philippine National Railways v. Union de Maquinistas, et al., 3 then Justice Fernando,
later Chief Justice, said. "The main issue posed in this certiorari proceeding, whether or not the funds of the Philippine
National Railways, could be garnished or levied upon on execution was resolved in two recent decisions, the Philippine
National Bank v. Court of Industrial Relations [81 SCRA 314] and Philippine National Bank v. Hon. Judge Pabalan [83
SCRA 595]. This Court in both cases answered the question in the affirmative. There was no legal bar to garnishment or
execution. The argument based on non-suability of a state allegedly because the funds are governmental in character was
unavailing.So it must be again."

In support of the above conclusion, Justice Fernando cited the Court's holding in Philippine National Bank v. Court
of Industrial Relations, to wit: "The premise that the funds could be spoken of as public in character may be
accepted in the sense that the People's Homesite and Housing Corporation was a government-owned entity. It does
not follow though that they were exempt from garnishment. National Shipyard and Steel Corporation v. Court of
Industrial Relations is squarely in point. As was explicitly stated in the opinion of then Justice, later Chief Justice,
Concepcion: "The allegation to the effect that the funds of the NASSCO are public funds of the government, and
that, as such, the same may not be garnished, attached or levied upon, is untenable for, as a government- owned
and controlled corporation, the NASSCO has a personality of its own, distinct and separate from that of the
Government. It has-pursuant to Section 2 of Executive Order No. 356, dated October 23, 1950 * * *, pursuant to
which the NASSCO has been established- 'all the powers of a corporation under the Corporation Law * * *. 4

As far back as 1941, this Court in the case of Manila Hotel Employees Association v. Manila Hotel Co., 5 laid down
the rule that "when the government enters into commercial business, it abandons its sovereign capacity and is to be
treated like any other corporation. [Bank of the U.S. v. Planters' Bank, 9 Waitch 904, 6 L. ed. 244]. By engaging in a
particular business through the instrumentality of a corporation the government divests itself pro hac vice of its sovereign
character, so as to render the corporation subject to the rules of law governing private corporations. 6 Of Similar import is
the pronouncement in Prisco v. CIR,' that "when the government engages in business, it abdicates part of its sovereign
prerogatives and descends to the level of a citizen, ... . " In fine, the petitioner PNR cannot legally set up the doctrine of
non-suability as a bar to the plaintiff's suit for damages.

The appellate court found, the petitioner does not deny, that the train boarded by the deceased Winifredo Tupang
was so over-crowded that he and many other passengers had no choice but to sit on the open platforms between
the coaches of the train. It is likewise undisputed that the train did not even slow down when it approached the Iyam
Bridge which was under repair at the time, Neither did the train stop, despite the alarm raised by other passengers
that a person had fallen off the train at lyam Bridge. 7

The petitioner has the obligation to transport its passengers to their destinations and to observe extraordinary
diligence in doing so. Death or any injury suffered by any of its passengers gives rise to the presumption that it was
negligent in the performance of its obligation under the contract of carriage. Thus, as correctly ruled by the
respondent court, the petitioner failed to overthrow such presumption of negligence with clear and convincing
evidence.

But while petitioner failed to exercise extraordinary diligence as required by law, 8 it appears that the deceased was
chargeable with contributory negligence. Since he opted to sit on the open platform between the coaches of the train, he
should have held tightly and tenaciously on the upright metal bar found at the side of said platform to avoid falling off from
the speeding train. Such contributory negligence, while not exempting the PNR from liability, nevertheless justified the
deletion of the amount adjudicated as moral damages. By the same token, the award of exemplary damages must be set
aside. Exemplary damages may be allowed only in cases where the defendant acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner. 9 There being no evidence of fraud, malice or bad faith on the part of petitioner, the
grant of exemplary damages should be discarded.
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Arellano University School of Law
WHEREFORE, the decision of the respondent appellate court is hereby modified by eliminating therefrom the
amounts of P10,000.00 and P5,000.00 adjudicated as moral and exemplary damages, respectively. No costs.

SO ORDERED.

Concepcion, Jr., Cuevas, and Alampay, JJ., concur.

G.R. Nos. 66102-04 August 30, 1990

PHILIPPINE RABBIT BUS LINES, INC., petitioner,


vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT AND CASIANO PASCUA, ET AL., respondents.

Santiago & Santiago for petitioner.

Federico R. Vinluan for private respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Intermediate Appellate Court (now Court of Appeals)
dated July 29, 1983 in AC-G.R. Nos. CV-65885, CV-65886 and CV-65887 which reversed the decision of the Court
of First Instance (now Regional Trial Court) of Pangasinan dated December 27, 1978; and its resolution dated
November 28, 1983 denying the motion for reconsideration.

It is an established principle that the factual findings of the Court of Appeals are final and may not be reviewed by
this Court on appeal. However, this principle is subject to certain exceptions. One of these is when the findings of
the appellate court are contrary to those of the trial court (see Sabinosa v. The Honorable Court of Appeals, et al.,
G.R. No. L-47981, July 24, 1989) in which case, a re-examination of the facts and evidence may be undertaken.
This is Our task now.

The antecedent facts are as follows:

About 11:00 o'clock in the morning on December 24, 1966, Catalina Pascua, Caridad Pascua, Adelaida Estomo,
Erlinda Meriales, Mercedes Lorenzo, Alejandro Morales and Zenaida Parejas boarded the jeepney owned by
spouses Isidro Mangune and Guillerma Carreon and driven by Tranquilino Manalo at Dau, Mabalacat, Pampanga
bound for Carmen, Rosales, Pangasinan to spend Christmas at their respective homes. Although they usually ride
in buses, they had to ride in a jeepney that day because the buses were full. Their contract with Manalo was for
them to pay P24.00 for the trip. The private respondents' testimonial evidence on this contractual relationship was
not controverted by Mangune, Carreon and Manalo, nor by Filriters Guaranty Assurance Corporation, Inc., the
insurer of the jeepney, with contrary evidence. Purportedly riding on the front seat with Manalo was Mercedes
Lorenzo. On the left rear passenger seat were Caridad Pascua, Alejandro Morales and Zenaida Parejas. On the
right rear passenger seat were Catalina Pascua, Adelaida Estomo, and Erlinda Meriales. After a brief stopover at
Moncada, Tarlac for refreshment, the jeepney proceeded towards Carmen, Rosales, Pangasinan.

Upon reaching barrio Sinayoan, San Manuel, Tarlac, the right rear wheel of the jeepney was detached, so it was
running in an unbalanced position. Manalo stepped on the brake, as a result of which, the jeepney which was then
running on the eastern lane (its right of way) made a U-turn, invading and eventually stopping on the western lane of
the road in such a manner that the jeepney's front faced the south (from where it came) and its rear faced the north
(towards where it was going). The jeepney practically occupied and blocked the greater portion of the western lane,
which is the right of way of vehicles coming from the north, among which was Bus No. 753 of petitioner Philippine
Rabbit Bus Lines, Inc. (Rabbit) driven by Tomas delos Reyes. Almost at the time when the jeepney made a sudden
U-turn and encroached on the western lane of the highway as claimed by Rabbit and delos Reyes, or after stopping
for a couple of minutes as claimed by Mangune, Carreon and Manalo, the bus bumped from behind the right rear
portion of the jeepney. As a result of the collision, three passengers of the jeepney (Catalina Pascua, Erlinda
Meriales and Adelaida Estomo) died while the other jeepney passengers sustained physical injuries. What could
have been a festive Christmas turned out to be tragic.

The causes of the death of the three jeepney passengers were as follows (p. 101, Record on Appeal):

The deceased Catalina Pascua suffered the following injuries, to wit: fracture of the left parietal and
temporal regions of the skull; fracture of the left mandible; fracture of the right humenous; compound
fracture of the left radious and ullma middle third and lower third; fracture of the upper third of the
right tibia and fillnea; avulsion of the head, left internal; and multiple abrasions. The cause of her
death was shock, secondary to fracture and multiple hemorrhage. The fractures were produced as a
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
result of the hitting of the victim by a strong force. The abrasions could be produced when a person
falls from a moving vehicles (sic) and rubs parts of her body against a cement road pavement. . . .

Erlinda Mariles (sic) sustained external lesions such as contusion on the left parietal region of the
skull; hematoma on the right upper lid; and abrasions (sic) on the left knee. Her internal lesions
were: hematoma on the left thorax; multiple lacerations of the left lower lobe of the lungs; contusions
on the left lower lobe of the lungs; and simple fractures of the 2nd, 3rd, 4th, 5th, 6th, 7th, and 8th
ribs, left. The forcible impact of the jeep caused the above injuries which resulted in her death. . . .

The cause of death of Erlinda or Florida Estomo (also called as per autopsy of Dr. Panlasiqui was
due to shock due to internal hemorrhage, ruptured spleen and trauma. . . .

Caridad Pascua suffered physical injuries as follows (p. 101, Record on Appeal):

. . . lacerated wound on the forehead and occipital region, hematoma on the forehead, multiple
abrasions on the forearm, right upper arm, back and right leg. . . .

The police investigators of Tacpal and policemen of San Manuel, Tarlac, Tarlac, upon arrival at the scene of the
mishap, prepared a sketch (common exhibit "K" for private respondents "19" for Rabbit) showing the relative
positions of the two vehicles as well as the alleged point of impact (p. 100, Record on Appeal):

. . . The point of collision was a cement pave-portion of the Highway, about six (6) meters wide, with
narrow shoulders with grasses beyond which are canals on both sides. The road was straight and
points 200 meters north and south of the point of collision are visible and unobstructed. Purportedly,
the point of impact or collision (Exh. "K-4", Pascua on the sketch Exh. "K"-Pascua) was on the
western lane of the highway about 3 feet (or one yard) from the center line as shown by the bedris
(sic), dirt and soil (obviously from the undercarriage of both vehicles) as well as paint, marron (sic)
from the Rabbit bus and greenish from the jeepney. The point of impact encircled and marked with
the letter "X" in Exh. "K"-4 Pascua, had a diameter of two meters, the center of which was about two
meters from the western edge of cement pavement of the roadway. Pictures taken by witness
Bisquera in the course of the investigation showed the relative positions of the point of impact and
center line (Exh. "P"-Pascua) the back of the Rabbit bus (Exh. "P"-1-Pascua"), the lifeless body of
Catalina Pascua (Exh. "P-2 Pascua"), and the damaged front part of the Rabbit bus (Exh. "P-3
Pascua"). No skid marks of the Rabbit bus was found in the vicinity of the collision, before or after
the point of impact. On the other hand, there was a skid mark about 45 meters long purportedly of
the jeepney from the eastern shoulder of the road south of, and extending up to the point of impact.

At the time and in the vicinity of the accident, there were no vehicles following the jeepney, neither were there
oncoming vehicles except the bus. The weather condition of that day was fair.

After conducting the investigation, the police filed with the Municipal Court of San Manuel, Tarlac, a criminal
complaint against the two drivers for Multiple Homicide. At the preliminary investigation, a probable cause was found
with respect to the case of Manalo, thus, his case was elevated to the Court of First Instance. However, finding no
sufficiency of evidence as regards the case of delos Reyes, the Court dismissed it. Manalo was convicted and
sentenced to suffer imprisonment. Not having appealed, he served his sentence.

Complaints for recovery of damages were then filed before the Court of First Instance of Pangasinan. In Civil Case
No. 1136, spouses Casiano Pascua and Juana Valdez sued as heirs of Catalina Pascua while Caridad Pascua sued
in her behalf. In Civil Case No. 1139, spouses Manuel Millares and Fidencia Arcica sued as heirs of Erlinda
Meriales. In Civil Case No. 1140, spouses Mariano Estomo and Dionisia Sarmiento also sued as heirs of Adelaida
Estomo.

In all three cases, spouses Mangune and Carreon, Manalo, Rabbit and delos Reyes were all impleaded as
defendants. Plaintiffs anchored their suits against spouses Mangune and Carreon and Manalo on their contractual
liability. As against Rabbit and delos Reyes, plaintiffs based their suits on their culpability for a quasi-delict. Filriters
Guaranty Assurance Corporation, Inc. was also impleaded as additional defendant in Civil Case No. 1136 only.

For the death of Catalina Pascua, plaintiffs in Civil Case No. 1136 sought to collect the aggregate amount of
P70,060.00 in damages, itemized as follows: P500.00 for burial expenses; P12,000.00 for loss of wages for 24
years; P10,000.00 for exemplary damages; P10,000.00 for moral damages; and P3,000.00 for attorney's fees. In
the same case, plaintiff Caridad Pascua claimed P550.00 for medical expenses; P240.00 for loss of wages for two
months; P2,000.00 for disfigurement of her face; P3,000.00 for physical pain and suffering; P2,500.00 as exemplary
damages and P2,000.00 for attorney's fees and expenses of litigation.

In Civil Case No. 1139, plaintiffs demanded P500.00 for burial expenses; P6,000.00 for the death of Erlinda,
P63,000.00 for loss of income; P10,000.00 for moral damages and P3,000.00 for attorney's fees or total of
P80,000.00.
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Arellano University School of Law
In Civil Case No. 1140, plaintiffs claimed P500.00 for burial expenses; P6,000.00 for the death of Adelaide,
P56,160.00 for loss of her income or earning capacity; P10,000.00 for moral damages; and P3,000.00 for attorney's
fees.

Rabbit filed a cross-claim in the amount of P15,000.00 for attorney's fees and expenses of litigation. On the other
hand, spouses Mangune and Carreon filed a cross-claim in the amount of P6,168.00 for the repair of the jeepney
and P3,000.00 for its non-use during the period of repairs.

On December 27, 1978, the trial court rendered its decision finding Manalo negligent, the dispositive portion of
which reads (pp. 113-114, Record on Appeal):

PREMISES CONSIDERED, this Court is of the opinion and so holds:

1) That defendants Isidro Mangune, Guillerma Carreon and Tranquilino Manalo thru their
negligence, breached contract of carriage with their passengers the plaintiffs' and/or their heirs, and
this Court renders judgment ordering said defendants, jointly and severally, to pay the plaintiffs

a) In Civil Case No. 1136, for the death of Catalina Pascua, to pay her heirs the amounts of
P12,000.00 for indemnity for loss of her life; P41,760.00 for loss of earnings; P324.40 for actual
expenses and P2,000.00 for moral damages;

b) In the same Civil Case No.1136 for the injuries of Caridad Pascua, to pay her the amounts of
P240.00 for loss of wages, P328.20 for actual expenses and P500.00 for moral damages;

c) In Civil Case No.1139 for the death of Erlinda Meriales, to pay her heirs (the plaintiffs) the amount
of P12,000.00 for indemnity for loss of her life; P622.00 for actual expenses, P60,480.00 for loss
of wages or income and P2,000.00 for moral damages;

d) In Civil Case No. 1140, for the death of Erlinda (also called Florida or Adelaida Estomo), to pay
her heirs (the plaintiff the amount of P12,000.00 for indemnity for the loss of her life; P580.00 for
actual expenses; P53,160.00 for loss of wages or income and P2,000.00 for moral damages.

2) The defendant Filriters Guaranty Insurance Co., having contracted to ensure and answer for the
obligations of defendants Mangune and Carreon for damages due their passengers, this Court
renders judgment against the said defendants Filriters Guaranty Insurance Co., jointly and severally
with said defendants (Mangune and Carreon) to pay the plaintiffs the amount herein above
adjudicated in their favor in Civil Case No. 1136 only. All the amounts awarded said plaintiff, as set
forth in paragraph one (1) hereinabove;

3) On the cross claim of Phil. Rabbit Bus Lines, Inc. ordering the defendant, Isidro Mangune,
Guillerma Carreon and Tranquilino Manalo, to pay jointly and severally, cross-claimant Phil. Rabbit
Bus Lines, Inc., the amounts of P216.27 as actual damages to its Bus No. 753 and P2,173.60 for
loss of its earning.

All of the above amount, shall bear legal interest from the filing of the complaints.

Costs are adjudged against defendants Mangune, Carreon and Manalo and Filriters Guaranty.

SO ORDERED

On appeal, the Intermediate Appellate Court reversed the above-quoted decision by finding delos Reyes negligent,
the dispositive portion of which reads (pp. 55-57, Rollo):

WHEREFORE, PREMISES CONSIDERED, the lower court's decision is hereby REVERSED as to


item No. 3 of the decision which reads:

3) On the cross claim of Philippine Rabbit Bus Lines, Inc. ordering the defendants Isidro Mangune,
Guillerma Carreon and Tranquilino Manalo, to pay jointly and severally, the amounts of P216.27 as
actual damages to its Bus No. 753 and P2,173.60 for loss of its earnings.

and another judgment is hereby rendered in favor of plaintiffs-appellants Casiana Pascua, Juan
Valdez and Caridad Pascua, ordering the Philippine Rabbit Bus Lines, Inc. and its driver Tomas
delos Reyes to pay the former jointly and severally damages in amounts awarded as follows:

For the death of Catalina Pascua, the parents and/or heirs are awarded
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Arellano University School of Law
Civil Case No. 1136

a) Indemnity for the loss of life P12,000.00

b) Loss of Salaries or earning capacity 14,000.00

c) Actual damages (burial expenses) 800.00

d) For moral damages 10,000.00

e) Exemplary damages 3,000.00

f) For attorney's fees 3,000.00

Total P38,200.00 (sic)

For the physical injuries suffered by Caridad Pascua:

Civil Case No. 1136

a) Actual damages (hospitalization expenses) P550.00

b) Moral damages (disfigurement of the

face and physical suffering 8,000.00

c) Exemplary damages 2,000.00

Total P10,550.00

For the death of Erlinda Arcega Meriales. the parents and/or heirs:

Civil Case No. 1139

a) Indemnity for loss of life P12,000.00

b) Loss of Salary or Earning Capacity 20,000.00

c) Actual damages (burial expenses) 500.00

d) Moral damages 15,000.00

e) Exemplary damages 15,000.00

f) Attorney's fees 3,000.00

Total P65,500.00

For the death of Florida Sarmiento Estomo:

Civil Case No. 1140

a) Indemnity for loss of life P12,000.00

b) Loss of Salary or Earning capacity 20,000.00

c) Actual damages (burial expenses) 500.00


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Arellano University School of Law
d) Moral damages 3,000.00

e) Exemplary damages 3,000.00

f) Attorney's fees 3,000.00

Total P41,500.00

With costs against the Philippine Rabbit Bus Lines, Inc.

SO ORDERED.

The motion for reconsideration was denied. Hence, the present petition.

The issue is who is liable for the death and physical injuries suffered by the passengers of the jeepney?

The trial court, in declaring that Manalo was negligent, considered the following (p. 106, Record on Appeal):

(1) That the unrebutted testimony of his passenger plaintiff Caridad Pascua that a long ways (sic)
before reaching the point of collision, the Mangune jeepney was "running fast" that his passengers
cautioned driver Manalo to slow down but did not heed the warning: that the right rear wheel was
detached causing the jeepney to run to the eastern shoulder of the road then back to the concrete
pavement; that driver Manalo applied the brakes after which the jeepney made a U-turn (half-turn) in
such a manner that it inverted its direction making it face South instead of north; that the jeepney
stopped on the western lane of the road on the right of way of the oncoming Phil. Rabbit Bus where
it was bumped by the latter;

(2) The likewise unrebutted testimony of Police Investigator Tacpal of the San Manuel (Tarlac) Police
who, upon responding to the reported collission, found the real evidence thereat indicate in his
sketch (Exh. K, Pascua ), the tracks of the jeepney of defendant Mangune and Carreon running on
the Eastern shoulder (outside the concrete paved road) until it returned to the concrete road at a
sharp angle, crossing the Eastern lane and the (imaginary) center line and encroaching fully into the
western lane where the collision took place as evidenced by the point of impact;

(3) The observation of witness Police Corporal Cacalda also of the San Manuel Police that the path
of the jeepney they found on the road and indicated in the sketch (Exh. K-Pascua) was shown by
skid marks which he described as "scratches on the road caused by the iron of the jeep, after its
wheel was removed;"

(4) His conviction for the crime of Multiple Homicide and Multiple Serious Physical Injuries with
Damage to Property thru Reckless Imprudence by the Court of First Instance of Tarlac (Exh. 24-
Rabbit) upon the criminal Information by the Provincial Fiscal of Tarlac (Exh. 23-Rabbit), as a result
of the collision, and his commitment to prison and service of his sentence (Exh. 25-Rabbit) upon the
finality of the decision and his failure to appeal therefrom; and

(5) The application of the doctrine of res-ipsa loquitar (sic) attesting to the circumstance that the
collision occured (sic) on the right of way of the Phil. Rabbit Bus.

The respondent court had a contrary opinion. Applying primarily (1) the doctrine of last clear chance, (2) the
presumption that drivers who bump the rear of another vehicle guilty and the cause of the accident unless
contradicted by other evidence, and (3) the substantial factor test. concluded that delos Reyes was negligent.

The misappreciation of the facts and evidence and the misapplication of the laws by the respondent court warrant a
reversal of its questioned decision and resolution.

We reiterate that "[t]he principle about "the last clear" chance, would call for application in a suit between the owners
and drivers of the two colliding vehicles. It does not arise where a passenger demands responsibility from the carrier
to enforce its contractual obligations. For it would be inequitable to exempt the negligent driver of the jeepney and
its owners on the ground that the other driver was likewise guilty of negligence." This was Our ruling in Anuran, et
al. v. Buo et al., G.R. Nos. L-21353 and L-21354, May 20, 1966, 17 SCRA 224. 1 Thus, the respondent court erred in
applying said doctrine.

On the presumption that drivers who bump the rear of another vehicle guilty and the cause of the accident, unless
contradicted by other evidence, the respondent court said (p. 49, Rollo):
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Arellano University School of Law
. . . the jeepney had already executed a complete turnabout and at the time of impact was already
facing the western side of the road. Thus the jeepney assumed a new frontal position vis a vis, the
bus, and the bus assumed a new role of defensive driving. The spirit behind the presumption of guilt
on one who bumps the rear end of another vehicle is for the driver following a vehicle to be at all
times prepared of a pending accident should the driver in front suddenly come to a full stop, or
change its course either through change of mind of the front driver, mechanical trouble, or to avoid
an accident. The rear vehicle is given the responsibility of avoiding a collision with the front vehicle
for it is the rear vehicle who has full control of the situation as it is in a position to observe the vehicle
in front of it.

The above discussion would have been correct were it not for the undisputed fact that the U-turn made by the
jeepney was abrupt (Exhibit "K," Pascua). The jeepney, which was then traveling on the eastern shoulder, making a
straight, skid mark of approximately 35 meters, crossed the eastern lane at a sharp angle, making a skid mark of
approximately 15 meters from the eastern shoulder to the point of impact (Exhibit "K" Pascua). Hence, delos Reyes
could not have anticipated the sudden U-turn executed by Manalo. The respondent court did not realize that the
presumption was rebutted by this piece of evidence.

With regard to the substantial factor test, it was the opinion of the respondent court that (p. 52, Rollo):

. . . It is the rule under the substantial factor test that if the actor's conduct is a substantial factor in
bringing about harm to another, the fact that the actor neither foresaw nor should have foreseen the
extent of the harm or the manner in which it occurred does not prevent him from being liable
(Restatement, Torts, 2d). Here, We find defendant bus running at a fast speed when the accident
occurred and did not even make the slightest effort to avoid the accident, . . . . The bus driver's
conduct is thus a substantial factor in bringing about harm to the passengers of the jeepney, not only
because he was driving fast and did not even attempt to avoid the mishap but also because it was
the bus which was the physical force which brought about the injury and death to the passengers of
the jeepney.

The speed of the bus was calculated by respondent court as follows (pp. 54-55, Rollo):

According to the record of the case, the bus departed from Laoag, Ilocos Norte, at 4:00 o'clock A.M.
and the accident took place at approximately around 12:30 P.M., after travelling roughly for 8 hours
and 30 minutes. Deduct from this the actual stopover time of two Hours (computed from the
testimony of the driver that he made three 40-minute stop-overs), We will have an actual travelling
time of 6 hours and 30 minutes.

Under the circumstances, We calculate that the Laoag-Tarlac route (365 kms.) driving at an average
of 56 km. per hour would take 6 hours and 30 minutes. Therefore, the average speed of the bus,
give and take 10 minutes, from the point of impact on the highway with excellent visibility factor
would be 80 to 90 kms. per hour, as this is the place where buses would make up for lost time in
traversing busy city streets.

Still, We are not convinced. It cannot be said that the bus was travelling at a fast speed when the accident occurred
because the speed of 80 to 90 kilometers per hour, assuming such calculation to be correct, is yet within the speed
limit allowed in highways. We cannot even fault delos Reyes for not having avoided the collision. As aforestated, the
jeepney left a skid mark of about 45 meters, measured from the time its right rear wheel was detached up to the
point of collision. Delos Reyes must have noticed the perilous condition of the jeepney from the time its right rear
wheel was detached or some 90 meters away, considering that the road was straight and points 200 meters north
and south of the point of collision, visible and unobstructed. Delos Reyes admitted that he was running more or less
50 kilometers per hour at the time of the accident. Using this speed, delos Reyes covered the distance of 45 meters
in 3.24 seconds. If We adopt the speed of 80 kilometers per hour, delos Reyes would have covered that distance in
only 2.025 seconds. Verily, he had little time to react to the situation. To require delos Reyes to avoid the collision is
to ask too much from him. Aside from the time element involved, there were no options available to him. As the trial
court remarked (pp. 107-108, Record on Appeal):

. . . They (plaintiffs) tried to impress this Court that defendant de los Reyes, could have taken either
of two options: (1) to swerve to its right (western shoulder) or (2) to swerve to its left (eastern lane),
and thus steer clear of the Mangune jeepney. This Court does not so believe, considering the
existing exigencies of space and time.

As to the first option, Phil. Rabbit's evidence is convincing and unrebutted that the Western shoulder
of the road was narrow and had tall grasses which would indicate that it was not passable. Even
plaintiffs own evidence, the pictures (Exhs. P and P-2, Pascua) are mute confirmation of such fact.
Indeed, it can be noticed in the picture (Exh. P-2, Pascua) after the Rabbit bus came to a full stop, it
was tilted to right front side, its front wheels resting most probably on a canal on a much lower
elevation that of the shoulder or paved road. It too shows that all of the wheels of the Rabbit bus
were clear of the roadway except the outer left rear wheel. These observation appearing in said
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
picture (Exh P-2, Pascua) clearly shows coupled with the finding the Rabbit bus came to a full stop
only five meters from the point of impact (see sketch, Exh. K-Pascua) clearly show that driver de los
Reyes veered his Rabbit bus to the right attempt to avoid hitting the Mangune's jeepney. That it was
not successful in fully clearing the Mangune jeepney as its (Rabbit's) left front hit said jeepney (see
picture Exh. 10-A-Rabbit) must have been due to limitations of space and time.

Plaintiffs alternatively claim that defendant delos Reyes of the Rabbit bus could also have swerved
to its left (eastern lane) to avoid bumping the Mangune jeepney which was then on the western lane.
Such a claim is premised on the hypothesis (sic) that the eastern lane was then empty. This claim
would appear to be good copy of it were based alone on the sketch made after the collision.
Nonetheless, it loses force it one were to consider the time element involved, for moments before
that, the Mangune jeepney was crossing that very eastern lane at a sharp angle. Under such a
situation then, for driver delos Reyes to swerve to the eastern lane, he would run the greater risk of
running smack in the Mangune jeepney either head on or broadside.

After a minute scrutiny of the factual matters and duly proven evidence, We find that the proximate cause of the
accident was the negligence of Manalo and spouses Mangune and Carreon. They all failed to exercise the
precautions that are needed precisely pro hac vice.

In culpa contractual, the moment a passenger dies or is injured, the carrier is presumed to have been at fault or to
have acted negligently, and this disputable presumption may only be overcome by evidence that he had observed
extra-ordinary diligence as prescribed in Articles 1733, 1755 and 1756 of the New Civil Code 2 or that the death or
injury of the passenger was due to a fortuitous event 3 (Lasam v. Smith, Jr., 45 Phil. 657).

The negligence of Manalo was proven during the trial by the unrebutted testimonies of Caridad Pascua, Police
Investigator Tacpal, Police Corporal Cacalda, his (Manalo's) conviction for the crime of Multiple Homicide and
Multiple Serious Injuries with Damage to Property thru Reckless Imprudence, and the application of the doctrine
of res ipsa loquitur supra. The negligence of spouses Mangune and Carreon was likewise proven during the trial (p.
110, Record on Appeal):

To escape liability, defendants Mangune and Carreon offered to show thru their witness Natalio
Navarro, an alleged mechanic, that he periodically checks and maintains the jeepney of said
defendants, the last on Dec. 23, the day before the collision, which included the tightening of the
bolts. This notwithstanding the right rear wheel of the vehicle was detached while in transit. As to the
cause thereof no evidence was offered. Said defendant did not even attempt to explain, much less
establish, it to be one caused by a caso fortuito. . . .

In any event, "[i]n an action for damages against the carrier for his failure to safely carry his passenger to his
destination, an accident caused either by defects in the automobile or through the negligence of its driver, is
not a caso fortuito which would avoid the carriers liability for damages (Son v. Cebu Autobus Company, 94
Phil. 892 citing Lasam, et al. v. Smith, Jr., 45 Phil. 657; Necesito, etc. v. Paras, et al., 104 Phil. 75).

The trial court was therefore right in finding that Manalo and spouses Mangune and Carreon were negligent.
However, its ruling that spouses Mangune and Carreon are jointly and severally liable with Manalo is erroneous The
driver cannot be held jointly and severally liable with the carrier in case of breach of the contract of carriage. The
rationale behind this is readily discernible. Firstly, the contract of carriage is between the carrier and the passenger,
and in the event of contractual liability, the carrier is exclusively responsible therefore to the passenger, even if such
breach be due to the negligence of his driver (see Viluan v. The Court of Appeals, et al., G.R. Nos. L-21477-81, April
29, 1966, 16 SCRA 742). In other words, the carrier can neither shift his liability on the contract to his driver nor
share it with him, for his driver's negligence is his. 4 Secondly, if We make the driver jointly and severally liable with the
carrier, that would make the carrier's liability personal instead of merely vicarious and consequently, entitled to recover
only the share which corresponds to the driver, 5 contradictory to the explicit provision of Article 2181 of the New Civil
Code. 6

We affirm the amount of damages adjudged by the trial court, except with respect to the indemnity for loss of life.
Under Article 1764 in relation to Article 2206 of the New Civil Code, the amount of damages for the death of a
passenger is at least three thousand pesos (P3,000.00). The prevailing jurisprudence has increased the amount of
P3,000.00 to P30,000.00 (see Heirs of Amparo delos Santos, et al. v. Honorable Court of Appeals, et al., G.R. No.
51165, June 21, 1990 citing De Lima v. Laguna Tayabas Co., G.R. Nos. L-35697-99, April 15, 1988, 160 SCRA 70).

ACCORDINGLY, the petition is hereby GRANTED. The decision of the Intermediate Appellate Court dated July 29,
1983 and its resolution dated November 28, 1983 are SET ASIDE. The decision of the Court of First Instance dated
December 27, 1978 is REINSTATED MODIFICATION that only Isidro Mangune, Guillerma Carreon and Filriters
Guaranty Assurance Corporation, Inc. are liable to the victims or their heirs and that the amount of indemnity for loss
of life is increased to thirty thousand pesos (P30,000.00).

SO ORDERED.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Narvasa (Chairman), Cruz, Gancayco and Grio-Aquino JJ., concur.

G.R. No. 122039 May 31, 2000

VICENTE CALALAS, petitioner,


vs.
COURT OF APPEALS, ELIZA JUJEURCHE SUNGA and FRANCISCO SALVA, respondents.

MENDOZA, J.:

This is a petition for review on certiorari of the decision1 of the Court of Appeals, dated March 31, 1991, reversing
the contrary decision of the Regional Trial Court, Branch 36, Dumaguete City, and awarding damages instead to
private respondent Eliza Jujeurche Sunga as plaintiff in an action for breach of contract of carriage.

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

At 10 o'clock in the morning of August 23, 1989, private respondent Eliza Jujeurche G. Sunga, then a college
freshman majoring in Physical Education at the Siliman University, took a passenger jeepney owned and operated
by petitioner Vicente Calalas. As the jeepney was filled to capacity of about 24 passengers, Sunga was given by the
conductor an "extension seat," a wooden stool at the back of the door at the rear end of the vehicle.

On the way to Poblacion Sibulan, Negros Occidental, the jeepney stopped to let a passenger off. As she was seated
at the rear of the vehicle, Sunga gave way to the outgoing passenger. Just as she was doing so, an Isuzu truck
driven by Iglecerio Verena and owned by Francisco Salva bumped the left rear portion of the jeepney. As a result,
Sunga was injured. She sustained a fracture of the "distal third of the left tibia-fibula with severe necrosis of the
underlying skin." Closed reduction of the fracture, long leg circular casting, and case wedging were done under
sedation. Her confinement in the hospital lasted from August 23 to September 7, 1989. Her attending physician, Dr.
Danilo V. Oligario, an orthopedic surgeon, certified she would remain on a cast for a period of three months and
would have to ambulate in crutches during said period.

On October 9, 1989, Sunga filed a complaint for damages against Calalas, alleging violation of the contract of
carriage by the former in failing to exercise the diligence required of him as a common carrier. Calalas, on the other
hand, filed a third-party complaint against Francisco Salva, the owner of the Isuzu truck.

The lower court rendered judgment against Salva as third-party defendant and absolved Calalas of liability, holding
that it was the driver of the Isuzu truck who was responsible for the accident. It took cognizance of another case
(Civil Case No. 3490), filed by Calalas against Salva and Verena, for quasi-delict, in which Branch 37 of the same
court held Salva and his driver Verena jointly liable to Calalas for the damage to his jeepney.

On appeal to the Court of Appeals, the ruling of the lower court was reversed on the ground that Sunga's cause of
action was based on a contract of carriage, not quasi-delict, and that the common carrier failed to exercise the
diligence required under the Civil Code. The appellate court dismissed the third-party complaint against Salva and
adjudged Calalas liable for damages to Sunga. The dispositive portion of its decision reads:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another one
is entered ordering defendant-appellee Vicente Calalas to pay plaintiff-appellant:

(1) P50,000.00 as actual and compensatory damages;

(2) P50,000.00 as moral damages;

(3) P10,000.00 as attorney's fees; and

(4) P1,000.00 as expenses of litigation; and

(5) to pay the costs.

SO ORDERED.

Hence, this petition. Petitioner contends that the ruling in Civil Case No. 3490 that the negligence of Verena was the
proximate cause of the accident negates his liability and that to rule otherwise would be to make the common carrier
an insurer of the safety of its passengers. He contends that the bumping of the jeepney by the truck owned by Salva
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Arellano University School of Law
was a caso fortuito. Petitioner further assails the award of moral damages to Sunga on the ground that it is not
supported by evidence.

The petition has no merit.

The argument that Sunga is bound by the ruling in Civil Case No. 3490 finding the driver and the owner of the truck
liable for quasi-delict ignores the fact that she was never a party to that case and, therefore, the principle ofres
judicata does not apply.

Nor are the issues in Civil Case No. 3490 and in the present case the same. The issue in Civil Case No. 3490 was
whether Salva and his driver Verena were liable for quasi-delict for the damage caused to petitioner's jeepney. On
the other hand, the issue in this case is whether petitioner is liable on his contract of carriage. The first, quasi-delict,
also known as culpa aquiliana or culpa extra contractual, has as its source the negligence of the tortfeasor.
The second, breach of contract or culpa contractual, is premised upon the negligence in the performance of a
contractual obligation.

Consequently, in quasi-delict, the negligence or fault should be clearly established because it is the basis of the
action, whereas in breach of contract, the action can be prosecuted merely by proving the existence of the contract
and the fact that the obligor, in this case the common carrier, failed to transport his passenger safely to his
destination.2 In case of death or injuries to passengers, Art. 1756 of the Civil Code provides that common carriers
are presumed to have been at fault or to have acted negligently unless they prove that they observed extraordinary
diligence as defined in Arts. 1733 and 1755 of the Code. This provision necessarily shifts to the common carrier the
burden of proof.

There is, thus, no basis for the contention that the ruling in Civil Case No. 3490, finding Salva and his driver Verena
liable for the damage to petitioner's jeepney, should be binding on Sunga. It is immaterial that the proximate cause
of the collision between the jeepney and the truck was the negligence of the truck driver. The doctrine of proximate
cause is applicable only in actions for quasi-delict, not in actions involving breach of contract. The doctrine is a
device for imputing liability to a person where there is no relation between him and another party. In such a case, the
obligation is created by law itself. But, where there is a pre-existing contractual relation between the parties, it is the
parties themselves who create the obligation, and the function of the law is merely to regulate the relation thus
created. Insofar as contracts of carriage are concerned, some aspects regulated by the Civil Code are those
respecting the diligence required of common carriers with regard to the safety of passengers as well as the
presumption of negligence in cases of death or injury to passengers. It provides:

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

Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734,
1735, and 1746, 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 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 by articles 1733 and 1755.

In the case at bar, upon the happening of the accident, the presumption of negligence at once arose, and it became
the duty of petitioner to prove that he had to observe extraordinary diligence in the care of his passengers.

Now, did the driver of jeepney carry Sunga "safely as far as human care and foresight could provide, using the
utmost diligence of very cautious persons, with due regard for all the circumstances" as required by Art. 1755? We
do not think so. Several factors militate against petitioner's contention.

First, as found by the Court of Appeals, the jeepney was not properly parked, its rear portion being exposed about
two meters from the broad shoulders of the highway, and facing the middle of the highway in a diagonal angle. This
is a violation of the R.A. No. 4136, as amended, or the Land Transportation and Traffic Code, which provides:

Sec. 54. Obstruction of Traffic. No person shall drive his motor vehicle in such a manner as to
obstruct or impede the passage of any vehicle, nor, while discharging or taking on passengers or
loading or unloading freight, obstruct the free passage of other vehicles on the highway.
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Arellano University School of Law
Second, it is undisputed that petitioner's driver took in more passengers than the allowed seating capacity of the
jeepney, a violation of 32(a) of the same law. It provides:

Exceeding registered capacity. No person operating any motor vehicle shall allow more
passengers or more freight or cargo in his vehicle than its registered capacity.

The fact that Sunga was seated in an "extension seat" placed her in a peril greater than that to which the other
passengers were exposed. Therefore, not only was petitioner unable to overcome the presumption of negligence
imposed on him for the injury sustained by Sunga, but also, the evidence shows he was actually negligent in
transporting passengers.

We find it hard to give serious thought to petitioner's contention that Sunga's taking an "extension seat" amounted to
an implied assumption of risk. It is akin to arguing that the injuries to the many victims of the tragedies in our seas
should not be compensated merely because those passengers assumed a greater risk of drowning by boarding an
overloaded ferry. This is also true of petitioner's contention that the jeepney being bumped while it was improperly
parked constitutes caso fortuito. A caso fortuito is an event which could not be foreseen, or which, though foreseen,
was inevitable.3 This requires that the following requirements be present: (a) the cause of the breach is independent
of the debtor's will; (b) the event is unforeseeable or unavoidable; (c) the event is such as to render it impossible for
the debtor to fulfill his obligation in a normal manner, and (d) the debtor did not take part in causing the injury to the
creditor.4 Petitioner should have foreseen the danger of parking his jeepney with its body protruding two meters into
the highway.

Finally, petitioner challenges the award of moral damages alleging that it is excessive and without basis in law. We
find this contention well taken.

In awarding moral damages, the Court of Appeals stated:

Plaintiff-appellant at the time of the accident was a first-year college student in that school year
1989-1990 at the Silliman University, majoring in Physical Education. Because of the injury, she was
not able to enroll in the second semester of that school year. She testified that she had no more
intention of continuing with her schooling, because she could not walk and decided not to pursue her
degree, major in Physical Education "because of my leg which has a defect already."

Plaintiff-appellant likewise testified that even while she was under confinement, she cried in pain
because of her injured left foot. As a result of her injury, the Orthopedic Surgeon also certified that
she has "residual bowing of the fracture side." She likewise decided not to further pursue Physical
Education as her major subject, because "my left leg . . . has a defect already."

Those are her physical pains and moral sufferings, the inevitable bedfellows of the injuries that she
suffered. Under Article 2219 of the Civil Code, she is entitled to recover moral damages in the sum
of P50,000.00, which is fair, just and reasonable.

As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of contract for
it is not one of the items enumerated under Art. 2219 of the Civil Code. 5 As an exception, such damages are
recoverable: (1) in cases in which the mishap results in the death of a passenger, as provided in Art. 1764, in
relation to Art. 2206(3) of the Civil Code; and (2) in the cases in which the carrier is guilty of fraud or bad faith, as
provided in Art. 2220.6

In this case, there is no legal basis for awarding moral damages since there was no factual finding by the appellate
court that petitioner acted in bad faith in the performance of the contract of carriage. Sunga's contention that
petitioner's admission in open court that the driver of the jeepney failed to assist her in going to a nearby hospital
cannot be construed as an admission of bad faith. The fact that it was the driver of the Isuzu truck who took her to
the hospital does not imply that petitioner was utterly indifferent to the plight of his injured passenger. If at all, it is
merely implied recognition by Verena that he was the one at fault for the accident.

WHEREFORE, the decision of the Court of Appeals, dated March 31, 1995, and its resolution, dated September 11,
1995, are AFFIRMED, with the MODIFICATION that the award of moral damages is DELETED.

SO ORDERED.

Bellosillo and Buena, JJ., concur.

Quisumbing and De Leon, Jr., JJ., are on leave.

VI. EXTRAORDINARY DILIGENCE


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
A. Underlying reason

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).

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.

B. Effect of stipulation

Article 1744. A stipulation between the common carrier and the shipper or owner limiting the liability of the former
for the loss, destruction, or deterioration of the goods to a degree less than extraordinary diligence shall be valid,
provided it be:

(1) In writing, signed by the shipper or owner;

(2) Supported by a valuable consideration other than the service rendered by the common carrier; and

(3) Reasonable, just and not contrary to public policy.

Article 1757. The responsibility of a common carrier for the safety of passengers as required in articles 1733 and
1755 cannot be dispensed with or lessened by stipulation, by the posting of notices, by statements on tickets, or
otherwise.

Article 1758. When a passenger is carried gratuitously, a stipulation limiting the common carrier's liability for
negligence is valid, but not for wilful acts or gross negligence.

The reduction of fare does not justify any limitation of the common carrier's liability.

Article 1760. The common carrier's responsibility prescribed in the preceding article cannot be eliminated or limited
by stipulation, by the posting of notices, by statements on the tickets or otherwise.

C. Extraordinary diligence in carriage by sea


1. Seaworthiness of the vessel

Section 3. (1) The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;

Section 116. A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils of
the voyage contemplated by the parties to the policy.

Section 119. Where different portions of the voyage contemplated by a policy differ in respect to the things requisite
to make the ship seaworthy therefor, a warranty of seaworthiness is complied with if, at the commencement of each
portion, the ship is seaworthy with reference to that portion.

2.
D. Extraordinary diligence in carriage by land
1. Vehicles condition
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Arellano University School of Law
2. Traffic Rules
3. Obligation to Inspect
E. Extraordinary diligence in carriage by air
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law

G.R. No. L-28692 July 30, 1982

CONRADA VDA. DE ABETO, CARME0000LO ABETO, CECILIA ABETO, CONCEPCION ABETO, MARIA
ABETO, ESTELA ABETO, PERLA ABETO, PATRIA ABETO and ALBERTO ABETO, plaintiffs-appellees,
vs.
PHILIPPINE AIR LINES, INCORPORATED, defendant-appellant.

Quijano, Arroyo & Padilla Law Offices for plaintiffs-appellees.

Siguion Reyna, Montecillo & Ongsiako, Belo and Associates for defendant-appellant.

RELOVA, J..

Appeal from the decision of the Court of First Instance of Iloilo finding that defendant-appellant "did not exercise
extraordinary diligence or prudence as far as human foresight can provide ... but on the contrary showed negligence
and indifference for the safety of the passengers that it was bound to transport, " and for the death of Judge
Quirico Abeto, defendant- appellant was ordered to pay plaintiffs, the heirs of Judge Abeto, the following:

1st For the death of Judge Quirico Abeto, the amount of P6,000.00;

2nd For the loss of his earning capacity, for 4.75 (4 ) years at the rate of P7,200.00 per annum
in the amount of P34,200.00;

3rd For moral damages in favor of the plaintiffs in the sum of P10,000.00;

4th For actual damages in the sum of P2,000.00 minus P400.00 received under Voucher Exhibit
'H' the amount of Pl,600.00;

5th For attorney's fees, the sum of P6,000.00 and/or the total sum of P57,800.00 and; To pay the
costs of this proceedings.

Plaintiff's evidence shows that about 5:30 in the afternoon of November 23, 1960, Judge Quirico Abeto, with the
necessary tickets, boarded the Philippine Air Lines' PI-C133 plane at the Mandurriao Airport, Iloilo City for Manila.
He was listed as the No. 18 passenger in its Load Manifest (Exhibit A). The plane which would then take two hours
from Iloilo to Manila did not reach its destination and the next day there was news that the plane was missing. After
three weeks, it was ascertained that the plane crashed at Mt. Baco, Province of Mindoro. All the passengers,
including Judge Abeto, must have been killed instantly and their remains were scattered all over the area. Among
the articles recovered on the site of the crash was a leather bag with the name "Judge Quirico Abeto. " (Exhibit C.)

Judge Abeto, prior to the plane crash, was a Technical Assistant in the Office of the President receiving an annual
compensation of P7,200.00; and before that, has held the various positions in the government, namely: Municipal
President of Iloilo; Provincial Fiscal of Antique, Negros Occidental and Cebu; Judge of the Court of First Instance of
Manila, and Secretary of Justice. He was in good health before the incident even if he was already 79 years old at
that time.

Plaintiff-appellee Conrada Vda. de Abeto was appointed administratrix of the estate of Judge Abeto. The other
plaintiffs-appellees are the children of the deceased. When they received the news of the plane crash, Mrs. Abeto
was shocked and until it was ascertained that the plane had crashed three weeks after, she could not sleep and eat.
She felt sick and was miserable after that. The members of the family also suffered.

Personal belongings which were lost amounted to P300.00. Burial expenses of the late judge was P1,700.00.

When defendant-appellant would not hear demands for settlement of damages, plaintiffs-appellees were compelled
to hire counsel for the institution and prosecution of this case.

Defendant-appellant tried to prove that the plane crash at Mt. Baco was beyond the control of the pilot. The plane at
the time of the crash was airworthy for the purpose of conveying passengers across the country as shown by the
certificate of airworthiness issued by the Civil Aeronautics Administration (CAA). There was navigational error but no
negligence or malfeasance on the part of the pilot. The plane had undergone 1,822 pre- flight checks, 364 thorough
checks, 957 terminating checks and 501 after maintenance checks. These checks were part of the quality control
operation of defendant airline Further, deviation from its prescribed route was due to the bad weather conditions
between Mt. Baco and Romblon and strong winds which caused the plane to drift to Mt. Baco. Under the
circumstances, appellant argues that the crash was a fortuitous event and, therefore, defendant-appellant cannot be
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
held liable under the provisions of Article 1174 of the New Civil Code. Besides, appellant tried to prove that it had
exercised all the cares, skill and diligence required by law on that particular flight in question.

The trial court, finding for the plaintiffs, said:

The Court after a thorough perusal of the evidences, testimonial and documentaries submitted by
both parties has come into the conclusion that the evidence introduced by the plaintiffs have
established the following significant facts which proved the negligence of the defendant's pilot of the
plane on that flight- in question.

1st That the Pilot of the plane disobeyed instruction given in not following the route of Amber 1
prescribed by the CAA in Violation of Standard Regulation.

Second The defendant failed to perform the pre-flight test on plane PIC-133 before the same took
off from Mandurriao Airport to Manila in order to find out a possible defect of the plane.

Third When the defendant allowed during the flight in question, student Officer Rodriguez on
training as proved when his body was found on the plane's cockpit with its microphone hanging still
on his left leg.

Fourth When the Pilot during the flight in question failed or did not report his position over or
abeam Romblon which is a compulsory reporting point.

These facts as established by the evidence of the plaintiff lead to the inevitable conclusion that the
defendant did not exercise extraordinary diligence or prudence as far as human foresight can
provide imposed upon by the Law, but on the contrary showed negligence and indifference for the
safety of the passengers that it was bound to transport. By the very evidence of the defendant, as
shown by the deposition of one Jose Abanilla, dated December 13, 1963, Section Chief of the
Actuarial Department of the Insular Life Insurance Company regarding life expectancy through
American experience, the late Judge Abeto at the age of 79 would still live or have a life expectancy
of 4.75 years.

Appealing to this Court, defendant claimed that the trial court erred:

... in finding, contrary to the evidence, that the appellant was negligent;

III

... in not finding that the appellant, in the conduct and operation of PI-C133, exercised its statutory
obligation over the passengers of PI C133 of extraordinary diligence as far as human care and
foresight can provide, using the utmost diligence of a very cautious person with due regard for all the
circumstances and in not finding that the crash of PI-C133 was caused by fortuitous events;

... in awarding damages to the appellees; and

IV

... in not finding that appellant acted in good faith and exerted efforts to minimize damages.

The issue before Us in this appeal is whether or not the defendant is liable for violation of its contract of carriage.

The provisions of the Civil Code on this question of liability are clear and explicit. Article 1733 binds common
carriers, "from the nature of their business and by reasons of public policy, ... to observe extraordinary diligence in
the vigilance ... for the safety of the passengers transported by them according to all the circumstances of each
case." Article 1755 establishes the standard of care required of a common carrier, which is, "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." Article 1756 fixes the burden of proof by providing that "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 extra-ordinary diligence as prescribed in Articles 1733 and 1755." Lastly, Article 1757
states that "the responsibility of a common carrier for the safety of passengers ... cannot be dispensed with or
lessened by stipulation, by the posting of notices, by statements on tickets, or otherwise."

The prescribed airway of plane PI-C133 that afternoon of November 23, 1960, with Capt. de Mesa, as the pilot, was
Iloilo-Romblon-Manila, denominated as airway "Amber l," and the prescribed elevation of the flight was 6,000 ft. The
fact is, the plane did not take the designated route because it was some 30 miles to the west when it crashed at Mt.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Baco. According to defendant's witness, Ramon A. Pedroza, Administrative Assistant of the Philippine Air Lines, Inc.,
this tragic crash would have not happened had the pilot continued on the route indicated. Hereunder is Mr.
Pedroza's testimony on this point:

Q Had the pilot continued on the route indicated, Amber A-1 there would have been
no crash, obviously?

A Yes, Your Honor

ATTY. HILADO:

(To the witness)

Q Because Mt. Baco is 30 miles from Amber I?

A Yes,sir.(TSN,p.75,Oct.22,1963 hearing)

xxx xxx xxx

And, Assistant Director Cesar Mijares of the Civil Aeronautics Administration testified that the pilot of said plane was
"off course."

Q But the fact is that you found him out, that he was off course?

A Yes, sir.

Q And off course, you mean that he did not follow the route prescribed for him?

A Yes, sir.

Q And the route for him to follow was Amber A-l?

A Yes, sir.

Q And the route for Iloilo direct to Manila, is passing Romblon to Manila?

A Yes, passing Romblon to Manila.

Q And you found that he was not at all following the route to Romblon to Manila?

A Yes, sir.

Q You know Mr. Witness that a disregard or, violation, or disregard of instruction is
punishable by law?

A Yes,sir. (TSN,pp.247-248,Dec. 20, 1963)

xxx xxx xxx

It is clear that the pilot did not follow the designated route for his flight between Romblon and Manila.
The weather was clear and he was supposed to cross airway "Amber I" over Romblon; instead, he
made a straight flight to Manila in violation of air traffic rules.

At any rate, in the absence of a satisfactory explanation by appellant as to how the accident occurred, the
presumption is, it is at fault.

In an action based on a contract of carriage, the court need not make an express finding of fault or
negligence on the part of the carrier in order to hold it responsible to pay the damages sought for by
the passenger. By the contract of carriage, the carrier assumes the express obligation to transport
the passenger to his destination safely and to observe extraordinary diligence with a due regard for
all the circumstances, and any injury that might be suffered by the passenger is right away
attributable to the fault or negligence of the carrier (Art. 1756, New Civil Code). This is an exception
to the general rule that negligence must be proved. (Batangas Transportation Company vs.
Caguimbal, 22 SCRA 171.)
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
The total of the different items which the lower court adjudged herein appellant to pay the plaintiffs is P57,800.00.
The judgment of the court a quo is modified in the sense that the defendant is hereby ordered to pay the said
amount to the plaintiffs, with legal interest thereon from the finality of this judgment. With costs against defendant-
appellant.

Teehankee (Chairman), Makasiar, Melencio-Herrera, Plana and Vasquez, JJ., concur.

Gutierrez, Jr., J., is on leave.

G.R. No. 161730 January 28, 2005

JAPAN AIRLINES, petitioner,


vs.
MICHAEL ASUNCION and JEANETTE ASUNCION, respondents.

DECISION

YNARES-SANTIAGO, J.:

This petition for review seeks to reverse and set aside the October 9, 2002 decision 1 of the Court of Appeals and its
January 12, 2004 resolution,2 which affirmed in toto the June 10, 1997 decision of the Regional Trial Court of Makati
City, Branch 61 in Civil Case No. 92-3635.3

On March 27, 1992, respondents Michael and Jeanette Asuncion left Manila on board Japan Airlines (JAL) Flight
742 bound for Los Angeles. Their itinerary included a stop-over in Narita and an overnight stay at Hotel Nikko Narita.
Upon arrival at Narita, Mrs. Noriko Etou-Higuchi of JAL endorsed their applications for shore pass and directed them
to the Japanese immigration official.4 A shore pass is required of a foreigner aboard a vessel or aircraft who desires
to stay in the neighborhood of the port of call for not more than 72 hours.

During their interview, the Japanese immigration official noted that Michael appeared shorter than his height as
indicated in his passport. Because of this inconsistency, respondents were denied shore pass entries and were
brought instead to the Narita Airport Rest House where they were billeted overnight.

The immigration official also handed Mrs. Higuchi a Notice5 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.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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?
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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
1awphi1.nt

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. 1awphi1.nt

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
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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.

Davide, Jr., C.J., (Chairman), Carpio, and Azcuna, JJ., concur.

Quisumbing, J., no part.


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law

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 defendant-appellant, 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?
1awph!l.net
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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
Hartvs. 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. Neiman-Marcus 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
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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.

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.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
No costs.

SO ORDERED.

Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.

G.R. No. 75118 August 31, 1987

SEA-LAND SERVICE, INC., petitioner,


vs.
INTERMEDIATE APPELLATE COURT and PAULINO CUE, doing business under the name and style of "SEN
HIAP HING," respondents.

NARVASA, J.:

The main issue here is whether or not the consignee of seaborne freight is bound by stipulations in the covering bill
of lading limiting to a fixed amount the liability of the carrier for loss or damage to the cargo where its value is not
declared in the bill.

The factual antecedents, for the most part, are not in dispute.

On or about January 8, 1981, Sea-Land Service, Inc. (Sea-Land for brevity), a foreign shipping and forwarding
company licensed to do business in the Philippines, received from Seaborne Trading Company in Oakland,
California a shipment consigned to Sen Hiap Hing the business name used by Paulino Cue in the wholesale and
retail trade which he operated out of an establishment located on Borromeo and Plaridel Streets, Cebu City.

The shipper not having declared the value of the shipment, no value was indicated in the bill of lading. The bill
described the shipment only as "8 CTNS on 2 SKIDS-FILES. 1 Based on volume measurements Sea-land charged the shipper the total
amount of US$209.28 2 for freight age and other charges. The shipment was loaded on board the MS Patriot, a vessel owned
and operated by Sea-Land, for discharge at the Port Of Cebu.

The shipment arrived in Manila on February 12, 1981, and there discharged in Container No. 310996 into the
custody of the arrastre contractor and the customs and port authorities. 3 Sometime between February 13 and 16,
1981, after the shipment had been transferred, along with other cargoes to Container No. 40158 near Warehouse 3 at
Pier 3 in South Harbor, Manila, awaiting trans-shipment to Cebu, it was stolen by pilferers and has never been
recovered. 4

On March 10, 1981, Paulino Cue, the consignee, made formal claim upon Sea-Land for the value of the lost
shipment allegedly amounting to P179,643.48. 5 Sea-Land offered to settle for US$4,000.00, or its then Philippine peso
equivalent of P30,600.00. asserting that said amount represented its maximum liability for the loss of the shipment under
the package limitation clause in the covering bill of lading. 6 Cue rejected the offer and thereafter brought suit for damages
against Sea-Land in the then Court of First Instance of Cebu, Branch X. 7 Said Court, after trial, rendered judgment in favor
of Cue, sentencing Sea-Land to pay him P186,048.00 representing the Philippine currency value of the lost cargo,
P55,814.00 for unrealized profit with one (1%) percent monthly interest from the filing of the complaint until fully paid,
P25,000.00 for attorney's fees and P2,000.00 as litigation expenses. 8

Sea-Land appealed to the Intermediate Appellate Court. 9 That Court however affirmed the decision of the Trial Court
xxx in all its parts ... . 10 Sea-Land thereupon filed the present petition for review which, as already stated, poses the question of whether, upon the facts
above set forth, it can be held liable for the loss of the shipment in any amount beyond the limit of US$600.00 per package stipulated in the bill of lading.

To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to recover from the
carrier or shipper for loss of, or damage to, goods being transported under said bill ,although that document may
have been as in practice it oftentimes is drawn up only by the consignor and the carrier without the
intervention of the consignee. In Mendoza vs. Philippine Air Lines, Inc. 11 the Court delved at some length into the reasons behind this
when, upon a claim made by the consignee of a motion picture film shipped by air that he was never a party to the contract of transportation and was a complete
stranger thereto, it said:

But appellant now contends that he is not suing on a breach of contract but on a tort as provided for
in Art. 1902 of the Civil Code. We are a little perplexed as to this new theory of the appellant. First,
he insists that the articles of the Code of Commerce should be applied: that he invokes the
provisions of aid Code governing the obligations of a common carrier to make prompt delivery of
goods given to it under a contract of transportation. Later, as already said, he says that he was never
a party to the contract of transportation and was a complete stranger to it, and that he is now suing
on a tort or a violation of his rights as a stranger (culpa aquiliana) If he does not invoke the contract
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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 Phil. Air Port stems and is derived from the
contract of carriage under which contract, the PAL undertook to carry the can of film safely and to
deliver it to him promptly. Take away or ignore that contract and the obligation to carry and to deliver
and right to prompt delivery disappear. Common carriers are not obligated by law to carry and to
deliver merchandise, and persons are not vested with the right to prompt delivery, unless such
common carriers previously assume the obligation. Said rights and obligations are created by a
specific contract entered into by the parties. In the present case, the findings of the trial court which
as already stated, are accepted by the parties and which we must accept are to the effect that the
LVN Pictures Inc. and Jose Mendoza on one side, and the defendant company on the other, entered
into a contract of transportation (p. 29, Rec. on Appeal). One interpretation of said finding is that the
LVN Pictures Inc. through previous agreement with Mendoza acted as the latter's agent. When he
negotiated with the LVN Pictures Inc. to rent the film "Himala ng Birhen" and show it during the Naga
town fiesta, he most probably authorized and enjoined the Picture Company to ship the film for him
on the PAL on September 17th. Another interpretation is that even if the LVN Pictures Inc. as
consignor of its own initiative, and acting independently of Mendoza for the time being, made
Mendoza as consignee, a stranger to the contract if that is possible, nevertheless when he,
Mendoza appeared at the Phil Air Port armed with the copy of the Air Way Bill (Exh. 1) demanding
the delivery of the shipment to him, he thereby made himself a party to the contract of transportation.
The very citation made by appellant in his memorandum supports this view. Speaking of the
possibility of a conflict between the order of the shipper on the one hand and the order of the
consignee on the other, as when the shipper orders the shipping company to return or retain the
goods shipped while the consignee demands their delivery, Malagarriga in his book Codigo de
Comercio Comentado, Vol. 1, p. 400, citing a decision of the Argentina Court of Appeals on
commercial matters, cited by Tolentino in Vol. II of his book entitled "Commentaries and
Jurisprudence on the Commercial Laws of the Philippines" p. 209, says that the right of the shipper
to countermand the shipment terminates when the consignee or legitimate holder of the bill of lading
appears with such big of lading before the carrier and makes himself a party to the contract. Prior to
that time he is a stranger to the contract.

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

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

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

Since the liability of a common carrier for loss of or damage to goods transported by it under a contract of carriage is
governed by the laws of the country of destination 12 and the goods in question were shipped from the United States to the Philippines, the
liability of petitioner Sea-Land to the respondent consignee is governed primarily by the Civil Code, and as ordained by the said Code, suppletorily, in all matters
not determined thereby, by the Code of Commerce and special laws. 13 One of these suppletory special laws is the Carriage of Goods by Sea Act, U.S. Public Act
No. 521 which was made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade by Commonwealth Act No. 65,
approved on October 22, 1936. Sec. 4(5) of said Act in part reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to
or in connection with the transportation of goods in an amount exceeding $500 per package lawful
money of the United States, or in case of goods not shipped in packages, per customary freight unit,
or the equivalent of that sum in other currency, unless the nature and value of such goods have
been declared by the shipper before shipment and inserted in the bill of lading. This declaration, if
embodied in the bill of lading, shall be prima facie evidence, but shall not be conclusive on the
carrier.

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

xxx xxx xxx

Clause 22, first paragraph, of the long form bill of lading customarily issued by Sea-Land to its shipping clients 14 is a
virtual copy of the first paragraph of the foregoing provision. It says:
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
22. VALUATION. In the event of any loss, damage or delay to or in connection with goods exceeding
in actual value $500 per package, lawful money of the United States, or in case of goods not
shipped in packages, per customary freight unit, the value of the goods shall be deemed to be $500
per package or per customary freight unit, as the case may be, and the carrier's liability, if any, shall
be determined on the basis of a value of $500 per package or customary freight unit, unless the
nature and a higher value shall be declared by the shipper in writing before shipment and inserted in
this Bill of Lading.

And in its second paragraph, the bill states:

If a value higher than $500 shag 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 or per customary freight unit shall exceed such declared
value, the value shall nevertheless be deemed to be 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.

Since, as already pointed out, Article 1766 of the Civil Code expressly subjects the rights and obligations of common
carriers to the provisions of the Code of Commerce and of special laws in matters not regulated by said (Civil) Code,
the Court fails to fathom the reason or justification for the Appellate Court's pronouncement in its appealed Decision
that the Carriage of Goods by Sea Act " ... has no application whatsoever in this case. 15 Not only is there nothing in the Civil
Code which absolutely prohibits agreements between shipper and carrier limiting the latter's liability for loss of or damage to cargo shipped under contracts of
carriage; it is also quite clear that said Code in fact has agreements of such character in contemplation in providing, in its Articles 1749 and 1750, that:

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

ART. 1750. 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.

Nothing contained in section 4(5) of the Carriage of Goods by Sea Act already quoted is repugnant to or
inconsistent with any of the just-cited provisions of the Civil Code. Said section merely gives more flesh and greater
specificity to the rather general terms of Article 1749 (without doing any violence to the plain intent thereof) and of
Article 1750, to give effect to just agreements limiting carriers' liability for loss or damage which are freely and fairly
entered into.

It seems clear that even if said section 4(5) of the Carriage of Goods by Sea Act did not exist, the validity and
binding effect of the liability limitation clause in the bill of lading here are nevertheless fully sustainable on the basis
alone of the cited Civil Code provisions. That said stipulation is just and reasonable is arguable from the fact that it
echoes Art. 1750 itself in providing a limit to liability only if a greater value is not declared for the shipment in the bill
of lading. To hold otherwise would amount to questioning the justice and fairness of that law itself, and this the
private respondent does not pretend to do. But over and above that consideration, the lust and reasonable character
of such stipulation is implicit in it giving the shipper or owner the option of avoiding acrrual of liability limitation by the
simple and surely far from onerous expedient of declaring the nature and value of the shipment in the bill of lading.
And since the shipper here has not been heard to complaint of having been "rushed," imposed upon or deceived in
any significant way into agreeing to ship the cargo under a bill of lading carrying such a stipulation in fact, it does
not appear that said party has been heard from at all insofar as this dispute is concerned there is simply no
ground for assuming that its agreement thereto was not as the law would require, freely and fairly sought and given.

The private respondent had no direct part or intervention in the execution of the contract of carriage between the
shipper and the carrier as set forth in the bill of lading in question. As pointed out in Mendoza vs. PAL, supra, the
right of a party in the same situation as respondent here, to recover for loss of a shipment consigned to him under a
bill of lading drawn up only by and between the shipper and the carrier, springs from either a relation of agency that
may exist between him and the shipper or consignor, or his status as a stranger in whose favor some stipulation is
made in said contract, and who becomes a party thereto when he demands fulfillment of that stipulation, in this case
the delivery of the goods or cargo shipped. In neither capacity can he assert personally, in bar to any provision of
the bill of lading, the alleged circumstance that fair and free agreement to such provision was vitiated by its being in
such fine print as to be hardly readable. Parenthetically, it may be observed that in one comparatively recent
case 16 where this Court found that a similar package limitation clause was "(printed in the smallest type on the back of the bill of lading, it nonetheless ruled
that the consignee was bound thereby on the strength of authority holding that such provisions on liability limitation are as much a part of a bill of lading as though
physically in it and as though placed therein by agreement of the parties.

There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-agreed-upon
stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to an agreed valuation unless
the shipper declares a higher value and inserts it into said contract or bill. This pro position, moreover, rests upon an
almost uniform weight of authority. 17
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
The issue of alleged deviation is also settled by Clause 13 of the bill of lading which expressly authorizes trans-
shipment of the goods at any point in the voyage in these terms:

13. THROUGH CARGO AND TRANSSHIPMENT. The carrier or master, in the exercise of its or his
discretion and although transshipment or forwarding of the goods may not have been contemplated
or provided for herein, may at port of discharge or any other place whatsoever transship or forward
the goods or any part thereof by any means at the risk and expense of the goods and at any time,
whether before or after loading on the ship named herein and by any route, whether within or outside
the scope of the voyage or beyond the port of discharge or destination of the goods and without
notice to the shipper or consignee. The carrier or master may delay such transshipping or forwarding
for any reason, including but not limited to awaiting a vessel or other means of transportation
whether by the carrier or others.

Said provision obviates the necessity to offer any other justification for offloading the shipment in question in Manila
for transshipment to Cebu City, the port of destination stipulated in the bill of lading. Nonetheless, the Court takes
note of Sea-Land's explanation that it only directly serves the Port of Manila from abroad in the usual course of
voyage of its carriers, hence its maintenance of arrangements with a local forwarder. Aboitiz and Company, for
delivery of its imported cargo to the agreed final point of destination within the Philippines, such arrangements not
being prohibited, but in fact recognized, by law. 18

Furthermore, this Court has also ruled 19 that the Carriage of Goods by Sea Act is applicable up to the final port of destination and that the fact that
transshipment was made on an interisland vessel did not remove the contract of carriage of goods from the operation of said Act.

Private respondent also contends that the aforecited Clauses 22 and 13 of the bill of lading relied upon by petitioner
Sea Land form no part of the short-form bill of lading attached to his complaint before the Trial Court and appear
only in the long form of that document which, he claims. SeaLand offered (as its Exhibit 2) as an unused blank form
with no entries or signatures therein. He, however, admitted in the Trial Court that several times in the past
shipments had been delivered to him through Sea-Land, 20 from which the assumption may fairly follow that by the time
of the consignment now in question, he was already reasonably apprised of the usual terms covering contracts of carriage
with said petitioner.

At any rate, as observed earlier, it has already been held that the provisions of the Carriage of Goods by Sea Act on
package limitation [sec 4(5) of the Act hereinabove referred to] are as much a part of a bill of lading as though
actually placed therein by agreement of the parties. 21

Private respondent, by making claim for loss on the basis of the bill of lading, to all intents and purposes accepted
said bill. Having done so, he

... becomes bound by all stipulations contained therein whether on the front or the 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 finding upon him as if it had been actually signed by him or by any other person in his
behalf. ... 22.

There is one final consideration. The private respondent admits 23 that as early as on April 22, 1981, Sea-Land had
offered to settle his claim for US$4,000.00, the limit of said carrier's liability for loss of the shipment under the bill of lading.
This Court having reached the conclusion that said sum is all that is justly due said respondent, it does not appear just or
equitable that Sea-Land, which offered that amount in good faith as early as six years ago, should, by being made to pay
at the current conversion rate of the dollar to the peso, bear for its own account all of the increase in said rate since the
time of the offer of settlement. The decision of the Regional Trial Court awarding the private respondent P186,048.00 as
the peso value of the lost shipment is clearly based on a conversion rate of P8.00 to US$1.00, said respondent having
claimed a dollar value of $23,256.00 for said shipment. 24 All circumstances considered, it is just and fair that Sea-Land's
dollar obligation be convertible at the same rate.

WHEREFORE, the Decision of the Intermediate Appellate Court complained of is reversed and set aside. The
stipulation in the questioned bill of lading limiting Sea-Land's liability for loss of or damage to the shipment covered
by said bill to US$500.00 per package is held valid and binding on private respondent. There being no question of
the fact that said shipment consisted of eight (8) cartons or packages, for the loss of which Sea-Land is therefore
liable in the aggregate amount of US$4,000.00, it is the judgment of the Court that said petitioner discharge that
obligation by paying private respondent the sum of P32,000.00, the equivalent in Philippine currency of
US$4,000.00 at the conversion rate of P8.00 to $1.00. Costs against private respondent.

SO ORDERED.

Teehankee, C.J., Cruz, Paras and Gancayco, JJ., concur.


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
G.R. No. 122494 October 8, 1998

EVERETT STEAMSHIP CORPORATION, petitioner,


vs.
COURT OF APPEALS and HERNANDEZ TRADING CO. INC., respondents.

MARTINEZ, J.:

Petitioner Everett Steamship Corporation, through this petition for review, seeks the reversal of the decision 1 of the
Court of Appeals, dated June 14, 1995, in CA-G.R. No. 428093, which affirmed the decision of the Regional Trial Court of
Kalookan City, Branch 126, in Civil Case No. C-15532, finding petitioner liable to private respondent Hernandez Trading
Co., Inc. for the value of the lost cargo.

Private respondent imported three crates of bus spare parts marked as MARCO C/No. 12, MARCO C/No. 13 and
MARCO C/No. 14, from its supplier, Maruman Trading Company, Ltd. (Maruman Trading), a foreign corporation
based in Inazawa, Aichi, Japan. The crates were shipped from Nagoya, Japan to Manila on board
"ADELFAEVERETTE," a vessel owned by petitioner's principal, Everett Orient Lines. The said crates were covered
by Bill of Lading No. NGO53MN.

Upon arrival at the port of Manila, it was discovered that the crate marked MARCO C/No. 14 was missing. This was
confirmed and admitted by petitioner in its letter of January 13, 1992 addressed to private respondent, which
thereafter made a formal claim upon petitioner for the value of the lost cargo amounting to One Million Five Hundred
Fifty Two Thousand Five Hundred (Y1,552,500.00) Yen, the amount shown in an Invoice No. MTM-941, dated
November 14, 1991. However, petitioner offered to pay only One Hundred Thousand (Y100,000.00) Yen, the
maximum amount stipulated under Clause 18 of the covering bill of lading which limits the liability of petitioner.

Private respondent rejected the offer and thereafter instituted a suit for collection docketed as Civil Case No. C-
15532, against petitioner before the Regional Trial Court of Caloocan City, Branch 126.

At the pre-trial conference, both parties manifested that they have no testimonial evidence to offer and agreed
instead to file their respective memoranda.

On July 16, 1993, the trial court rendered judgment 2 in favor of private respondent, ordering petitioner to pay: (a)
Y1,552,500.00; (b) Y20,000.00 or its peso equivalent representing the actual value of the lost cargo and the material and
packaging cost; (c) 10% of the total amount as an award for and as contingent attorney's fees; and (d) to pay the cost of
the suit. The trial court ruled:

Considering defendant's categorical admission of loss and its failure to overcome the presumption of
negligence and fault, the Court conclusively finds defendant liable to the plaintiff. The next point of
inquiry the Court wants to resolve is the extent of the liability of the defendant. As stated earlier,
plaintiff contends that defendant should be held liable for the whole value for the loss of the goods in
the amount of Y1,552,500.00 because the terms appearing at the back of the bill of lading was so
written in fine prints and that the same was not signed by plaintiff or shipper thus, they are not bound
by clause stated in paragraph 18 of the bill of lading. On the other hand, defendant merely admitted
that it lost the shipment but shall be liable only up to the amount of Y100,000.00.

The Court subscribes to the provisions of Article 1750 of the New Civil Code

Art. 1750. "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."

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 Art. 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 at bar, the Court is of the view that the requirements of said article have not been met.
The fact that those conditions are printed at the back of the bill of lading in letters so small that they
are hard to read would not warrant the presumption that the plaintiff or its supplier was aware of
these conditions such that he had "fairly and freely agreed" to these conditions. It can not be said
that the plaintiff had actually entered into a contract with the defendant, embodying the conditions as
printed at the back of the bill of lading that was issued by the defendant to plaintiff.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
On appeal, the Court of Appeals deleted the award of attorney's fees but affirmed the trial court's findings with the
additional observation that private respondent can not be bound by the terms and conditions of the bill of lading
because it was not privy to the contract of carriage. It said:

As to the amount of liability, no evidence appears on record to show that the appellee (Hernandez
Trading Co.) consented to the terms of the Bill of Lading. The shipper named in the Bill of Lading is
Maruman Trading Co., Ltd. whom the appellant (Everett Steamship Corp.) contracted with for the
transportation of the lost goods.

Even assuming arguendo that the shipper Maruman Trading Co., Ltd. accepted the terms of the bill
of lading when it delivered the cargo to the appellant, still it does not necessarily follow that appellee
Hernandez Trading, Company as consignee is bound thereby considering that the latter was never
privy to the shipping contract.

xxx xxx xxx

Never having entered into a contract with the appellant, appellee should therefore not be bound by
any of the terms and conditions in the bill of lading.

Hence, it follows that the appellee may recover the full value of the shipment lost, the basis of which
is not the breach of contract as appellee was never a privy to the any contract with the appellant, but
is based on Article 1735 of the New Civil Code, there being no evidence to prove satisfactorily that
the appellant has overcome the presumption of negligence provided for in the law.

Petitioner now comes to us arguing that the Court of Appeals erred (1) in ruling that the consent of the consignee to
the terms and conditions of the bill of lading is necessary to make such stipulations binding upon it; (2) in holding
that the carrier's limited package liability as stipulated in the bill of lading does not apply in the instant case; and (3)
in allowing private respondent to fully recover the full alleged value of its lost cargo.

We shall first resolve the validity of the limited liability clause in the bill of lading.

A stipulation in the bill of lading limiting the common carrier's liability for loss or destruction of a cargo to a certain
sum, unless the shipper or owner declares a greater value, is sanctioned by law, particularly Articles 1749 and 1750
of the Civil Code which provide:

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

Art. 1750. 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 freely and fairly agreed upon.

Such limited-liability clause has also been consistently upheld by this Court in a number of cases. 3 Thus, in Sea
Land Service, Inc. vs. Intermediate Appellate Court 4, we ruled:

It seems clear that even if said section 4 (5) of the Carriage of Goods by Sea Act did not exist, the
validity and binding effect of the liability limitation clause in the bill of lading here are nevertheless
fully sustainable on the basis alone of the cited Civil Code Provisions. That said stipulation is just
and reasonable is arguable from the fact that it echoes Art. 1750 itself in providing a limit to liability
only if a greater value is not declared for the shipment in the bill of lading. To hold otherwise would
amount to questioning the justness and fairness of the law itself, and this the private respondent
does not pretend to do. But over and above that consideration, the just and reasonable character of
such stipulation is implicit in it giving the shipper or owner the option of avoiding accrual of liability
limitation by the simple and surely far from onerous expedient of declaring the nature and value of
the shipment in the bill of lading.

Pursuant to the afore-quoted provisions of law, it is required that the stipulation limiting the common carrier's liability
for loss must be "reasonable and just under the circumstances, and has been freely and fairly agreed upon."

The bill of lading subject of the present controversy specifically provides, among others:

18. All claims for which the carrier may be liable shall be adjusted and settled on the basis of the
shipper's net invoice cost plus freight and insurance premiums, if paid, and in no event shall the
carrier be liable for any loss of possible profits or any consequential loss.

The carrier shall not be liable for any loss of or any damage to or in any connection with, goods in an
amount exceeding One Hundred thousand Yen in Japanese Currency (Y100,000.00) or its
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
equivalent in any other currency per package or customary freight unit (whichever is least) unless
the value of the goods higher than this amount is declared in writing by the shipper before receipt of
the goods by the carrier and inserted in the Bill of Lading and extra freight is paid as required.
(Emphasis supplied)

The above stipulations are, to our mind, reasonable and just. In the bill of lading, the carrier made it clear that its
liability would only be up to One Hundred Thousand (Y100,000.00) Yen. However, the shipper, Maruman Trading,
had the option to declare a higher valuation if the value of its cargo was higher than the limited liability of the carrier.
Considering that the shipper did not declare a higher valuation, it had itself to blame for not complying with the
stipulations.

The trial court's ratiocination that private respondent could not have "fairly and freely" agreed to the limited liability
clause in the bill of lading because the said conditions were printed in small letters does not make the bill of lading
invalid.

We ruled in PAL, Inc. vs. Court of Appeals 5 that the "jurisprudence on the matter reveals the consistent holding of the
court that contracts of adhesion are not invalid per se and that it has on numerous occasions upheld the binding effect
thereof." Also, in Philippine American General Insurance Co., Inc. vs. Sweet Lines, Inc. 6 this Court, speaking through the
learned Justice Florenz D. Regalado, held:

. . . Ong Yiu vs. Court of Appeals, et. al., instructs us that "contracts of adhesion wherein one party
imposes a ready-made form of contract on the other . . . are contracts not entirely prohibited. The
one who adheres to the contract is in reality free to reject it entirely; if the adheres he gives his
consent." In the present case, not even an allegation of ignorance of a party excuses non-
compliance with the contractual stipulations since the responsibility for ensuring full comprehension
of the provisions of a contract of carriage devolves not on the carrier but on the owner, shipper, or
consignee as the case may be. (Emphasis supplied)

It was further explained in Ong Yiu vs. Court of Appeals 7 that stipulations in contracts of adhesion are valid and binding.

While it may be true that petitioner had not signed the plane
ticket . . ., he is nevertheless bound by the provisions thereof. "Such provisions have been held to be
a part of the contract of carriage, and valid and binding upon the passenger regardless of the latter's
lack of knowledge or assent to the regulation." It is what is known as a contract of "adhesion," in
regards which it has been said that contracts of adhesion wherein one party imposes a ready-made
form of contract on the other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he
gives his consent. . . ., 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. (Emphasis
supplied)

Greater vigilance, however, is required of the courts when dealing with contracts of adhesion in that the said
contracts must be carefully scrutinized "in order to shield the unwary (or weaker party) from deceptive schemes
contained in ready-made covenants," 8 such as the bill of lading in question. The stringent requirement which the courts
are enjoined to observe is in recognition of Article 24 of the Civil Code which mandates that "(i)n all contractual, property
or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance,
indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection."

The shipper, Maruman Trading, we assume, has been extensively engaged in the trading business. It can not be
said to be ignorant of the business transactions it entered into involving the shipment of its goods to its customers.
The shipper could not have known, or should know the stipulations in the bill of lading and there it should have
declared a higher valuation of the goods shipped. Moreover, Maruman Trading has not been heard to complain that
it has been deceived or rushed into agreeing to ship the cargo in petitioner's vessel. In fact, it was not even
impleaded in this case.

The next issue to be resolved is whether or not private respondent, as consignee, who is not a signatory to the bill of
lading is bound by the stipulations thereof.

Again, in Sea-Land Service, Inc. vs. Intermediate Appellate Court (supra), we held that even if the consignee was
not a signatory to the contract of carriage between the shipper and the carrier, the consignee can still be bound by
the contract. Speaking through Mr. Chief Justice Narvasa, we ruled:

To begin with, there is no question of the right, in principle, of a consignee in a bill of lading to
recover from the carrier or shipper for loss of, or damage to goods being transported under said bill,
although that document may have been-as in practice it oftentimes is-drawn up only by
the consignor and the carrier without the intervention of the
onsignee. . . . .
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
. . . the right of a party in the same situation as respondent here, to recover for loss of a shipment
consigned to him under a bill of lading drawn up only by and between the shipper and the carrier,
springs from either a relation of agency that may exist between him and the shipper or consignor, or
his status as stranger in whose favor some stipulation is made in said contract, and who becomes a
party thereto when he demands fulfillment of that stipulation, in this case the delivery of the goods or
cargo shipped. In neither capacity can he assert personally, in bar to any provision of the bill of
lading, the alleged circumstance that fair and free agreement to such provision was vitiated by its
being in such fine print as to be hardly readable. Parenthetically, it may be observed that in one
comparatively recent case (Phoenix Assurance Company vs. Macondray & Co., Inc., 64 SCRA 15)
where this Court found that a similar package limitation clause was "printed in the smallest type on
the back of the bill of lading," it nonetheless ruled that the consignee was bound thereby on the
strength of authority holding that such provisions on liability limitation are as much a part of a bill of
lading as through physically in it and as though placed therein by agreement of the parties.

There can, therefore, be no doubt or equivocation about the validity and enforceability of freely-
agreed-upon stipulations in a contract of carriage or bill of lading limiting the liability of the carrier to
an agreed valuation unless the shipper declares a higher value and inserts it into said contract or bill.
This proposition, moreover, rests upon an almost uniform weight of authority. (Emphasis supplied).

When private respondent formally claimed reimbursement for the missing goods from petitioner and subsequently
filed a case against the latter based on the very same bill of lading, it (private respondent) accepted the provisions
of the contract and thereby made itself a party thereto, or at least has come to court to enforce it. 9 Thus, private
respondent cannot now reject or disregard the carrier's limited liability stipulation in the bill of lading. In other words,
private respondent is bound by the whole stipulations in the bill of lading and must respect the same.

Private respondent, however, insists that the carrier should be liable for the full value of the lost cargo in the amount
of Y1,552,500.00, considering that the shipper, Maruman Trading, had "fully declared the shipment . . ., the contents
of each crate, the dimensions, weight and value of the contents," 10 as shown in the commercial Invoice No. MTM-941.

This claim was denied by petitioner, contending that it did not know of the contents, quantity and value of "the
shipment which consisted of three pre-packed crates described in Bill of Lading No. NGO-53MN merely as '3
CASES SPARE PARTS.'" 11

The bill of lading in question confirms petitioner's contention. To defeat the carrier's limited liability, the aforecited
Clause 18 of the bill of lading requires that the shipper should have declared in writing a higher valuation of its
goods before receipt thereof by the carrier and insert the said declaration in the bill of lading, with extra freight paid.
These requirements in the bill of lading were never complied with by the shipper, hence, the liability of the carrier
under the limited liability clause stands. The commercial Invoice No. MTM-941 does not in itself sufficiently and
convincingly show that petitioner has knowledge of the value of the cargo as contended by private respondent. No
other evidence was proffered by private respondent to support is contention. Thus, we are convinced that petitioner
should be liable for the full value of the lost cargo.

In fine, the liability of petitioner for the loss of the cargo is limited to One Hundred Thousand (Y100,000.00) Yen,
pursuant to Clause 18 of the bill of lading.

WHEREFORE, the decision of the Court of Appeals dated June 14, 1995 in C.A.-G.R. CV No. 42803 is hereby
REVERSED and SET ASIDE.

SO ORDERED.

Regalado, Melo, Puno and Mendoza, JJ., concur.

G.R. No. 95536 March 23, 1992

ANICETO G. SALUDO, JR., MARIA SALVACION SALUDO, LEOPOLDO G. SALUDO and SATURNINO G.
SALUDO, petitioners,
vs.
HON. COURT OF APPEALS, TRANS WORLD AIRLINES, INC., and PHILIPPINE AIRLINES, INC., respondents.

REGALADO, J.:
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Assailed in this petition for review on certiorari is the decision in CA-G.R. CV No. 20951 of respondent Court of
Appeals 1 which affirmed the decision of the trial court 2 dismissing for lack of evidence herein petitioners' complaint in Civil
Case No R-2101 of the then Court of First Instance of Southern Leyte, Branch I.

The facts, as recounted by the court a quo and adopted by respondent court after "considering the evidence on
record," are as follows:

After the death of plaintiffs' mother, Crispina Galdo Saludo, in Chicago Illinois, (on) October 23, 1976
(Exh. A), Pomierski and Son Funeral Home of Chicago, made the necessary preparations and
arrangements for the shipment, of the remains from Chicago to the Philippines. The funeral home
had the remains embalmed (Exb. D) and secured a permit for the disposition of dead human body
on October 25, 1976 (Exh. C), Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at
3:00 p.m. on October 26, 1976 at the Pomierski & Son Funeral Home, sealed the shipping case
containing a hermetically sealed casket that is airtight and waterproof wherein was contained the
remains of Crispina Saludo Galdo (sic) (Exb. B). On the same date, October 26, 1976, Pomierski
brought the remains to C.M.A.S. (Continental Mortuary Air Services) at the airport (Chicago) which
made the necessary arrangements such as flights, transfers, etc.; C.M.A.S. is a national service
used by undertakers to throughout the nation (U.S.A.), they furnish the air pouch which the casket is
enclosed in, and they see that the remains are taken to the proper air freight terminal (Exh. 6-TWA).
C.M.A.S. booked the shipment with PAL thru the carrier's agent Air Care International, with
Pomierski F.H. as the shipper and Mario (Maria) Saludo as the consignee. PAL Airway Bill No. 079-
01180454 Ordinary was issued wherein the requested routing was from Chicago to San Francisco
on board TWA Flight 131 of October 27, 1976 and from San Francisco to Manila on board PAL Flight
No. 107 of the same date, and from Manila to Cebu on board PAL Flight 149 of October 29, 1976
(See Exh. E., Also Exh. 1-PAL).

In the meantime, plaintiffs Maria Salvacion Saludo and Saturnino Saludo, thru a travel agent, were
booked with United Airlines from Chicago to California, and with PAL from California to Manila. She
then went to the funeral director of Pomierski Funeral Home who had her mother's remains and she
told the director that they were booked with United Airlines. But the director told her that the remains
were booked with TWA flight to California. This upset her, and she and her brother had to change
reservations from UA to the TWA flight after she confirmed by phone that her mother's remains
should be on that TWA flight. They went to the airport and watched from the look-out area. She saw
no body being brought. So, she went to the TWA counter again, and she was told there was no body
on that flight. Reluctantly, they took the TWA flight upon assurance of her cousin, Ani Bantug, that he
would look into the matter and inform her about it on the plane or have it radioed to her. But no
confirmation from her cousin reached her that her mother was on the West Coast.

Upon arrival at San Francisco at about 5:00 p.m., she went to the TWA counter there to inquire
about her mother's remains. She was told they did not know anything about it.

She then called Pomierski that her mother's remains were not at the West Coast terminal, and
Pomierski immediately called C.M.A.S., which in a matter of 10 minutes informed him that the
remains were on a plane to Mexico City, that there were two bodies at the terminal, and somehow
they were switched; he relayed this information to Miss Saludo in California; later C.M.A.S. called
and told him they were sending the remains back to California via Texas (see Exh. 6-TWA).

It-turned out that TWA had carried a shipment under PAL Airway Bill No. 079-ORD-01180454 on
TWA Flight 603 of October 27, 1976, a flight earlier than TWA Flight 131 of the same date. TWA
delivered or transferred the said shipment said to contain human remains to PAL at 1400H or 2:00
p.m. of the same date, October 27, 1976 (Bee Exh. 1- TWA). "Due to a switch(ing) in Chicago", this
shipment was withdrawn from PAL by CMAS at 1805H (or 6:05 p.m.) of the same date, October 27
(Exh. 3-PAL, see Exh. 3-a-PAL).

What transpired at the Chicago (A)irport is explained in a memo or incident report by Pomierski
(Exh. 6-TWA) to Pomierski's lawyers who in turn referred to said' memo and enclosed it in their
(Pomierski's lawyers) answer dated July 18, 1981 to herein plaintiff's counsel (See Exh. 5-TWA). In
that memo or incident report (Exh. 6-TWA), it is stated that the remains (of Crispina Saludo) were
taken to CMAS at the airport; that there were two bodies at the (Chicago Airport) terminal, and
somehow they were switched, that the remains (of Crispina Saludo) were on a plane to Mexico City;
that CMAS is a national service used by undertakers throughout the nation (U.S.A.), makes all the
necessary arrangements, such as flights, transfers, etc., and see(s) to it that the remains are taken
to the proper air freight terminal.

The following day October 28, 1976, the shipment or remains of Crispina Saludo arrived (in) San
Francisco from Mexico on board American Airlines. This shipment was transferred to or received by
PAL at 1945H or 7:45 p.m. (Exh. 2-PAL, Exh. 2-a-PAL). This casket bearing the remains of Crispina
Saludo, which was mistakenly sent to Mexico and was opened (there), was resealed by Crispin F.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Patagas for shipment to the Philippines (See Exh. B-1). The shipment was immediately loaded on
PAL flight for Manila that same evening and arrived (in) Manila on October 30, 1976, a day after its
expected arrival on October 29, 1976. 3

In a letter dated December 15, 1976, 4 petitioners' counsel informed private respondent Trans World Airlines (TWA) of
the misshipment and eventual delay in the delivery of the cargo containing the remains of the late Crispin Saludo, and of
the discourtesy of its employees to petitioners Maria Salvacion Saludo and Saturnino Saludo. In a separate letter on June
10, 1977 addressed to co-respondent Philippine Airlines (PAL), 5 petitioners stated that they were holding PAL liable for
said delay in delivery and would commence judicial action should no favorable explanation be given.

Both private respondents denied liability. Thus, a damage suit 6 was filed by petitioners before the then Court of First
Instance, Branch III, Leyte, praying for the award of actual damages of P50,000.00, moral damages of P1,000,000.00,
exemplary damages, attorney's fees and costs of suit.

As earlier stated, the court below absolved the two respondent airlines companies of liability. The Court of Appeals
affirmed the decision of the lower court in toto, and in a subsequent resolution, 7 denied herein petitioners' motion for
reconsideration for lack of merit.

In predictable disagreement and dissatisfaction with the conclusions reached by respondent appellate court,
petitioners now urge this Court to review the appealed decision and to resolve whether or not (1) the delay in the
delivery of the casketed remains of petitioners' mother was due to the fault of respondent airline companies, (2) the
one-day delay in the delivery of the same constitutes contractual breach as would entitle petitioners to damages, (3)
damages are recoverable by petitioners for the humiliating, arrogant and indifferent acts of the employees of TWA
and PAL, and (4) private respondents should be held liable for actual, moral and exemplary damages, aside from
attorney's fees and litigation expenses. 8

At the outset and in view of the spirited exchanges of the parties on this aspect, it is to be stressed that only
questions of law may be raised in a petition filed in this Court to review on certiorari the decision of the Court of
Appeals. 9 This being so, the factual findings of the Court of Appeals are final and conclusive and cannot be reviewed by
the Supreme Court. The rule, however, admits of established exceptions, to wit: (a) where there is grave abuse of
discretion; (b) when the finding is grounded entirely on speculations, surmises or conjectures;(c) when the inference made
is manifestly-mistaken, absurd or impossible; (d) when the judgment of the Court of Appeals was based on a
misapprehension of facts; (e) when the factual findings are conflicting; (f) when the Court of Appeals, in making its
findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and
appellee; 10 (g) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; 11 and (h) where the findings of fact of the Court of
Appeals are contrary to those of the trial court, or are mere conclusions without citation of specific evidence, or where the
facts of set forth by the petitioner are not disputed by the respondent, or where the findings of fact of the Court of Appeals
are premised on the absence of evidence and are contradicted by the evidence on record. 12

To distinguish, a question of law is one which involves a doubt or controversy on what the law is on a certain state of
facts; and, a question of fact, contrarily, is one in which there is a doubt or difference as to the truth or falsehood of
the alleged facts. 13 One test, it has been held, is whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence, in which case it is a question of law, otherwise it will be a question of fact. 14

Respondent airline companies object to the present recourse of petitioners on the ground that this petition raises
only factual questions. 15 Petitioners maintain otherwise or, alternatively, they are of the position that, assuming that the
petition raises factual questions, the same are within the recognized exceptions to the general rule as would render the
petition cognizable and worthy of review by the Court. 16

Since it is precisely the soundness of the inferences or conclusions that may be drawn from the factual issues which
are here being assayed, we find that the issues raised in the instant petition indeed warrant a second look if this
litigation is to come to a reasonable denouement. A discussion seriatim of said issues will further reveal that the
sequence of the events involved is in effect disputed. Likewise to be settled is whether or not the conclusions of the
Court of Appeals subject of this review indeed find evidentiary and legal support.

I. Petitioners fault respondent court for "not finding that private respondents failed to exercise extraordinary diligence
required by law which resulted in the switching and/or misdelivery of the remains of Crispina Saludo to Mexico
causing gross delay in its shipment to the Philippines, and consequently, damages to petitioners." 17

Petitioner allege that private respondents received the casketed remains of petitioners' mother on October 26, 1976,
as evidenced by the issuance of PAL Air Waybill No. 079-01180454 18 by Air Care International as carrier's agent; and
from said date, private respondents were charged with the responsibility to exercise extraordinary diligence so much so
that for the alleged switching of the caskets on October 27, 1976, or one day after private respondents received the cargo,
the latter must necessarily be liable.

To support their assertion, petitioners rely on the jurisprudential dictum, both under American and Philippine law, that
"(t)he issuance of a bill of lading carries the presumption that the goods were delivered to the carrier issuing the bill,
for immediate shipment, and it is nowhere questioned that a bill of lading is prima facie evidence of the receipt of the
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
goods by the carrier. . . . In the absence of convincing testimony establishing mistake, recitals in the bill of lading
showing that the carrier received the goods for shipment on a specified date control (13 C.J.S. 235)." 19

A bill of lading is a written acknowledgment of the receipt of the goods and an agreement to transport and deliver
them at a specified place to a person named or on his order. Such instrument may be called a shipping receipt,
forwarder's receipt and receipt for transportation. 20 The designation, however, is immaterial. It has been hold that freight
tickets for bus companies as well as receipts for cargo transported by all forms of transportation, whether by sea or land,
fall within the definition. Under the Tariff and Customs Code, a bill of lading includes airway bills of lading. 21 The two-fold
character of a bill of lading is all too familiar; it is a receipt as to the quantity and description of the goods shipped and a
contract to transport the goods to the consignee or other person therein designated, on the terms specified in such
instrument. 22

Logically, since a bill of lading acknowledges receipt of goods to be transported, delivery of the goods to the carrier
normally precedes the issuance of the bill; or, to some extent, delivery of the goods and issuance of the bill are
regarded in commercial practice as simultaneous acts. 23 However, except as may be prohibited by law, there is nothing
to prevent an inverse order of events, that is, the execution of the bill of lading even prior to actual possession and control
by the carrier of the cargo to be transported. There is no law which requires that the delivery of the goods for carriage and
the issuance of the covering bill of lading must coincide in point of time or, for that matter, that the former should precede
the latter.

Ordinarily, a receipt is not essential to a complete delivery of goods to the carrier for transportation but, when issued,
is competent and prima facie, but not conclusive, evidence of delivery to the carrier. A bill of lading, when properly
executed and delivered to a shipper, is evidence that the carrier has received the goods described therein for
shipment. Except as modified by statute, it is a general rule as to the parties to a contract of carriage of goods in
connection with which a bill of lading is issued reciting that goods have been received for transportation, that the
recital being in essence a receipt alone, is not conclusive, but may be explained, varied or contradicted by parol or
other evidence. 24

While we agree with petitioners' statement that "an airway bill estops the carrier from denying receipt of goods of the
quantity and quality described in the bill," a further reading and a more faithful quotation of the authority cited would
reveal that "(a) bill of lading may contain constituent elements of estoppel and thus become something more than a
contract between the shipper and the carrier. . . . (However), as between the shipper and the carrier,when no goods
have been delivered for shipment no recitals in the bill can estop the carrier from showing the true facts . . .
Between the consignor of goods and receiving carrier, recitals in a bill of lading as to the goods shipped raise only a
rebuttable presumption that such goods were delivered for shipment. As between the consignor and a receiving
carrier, the fact must outweigh the recital." 25 (Emphasis supplied)

For this reason, we must perforce allow explanation by private respondents why, despite the issuance of the airway
bill and the date thereof, they deny having received the remains of Crispina Saludo on October 26, 1976 as alleged
by petitioners.

The findings of the trial court, as favorably adopted by the Court of Appeals and which we have earner quoted,
provide us with the explanation that sufficiently over comes the presumption relied on by petitioners in insisting that
the remains of their mother were delivered to and received by private respondents on October 26, 1976. Thus

. . . Philippine Vice Consul in Chicago, Illinois, Bienvenido M. Llaneta, at 3:00 p.m. on October 26,
1976 at the Pomierski & Son Funeral Home, sealed the shipping case containing a hermetically
sealed casket that is airtight and waterproof wherein was contained the remains of Crispina Saludo
Galdo (sic) (Exh. B). On the same date October 26, 1976, Pomierski brought the remains to
C.M.A.S. (Continental Mortuary Air Services) at the airport (Chicago) which made the necessary
arrangements such as flights, transfers, etc; C.M.A.S. is a national service used by undertakers
throughout the nation (U.S.A.), they furnish the air pouch which the casket is enclosed in, and they
see that the remains are taken to the proper air freight terminal (Exh. G-TWA). C.M.A.S. booked the
shipment with PAL thru the carrier's agent Air Care International, with Pomierski F.H. as the shipper
and Mario (Maria) Saludo as the consignee. PAL Airway Bill No. 079- 01180454 Ordinary was issued
wherein the requested routing was from Chicago to San Francisco on board TWA Flight-131 of
October 27;1976, and from San Francisco to Manila on board PAL Flight No. 107 of the same date,
and from Manila to Cebu on board PAL Flight 149 of October 29, 1976 (See Exh. E, also Exh. 1-
PAL). 26(Emphasis ours.)

Moreover, we are persuaded to believe private respondent PAL's account as to what transpired October 26, 1976:

. . . Pursuant thereto, on 26 October 1976, CMAS acting upon the instruction of Pomierski, F.H., the
shipper requested booking of the casketed remains of Mrs. Cristina (sic) Saludo on board PAL's San
Francisco-Manila Flight No. PR 107 on October 27, 1976.

2. To signify acceptance and confirmation of said booking, PAL issued to said Pomierski F.H., PAL
Airway Bill No. 079-01180454 dated October 27, 1976 (sic, "10/26/76"). PAL confirmed the booking
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
and transporting of the shipment on board of its Flight PR 107 on October 27, 1976 on the basis of
the representation of the shipper and/or CMAS that the said cargo would arrive in San Francisco
from Chicago on board United Airlines Flight US 121 on 27 October 1976. 27

In other words, on October 26, 1976 the cargo containing the casketed remains of Crispina Saludo was booked for
PAL Flight Number PR-107 leaving San Francisco for Manila on October 27, 1976, PAL Airway Bill No. 079-
01180454 was issued, not as evidence of receipt of delivery of the cargo on October 26, 1976, but merely as a
confirmation of the booking thus made for the San Francisco-Manila flight scheduled on October 27, 1976. Actually,
it was not until October 28, 1976 that PAL received physical delivery of the body at San Francisco, as duly
evidenced by the Interline Freight Transfer Manifest of the American Airline Freight System and signed for by Virgilio
Rosales at 1945H, or 7:45 P.M. on said date. 28

Explicit is the rule under Article 1736 of the Civil Code that the extraordinary responsibility of the common carrier
begins from the time the goods are delivered to the carrier. This responsibility remains in full force and effect even
when they are temporarily unloaded or stored in transit, unless the shipper or owner exercises the right of
stoppage in transitu, 29 and terminates only after the lapse of a reasonable time for the acceptance, of the goods by the
consignee or such other person entitled to receive them. 30 And, there is delivery to the carrier when the goods are ready
for and have been placed in the exclusive possession, custody and control of the carrier for the purpose of their
immediate transportation and the carrier has accepted them. 31 Where such a delivery has thus been accepted by the
carrier, the liability of the common carrier commences eo instanti. 32

Hence, while we agree with petitioners that the extraordinary diligence statutorily required to be observed by the
carrier instantaneously commences upon delivery of the goods thereto, for such duty to commence there must in
fact have been delivery of the cargo subject of the contract of carriage. Only when such fact of delivery has been
unequivocally established can the liability for loss, destruction or deterioration of goods in the custody of the carrier,
absent the excepting causes under Article 1734, attach and the presumption of fault of the carrier under Article 1735
be invoked.

As already demonstrated, the facts in the case at bar belie the averment that there was delivery of the cargo to the
carrier on October 26, 1976. Rather, as earlier explained, the body intended to be shipped as agreed upon was
really placed in the possession and control of PAL on October 28, 1976 and it was from that date that private
respondents became responsible for the agreed cargo under their undertakings in PAL Airway Bill No. 079-
01180454. Consequently, for the switching of caskets prior thereto which was not caused by them, and subsequent
events caused thereby, private respondents cannot be held liable.

Petitioners, proceeding on the premise that there was delivery of the cargo to private respondents on October
26,1976 and that the latter's extraordinary responsibility had by then become operative, insist on foisting the blame
on private respondents for the switching of the two caskets which occurred on October 27, 1976. It is argued that
since there is no clear evidence establishing the fault Continental Mortuary Air Services (CMAS) for the mix-up,
private respondents are presumably negligent pursuant to Article 1735 of the Civil Code and, for failure to rebut
such presumption, they must necessarily be held liable; or, assuming that CMAS was at fault, the same does not
absolve private respondents of liability because whoever brought the cargo to the airport or loaded it on the plane
did so as agent of private respondents.

This contention is without merit. As pithily explained by the Court of Appeals:

The airway bill expressly provides that "Carrier certifies goods described below were received for
carriage", and said cargo was "casketed human remains of Crispina Saludo," with "Maria Saludo as
Consignee; Pomierski F.H. as Shipper; Air Care International as carrier's agent." On the face of the
said airway bill, the specific flight numbers, specific routes of shipment and dates of departure and
arrival were typewritten, to wit: Chicago TWA Flight 131/27 to San Francisco and from San Francisco
by PAL 107 on, October 27, 1976 to Philippines and to Cebu via PAL Flight 149 on October 29,
1976. The airway bill also contains the following typewritten words, as follows: all documents have
been examined (sic). Human remains of Crispina Saludo. Please return back (sic) first available
flight to SFO.

But, as it turned out and was discovered later the casketed human remains which was issued PAL
Airway Bill #079-1180454 was not the remains of Crispina Saludo, the casket containing her remains
having been shipped to Mexico City.

However, it should be noted that, Pomierski F.H., the shipper of Mrs. Saludo's remains, hired
Continental Mortuary Services (hereafter referred to as C.M.A.S.), which is engaged in the business
of transporting and forwarding human remains. Thus, C.M.A.S. made all the necessary
arrangements such as flights, transfers, etc. for shipment of the remains of Crispina Saludo.

The remains were taken on October 26th, 1976, to C.M.A.S. at the airport. These
people made all the necessary arrangements, such as flights, transfers, etc. This is a
national service used by undertakers throughout the nation. They furnished the air
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
pouch which the casket is enclosed in, and they see that the remains are taken to the
proper air frieght terminal. I was very surprised when Miss Saludo called me to say
that the remains were not at the west coast terminal. I immediately called C.M.A.S.
They called me back in a matter of ten minutes to inform me that the remains were
on a plane to Mexico City. The man said that there were two bodies at the terminal,
and somehow they were switched. . . . (Exb. 6 "TWA", which is the memo or
incident report enclosed in the stationery of Walter Pomierski & Sons Ltd.)

Consequently, when the cargo was received from C.M.A.S. at the Chicago airport terminal for
shipment, which was supposed to contain the remains of Crispina Saludo, Air Care International
and/or TWA, had no way of determining its actual contents, since the casket was hermetically
sealed by the Philippine Vice-Consul in Chicago and in an air pouch of C.M.A.S., to the effect that
Air Care International and/or TWA had to rely on the information furnished by the shipper regarding
the cargo's content. Neither could Air Care International and/or TWA open the casket for further
verification, since they were not only without authority to do so, but even prohibited.

Thus, under said circumstances, no fault and/or negligence can be attributed to PAL (even if Air Care
International should be considered as an agent of PAL) and/or TWA, the entire fault or negligence
being exclusively with C.M.A.S. 33 (Emphasis supplied.)

It can correctly and logically be concluded, therefore, that the switching occurred or, more accurately, was
discovered on October 27, 1976; and based on the above findings of the Court of appeals, it happened while the
cargo was still with CMAS, well before the same was place in the custody of private respondents.

Thus, while the Air Cargo Transfer Manifest of TWA of October 27, 1976 34 was signed by Garry Marcial of PAL at
1400H, or 2:00 P.M., on the same date, thereby indicating acknowledgment by PAL of the transfer to them by TWA of what
was in truth the erroneous cargo, said misshipped cargo was in fact withdrawn by CMAS from PAL as shown by the
notation on another copy of said manifest 35 stating "Received by CMAS Due to switch in Chicago 10/27-1805H," the
authenticity of which was never challenged. This shows that said misshipped cargo was in fact withdrawn by CMAS from
PAL and the correct shipment containing the body of Crispina Saludo was received by PAL only on October 28, 1976, at
1945H, or 7:45 P.M., per American Airlines Interline Freight Transfer Manifest No. AA204312. 36

Witness the deposition of TWA's ramp serviceman, Michael Giosso, on this matter:

ATTY. JUAN COLLAS, JR.:

On that date, do (sic) you have occasion to handle or deal with the transfer of cargo
from TWA Flight No. 603 to PAL San Francisco?

MICHAEL GIOSSO:

Yes, I did.

ATTY. JUAN COLLAS, JR.:

What was your participation with the transfer of the cargo?

MICHAEL GIOSSO:

I manifested the freight on a transfer manifest and physically moved it to PAL and
concluded the transfer by signing it off.

ATTY. JUAN COLLAS, JR.:

You brought it there yourself?

MICHAEL GIOSSO:

Yes sir.

ATTY. JUAN COLIAS, JR.:

Do you have anything to show that PAL received the cargo from TWA on October 27,
1976?

MICHAEL GIOSSO:
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Yes, I do.

(Witness presenting a document)

ATTY. JUAN COLLAS, JR.:

For purposes of clarity, Exhibit I is designated as Exhibit I-TWA.

xxx xxx xxx

ATTY. JUAN COLLAS, JR.:

This Exhibit I-TWA, could you tell what it is, what it shows?

MICHAEL GIOSSO:

It shows transfer of manifest on 10-27-76 to PAL at 1400 and verified with two
signatures as it completed the transfer.

ATTY. JUAN COLLAS, JR.:

Very good,. Who was the PAL employee who received the cargo?

MICHAEL GIOSSO:

The name is Garry Marcial." 37

The deposition of Alberto A. Lim, PAL's cargo supervisor at San Francisco, as deponent-witness for PAL, makes this
further clarification:

ATTY. CESAR P. MANALAYSAY:

You mentioned Airway Bill, Mr. Lim. I am showing to you a PAL Airway Bill Number
01180454 which for purposes of evidence, I would like to request that the same be
marked as evidence Exhibit I for PAL.

xxx xxx xxx

In what circumstances did you encounter Exhibit I-PAL?

ALBERTO A. LIM:

If I recall correctly, I was queried by Manila, our Manila office with regard to a certain
complaint that a consignee filed that this shipment did not arrive on the day that the
consignee expects the shipment to arrive.

ATTY CESAR P. MANALAYSAY:

Okay. Now, upon receipt of that query from your Manila office, did you conduct any
investigation to pinpoint the possible causes of mishandling?

ALBERTO A. LIM:

Yes.

xxx xxx xxx

ATTY. CESAR P. MANALAYSAY:

What is the result of your investigation?

ALBERTO A. LIM:

In the course of my investigation, I found that we received the body on October 28,
1976, from American Airlines.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
ATTY. CESAR P. MANALAYSAY:

What body are you referring to?

xxx xxx xxx

ALBERTO A. LIM:

The remains of Mrs. Cristina (sic) Saludo.

ATTY. CESAR P. MANALAYSAY:

Is that the same body mentioned in this Airway Bill?

ALBERTO A. LIM:

Yes.

ATTY. CESAR P. MANALAYSAY:

What time did you receive said body on October 28, 1976?

ALBERTO A. LIM:

If I recall correctly, approximately 7:45 of October 28, 1976.

ATTY. CESAR P. MANALAYSAY:

Do you have any proof with you to back the statement?

ALBERTO A. LIM:

Yes. We have on our records a Transfer Manifest from American Airlines Number
204312 showing that we received a human remains shipment belong to Mrs. Cristina
(sic) Saludo or the human remains of Mrs. Cristina (sic) Saludo.

ATTY. CESAR P. MAIALAYSAY:

At this juncture, may I request that the Transfer Manifest referred to by the witness
be marked as an evidence as Exhibit II-PAL.

xxx xxx xxx

Mr. Lim, yesterday your co-defendant TWA presented as their Exhibit I evidence
tending to show that on October 27, 1976 at about 2:00 in the, afternoon they
delivered to you a cargo bearing human remains. Could you go over this Exhibit I
and please give us your comments as to that exhibit?

ATTY. ALBERTO C. MENDOZA:

That is a vague question. I would rather request that counsel propound specific
questions rather than asking for comments on Exhibit I-TWA.

ATTY. CESAR P. MANALAYSAY:

In that case, I will reform my question. Could you tell us whether TWA in fact
delivered to you the human remains as indicated in that Transfer Manifest?

ALBERTO A. LIM:

Yes, they did.

ATTY. CESAR P. MANALAYSAY:


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
I noticed that the Transfer Manifest of TWA marked as Exhibit I-TWA bears the same
numbers or the same entries as the Airway Bill marked as Exhibit I-A PAL tending to
show that this is the human remains of Mrs Cristina (sic) Saludo. Could you tell us
whether this is true?

ALBERTO A. LIM:

It is true that we received human remains shipment from TWA as indicated on this
Transfer Manifest. But in the course of investigation, it was found out that the human
remains transferred to us is not the remains of Mrs. Cristina (sic) Saludo this is the
reason why we did not board it on our flight. 38

Petitioners consider TWA's statement that "it had to rely on the information furnished by the shipper" a lame excuse
and that its failure to prove that its personnel verified and identified the contents of the casket before loading the
same constituted negligence on the part of TWA. 39

We upbold the favorable consideration by the Court of Appeals of the following findings of the trial court:

It was not (to) TWA, but to C.M.A.S. that the Pomierski & Son Funeral Home delivered the casket
containing the remains of Crispina Saludo. TWA would have no knowledge therefore that the
remains of Crispina Saludo were not the ones inside the casket that was being presented to it for
shipment. TWA would have to rely on there presentations of C.M.A.S. The casket was hermetically
sealed and also sealed by the Philippine Vice Consul in Chicago. TWA or any airline for that matter
would not have opened such a sealed casket just for the purpose of ascertaining whose body was
inside and to make sure that the remains inside were those of the particular person indicated to be
by C.M.A.S. TWA had to accept whatever information was being furnished by the shipper or by the
one presenting the casket for shipment. And so as a matter of fact, TWA carried to San Francisco
and transferred to defendant PAL a shipment covered by or under PAL Airway Bill No. 079-ORD-
01180454, the airway bill for the shipment of the casketed remains of Crispina Saludo. Only, it turned
out later, while the casket was already with PAL, that what was inside the casket was not the body of
Crispina Saludo so much so that it had to be withdrawn by C.M.A.S. from PAL. The body of Crispina
Saludo had been shipped to Mexico. The casket containing the remains of Crispina Saludo was
transshipped from Mexico and arrived in San Francisco the following day on board American
Airlines. It was immediately loaded by PAL on its flight for Manila.

The foregoing points at C.M.A.S., not defendant TWA much less defendant PAL, as the ONE
responsible for the switching or mix-up of the two bodies at the Chicago Airport terminal, and started
a chain reaction of the misshipment of the body of Crispina Saludo and a one-day delay in the
delivery thereof to its destination. 40

Verily, no amount of inspection by respondent airline companies could have guarded against the switching that had
already taken place. Or, granting that they could have opened the casket to inspect its contents, private respondents
had no means of ascertaining whether the body therein contained was indeed that of Crispina Saludo except,
possibly, if the body was that of a male person and such fact was visually apparent upon opening the casket.
However, to repeat, private respondents had no authority to unseal and open the same nor did they have any
reason or justification to resort thereto.

It is the right of the carrier to require good faith on the part of those persons who deliver goods to be carried, or
enter into contracts with it, and inasmuch as the freight may depend on the value of the article to be carried, the
carrier ordinarily has the right to inquire as to its value. Ordinarily, too, it is the duty of the carrier to make inquiry as
to the general nature of the articles shipped and of their value before it consents to carry them; and its failure to do
so cannot defeat the shipper's right to recovery of the full value of the package if lost, in the absence of showing of
fraud or deceit on the part of the shipper. In the absence of more definite information, the carrier has a the right to
accept shipper's marks as to the contents of the package offered for transportation and is not bound to inquire
particularly about them in order to take advantage of a false classification and where a shipper expressly represents
the contents of a package to be of a designated character, it is not the duty of the carrier to ask for a repetition of the
statement nor disbelieve it and open the box and see for itself. 41 However, where a common carrier has reasonable
ground to suspect that the offered goods are of a dangerous or illegal character, the carrier has the right to know the
character of such goods and to insist on an inspection, if reasonable and practical under the circumstances, as a condition
of receiving and transporting such goods. 42

It can safely be said then that a common carrier is entitled to fair representation of the nature and value of the goods
to be carried, with the concomitant right to rely thereon, and further noting at this juncture that a carrier has no
obligation to inquire into the correctness or sufficiency of such information. 43 The consequent duty to conduct an
inspection thereof arises in the event that there should be reason to doubt the veracity of such representations. Therefore,
to be subjected to unusual search, other than the routinary inspection procedure customarily undertaken, there must exist
proof that would justify cause for apprehension that the baggage is dangerous as to warrant exhaustive inspection, or
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
even refusal to accept carriage of the same; and it is the failure of the carrier to act accordingly in the face of such proof
that constitutes the basis of the common carrier's liability. 44

In the case at bar, private respondents had no reason whatsoever to doubt the truth of the shipper's representations.
The airway bill expressly providing that "carrier certifies goods received below were received for carriage," and that
the cargo contained "casketed human remains of Crispina Saludo," was issued on the basis of such
representations. The reliance thereon by private respondents was reasonable and, for so doing, they cannot be said
to have acted negligently. Likewise, no evidence was adduced to suggest even an iota of suspicion that the cargo
presented for transportation was anything other than what it was declared to be, as would require more than routine
inspection or call for the carrier to insist that the same be opened for scrutiny of its contents per declaration.

Neither can private respondents be held accountable on the basis of petitioners' preposterous proposition that
whoever brought the cargo to the airport or loaded it on the airplane did so as agent of private respondents, so that
even if CMAS whose services were engaged for the transit arrangements for the remains was indeed at fault, the
liability therefor would supposedly still be attributable to private respondents.

While we agree that the actual participation of CMAS has been sufficiently and correctly established, to hold that it
acted as agent for private respondents would be both an inaccurate appraisal and an unwarranted categorization of
the legal position it held in the entire transaction.

It bears repeating that CMAS was hired to handle all the necessary shipping arrangements for the transportation of
the human remains of Crispina Saludo to Manila. Hence, it was to CMAS that the Pomierski & Son Funeral Home,
as shipper, brought the remains of petitioners' mother for shipment, with Maria Saludo as consignee. Thereafter,
CMAS booked the shipment with PAL through the carrier's agent, Air Care International. 45 With its aforestated
functions, CMAS may accordingly be classified as a forwarder which, by accepted commercial practice, is regarded as an
agent of the shipper and not of the carrier. As such, it merely contracts for the transportation of goods by carriers, and has
no interest in the freight but receives compensation from the shipper as his agent. 46

At this point, it can be categorically stated that, as culled from the findings of both the trial court and appellate
courts, the entire chain of events which culminated in the present controversy was not due to the fault or negligence
of private respondents. Rather, the facts of the case would point to CMAS as the culprit. Equally telling of the more
likely possibility of CMAS' liability is petitioners' letter to and demanding an explanation from CMAS regarding the
statement of private respondents laying the blame on CMAS for the incident, portions of which, reading as follows:

. . . we were informed that the unfortunate a mix-up occurred due to your negligence. . . .

Likewise, the two airlines pinpoint the responsibility upon your agents. Evidence were presented to
prove that allegation.

On the face of this overwhelming evidence we could and should have filed a case against you. . . . 47

clearly allude to CMAS as the party at fault. This is tantamount to an admission by petitioners that they consider
private respondents without fault, or is at the very least indicative of the fact that petitioners entertained serious
doubts as to whether herein private respondents were responsible for the unfortunate turn of events.

Undeniably, petitioners' grief over the death of their mother was aggravated by the unnecessary inconvenience and
anxiety that attended their efforts to bring her body home for a decent burial. This is unfortunate and calls for sincere
commiseration with petitioners. But, much as we would like to give them consolation for their undeserved distress,
we are barred by the inequity of allowing recovery of the damages prayed for by them at the expense of private
respondents whose fault or negligence in the very acts imputed to them has not been convincingly and legally
demonstrated.

Neither are we prepared to delve into, much less definitively rule on, the possible liability of CMAS as the evaluation
and adjudication of the same is not what is presently at issue here and is best deferred to another time and
addressed to another forum.

II. Petitioners further fault the Court of Appeals for ruling that there was no contractual breach on the part of private
respondents as would entitle petitioners to damages.

Petitioners hold that respondent TWA, by agreeing to transport the remains of petitioners' mother on its Flight 131
from Chicago to San Francisco on October 27, 1976, made itself a party to the contract of carriage and, therefore,
was bound by the terms of the issued airway bill. When TWA undertook to ship the remains on its Flight 603, ten
hours earlier than scheduled, it supposedly violated the express agreement embodied in the airway bill. It was
allegedly this breach of obligation which compounded, if not directly caused, the switching of the caskets.

In addition, petitioners maintain that since there is no evidence as to who placed the body on board Flight 603, or
that CMAS actually put the cargo on that flight, or that the two caskets at the Chicago airport were to be transported
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
by the same airline, or that they came from the same funeral home, or that both caskets were received by CMAS,
then the employees or agents of TWA presumably caused the mix-up by loading the wrong casket on the plane. For
said error, they contend, TWA must necessarily be presumed negligent and this presumption of negligence stands
undisturbed unless rebutting evidence is presented to show that the switching or misdelivery was due to
circumstances that would exempt the carrier from liability.

Private respondent TWA professes otherwise. Having duly delivered or transferred the cargo to its co-respondent
PAL on October 27, 1976 at 2:00 P.M., as supported by the TWA Transfer Manifest, TWA faithfully complied with its
obligation under the airway bill. Said faithful compliance was not affected by the fact that the remains were shipped
on an earlier flight as there was no fixed time for completion of carriage stipulated on. Moreover, the carrier did not
undertake to carry the cargo aboard any specified aircraft, in view of the condition on the back of the airway bill
which provides:

CONDITIONS OF CONTRACT

xxx xxx xxx

It is agreed that no time is fixed for the completion of carriage hereunder and that Carrier may
without notice substitute alternate carriers or aircraft. Carrier assumes no obligation to carry the
goods by any specified aircraft or over any particular route or routes or to make connection at any
point according to any particular schedule, and Carrier is hereby authorized to select, or deviate from
the route or routes of shipment, notwithstanding that the same may be stated on the face hereof.
The shipper guarantees payment of all charges and advances. 48

Hence, when respondent TWA shipped the body on earlier flight and on a different aircraft, it was acting well within
its rights. We find this argument tenable.

The contention that there was contractual breach on the part of private respondents is founded on the postulation
that there was ambiguity in the terms of the airway bill, hence petitioners' insistence on the application of the rules
on interpretation of contracts and documents. We find no such ambiguity. The terms are clear enough as to preclude
the necessity to probe beyond the apparent intendment of the contractual provisions.

The hornbook rule on interpretation of contracts consecrates the primacy of the intention of the parties, the same
having the force of law between them. When the terms of the agreement are clear and explicit, that they do not
justify an attempt to read into any alleged intention of the parties, the terms are to be understood literally just as they
appear on the face of the contract. 49 The various stipulations of a contract shall be interpreted together 50 and such a
construction is to be adopted as will give effect to all provisions thereof. 51 A contract cannot be construed by parts, but its
clauses should be interpreted in relation to one another. The whole contract must be interpreted or read together in order
to arrive at its true meaning. Certain stipulations cannot be segregated and then made to control; neither do particular
words or phrases necessarily determine the character of a contract. The legal effect of the contract is not to be determined
alone by any particular provision disconnected from all others, but in the ruling intention of the parties as gathered from all
the language they have used and from their contemporaneous and subsequent acts. 52

Turning to the terms of the contract at hand, as presented by PAL Air Waybill No. 079-01180454, respondent court
approvingly quoted the trial court's disquisition on the aforequoted condition appearing on the reverse side of the
airway bill and its disposition of this particular assigned error:

The foregoing stipulation fully answers plaintiffs' objections to the one-day delay and the shipping of
the remains in TWA Flight 603 instead of TWA Flight 131. Under the stipulation, parties agreed that
no time was fixed to complete the contract of carriage and that the carrier may, without notice,
substitute alternate carriers or aircraft. The carrier did not assume the obligation to carry the
shipment on any specified aircraft.

xxx xxx xxx

Furthermore, contrary to the claim of plaintiffs-appellants, the conditions of the Air Waybill are big
enough to be read and noticed. Also, the mere fact that the cargo in question was shipped in TWA
Flight 603, a flight earlier on the same day than TWA Flight 131, did not in any way cause or add to
the one-day delay complained of and/or the switching or mix-up of the bodies. 53

Indubitably, that private respondent can use substitute aircraft even without notice and without the assumption of
any obligation whatsoever to carry the goods on any specified aircraft is clearly sanctioned by the contract of
carriage as specifically provided for under the conditions thereof.

Petitioners' invocation of the interpretative rule in the Rules of Court that written words control printed words in
documents, 54 to bolster their assertion that the typewritten provisions regarding the routing and flight schedule prevail
over the printed conditions, is tenuous. Said rule may be considered only when there is inconsistency between the written
and printed words of the contract.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
As previously stated, we find no ambiguity in the contract subject of this case that would call for the application of
said rule. In any event, the contract has provided for such a situation by explicitly stating that the above condition
remains effective "notwithstanding that the same (fixed time for completion of carriage, specified aircraft, or any
particular route or schedule) may be stated on the face hereof." While petitioners hinge private respondents'
culpability on the fact that the carrier "certifies goods described below were received for carriage," they may have
overlooked that the statement on the face of the airway bill properly and completely reads

Carrier certifies goods described below were received for carriage subject to the Conditions on the
reverse hereof the goods then being in apparent good order and condition except as noted
hereon.55 (Emphasis ours.)

Private respondents further aptly observe that the carrier's certification regarding receipt of the goods for carriage
"was of a smaller print than the condition of the Air Waybill, including Condition No. 5 and thus if plaintiffs-
appellants had recognized the former, then with more reason they were aware of the latter. 56

In the same vein, it would also be incorrect to accede to the suggestion of petitioners that the typewritten
specifications of the flight, routes and dates of departures and arrivals on the face of the airway bill constitute a
special contract which modifies the printed conditions at the back thereof. We reiterate that typewritten provisions of
the contract are to be read and understood subject to and in view of the printed conditions, fully reconciling and
giving effect to the manifest intention of the parties to the agreement.

The oft-repeated rule regarding a carrier's liability for delay is that in the absence of a special contract, a carrier is
not an insurer against delay in transportation of goods. When a common carrier undertakes to convey goods, the
law implies a contract that they shall be delivered at destination within a reasonable time, in the absence, of any
agreement as to the time of delivery. 57 But where a carrier has made an express contract to transport and deliver
property within a specified time, it is bound to fulfill its contract and is liable for any delay, no matter from what cause it
may have arisen. 58 This result logically follows from the well-settled rule that where the law creates a duty or charge, and
the party is disabled from performing it without any default in himself, and has no remedy over, then the law will excuse
him, but where the party by his own contract creates a duty or charge upon himself, he is bound to make it good
notwithstanding any accident or delay by inevitable necessity because he might have provided against it by contract.
Whether or not there has been such an undertaking on the part of the carrier to be determined from the circumstances
surrounding the case and by application of the ordinary rules for the interpretation of contracts. 59

Echoing the findings of the trial court, the respondent court correctly declared that

In a similar case of delayed delivery of air cargo under a very similar stipulation contained in the
airway bill which reads: "The carrier does not obligate itself to carry the goods by any specified
aircraft or on a specified time. Said carrier being hereby authorized to deviate from the route of the
shipment without any liability therefor", our Supreme Court ruled that 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 (Mendoza vs. PAL, 90 Phil.
836).

There is no showing by plaintiffs that such a special or specific contract had been entered into
between them and the defendant airline companies.

And this special contract for prompt delivery should call the attention of the carrier to the
circumstances surrounding the case and the approximate amount of damages to be suffered in case
of delay (See Mendoza vs. PAL, supra). There was no such contract entered into in the instant
case.60

Also, the theory of petitioners that the specification of the flights and dates of departure and arrivals constitute a
special contract that could prevail over the printed stipulations at the back of the airway bill is vacuous. To
countenance such a postulate would unduly burden the common carrier for that would have the effect of unilaterally
transforming every single bill of lading or trip ticket into a special contract by the simple expedient of filling it up with
the particulars of the flight, trip or voyage, and thereby imposing upon the carrier duties and/or obligations which it
may not have been ready or willing to assume had it been timely, advised thereof.

Neither does the fact that the challenged condition No. 5 was printed at the back of the airway bill militate against its
binding effect on petitioners as parties to the contract, for there were sufficient indications on the face of said bill that
would alert them to the presence of such additional condition to put them on their guard. Ordinary prudence on the
part of any person entering or contemplating to enter into a contract would prompt even a cursory examination of
any such conditions, terms and/or stipulations.

There is a holding in most jurisdictions that the acceptance of a bill of lading without dissent raises a presumption
that all terms therein were brought to the knowledge of the shipper and agreed to by him, and in the absence of
fraud or mistake, he is estopped from thereafter denying that he assented to such terms. This rule applies with
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
particular force where a shipper accepts a bill of lading with full knowledge of its contents, and acceptance under
such circumstances makes it a binding contract. In order that any presumption of assent to a stipulation in a bill of
lading limiting the liability of a carrier may arise, it must appear that the clause containing this exemption from
liability plainly formed a part of the contract contained in the bill of lading. A stipulation printed on the back of a
receipt or bill of lading or on papers attached to such receipt will be quite as effective as if printed on its face, if it is
shown that the consignor knew of its terms. Thus, where a shipper accepts a receipt which states that its conditions
are to be found on the back, such receipt comes within the general rule, and the shipper is held to have accepted
and to be bound by the conditions there to be found. 61

Granting arguendo that Condition No. 5 partakes of the nature of a contract of adhesion and as such must be
construed strictly against the party who drafted the same or gave rise to any ambiguity therein, it should be borne in
mind that a contract of adhesion may be struck down as void and unenforceable, for being subversive of public
policy, only when the weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to
the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on equal
footing. 62However, Ong Yiu vs. Court of Appeals, et al 63 instructs us that contracts of adhesion are not entirely prohibited.
The one who adheres to the contract is in reality free to reject it entirely; if he adheres, be gives his consent. Accordingly,
petitioners, far from being the weaker party in this situation, duly signified their presumed assent to all terms of the
contract through their acceptance of the airway bill and are consequently bound thereby. It cannot be gainsaid that
petitioners' were not without several choices as to carriers in Chicago with its numerous airways and airliner servicing the
same.

We wish to allay petitioners' apprehension that Condition No. 5 of the airway bill is productive of mischief as it would
validate delay in delivery, sanction violations of contractual obligations with impunity or put a premium on breaches
of contract.

Just because we have said that condition No. 5 of the airway bill is binding upon the parties to and fully operative in
this transaction, it does not mean, and let this serve as fair warning to respondent carriers, that they can at all times
whimsically seek refuge from liability in the exculpatory sanctuary of said Condition No. 5 or arbitrarily vary routes,
flights and schedules to the prejudice of their customers. This condition only serves to insulate the carrier from
liability in those instances when changes in routes, flights and schedules are clearly justified by the peculiar
circumstances of a particular case, or by general transportation practices, customs and usages, or by contingencies
or emergencies in aviation such as weather turbulence, mechanical failure, requirements of national security and
the like. And even as it is conceded that specific routing and other navigational arrangements for a trip, flight or
voyage, or variations therein, generally lie within the discretion of the carrier in the absence of specific routing
instructions or directions by the shipper, it is plainly incumbent upon the carrier to exercise its rights with due
deference to the rights, interests and convenience of its customers.

A common carrier undertaking to transport property has the implicit duty to carry and deliver it within reasonable
time, absent any particular stipulation regarding time of delivery, and to guard against delay. In case of any
unreasonable delay, the carrier shall be liable for damages immediately and proximately resulting from such neglect
of duty. 64 As found by the trial court, the delay in the delivery of the remains of Crispina Saludo, undeniable and
regrettable as it was, cannot be attributed to the fault, negligence or malice of private respondents, 65 a conclusion
concurred in by respondent court and which we are not inclined to disturb.

We are further convinced that when TWA opted to ship the remains of Crispina Saludo on an earlier flight, it did so in
the exercise of sound discretion and with reasonable prudence, as shown by the explanation of its counsel in his
letter of February 19, 1977 in response to petitioners' demand letter:

Investigation of TWA's handling of this matter reveals that although the shipment was scheduled on
TWA Flight 131 of October 27, 1976, it was actually boarded on TWA Flight 603 of the same day,
approximately 10 hours earlier, in order to assure that the shipment would be received in San
Francisco in sufficient time for transfer to PAL. This transfer was effected in San Francisco at 2:00
P.M. on October 27, 1976. 66

Precisely, private respondent TWA knew of the urgency of the shipment by reason of this notation on the lower
portion of the airway bill: "All documents have been certified. Human remains of Cristina (sic) Saludo. Please return
bag first available flight to SFO." Accordingly, TWA took it upon itself to carry the remains of Crispina Saludo on an
earlier flight, which we emphasize it could do under the terms of the airway bill, to make sure that there would be
enough time for loading said remains on the transfer flight on board PAL.

III. Petitioners challenge the validity of respondent court's finding that private respondents are not liable for tort on
account of the humiliating, arrogant and indifferent acts of their officers and personnel. They posit that since their
mother's remains were transported ten hours earlier than originally scheduled, there was no reason for private
respondents' personnel to disclaim knowledge of the arrival or whereabouts of the same other than their sheer
arrogance, indifference and extreme insensitivity to the feelings of petitioners. Moreover, being passengers and not
merely consignors of goods, petitioners had the right to be treated with courtesy, respect, kindness and due
consideration.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
In riposte, TWA claims that its employees have always dealt politely with all clients, customers and the public in
general. PAL, on the other hand, declares that in the performance of its obligation to the riding public, other
customers and clients, it has always acted with justice, honesty, courtesy and good faith.

Respondent appellate court found merit in and reproduced the trial court's refutation of this assigned error:

About the only evidence of plaintiffs that may have reference to the manner with which the personnel
of defendants treated the two plaintiffs at the San Francisco Airport are the following pertinent
portions of Maria Saludo's testimony:

Q When you arrived there, what did you do, if any?

A I immediately went to the TWA counter and I inquired about whether my mother
was there or if' they knew anything about it.

Q What was the answer?

A They said they do not know. So, we waited.

Q About what time was that when you reached San Francisco from Chicago?

A I think 5 o'clock. Somewhere around that in the afternoon.

Q You made inquiry it was immediately thereafter?

A Right after we got off the plane.

Q Up to what time did you stay in the airport to wait until the TWA people could tell
you the whereabouts?

A Sorry, Sir, but the TWA did not tell us anything. We stayed there until about 9
o'clock. They have not heard anything about it. They did not say anything.

Q Do you want to convey to the Court that from 5 up to 9 o'clock in the evening you
yourself went back to the TWA and they could not tell you where the remains of your
mother were?

A Yes sir.

Q And after nine o'clock, what did you do?

A I told my brother my Mom was supposed to be on the Philippine Airlines flight.


"Why don't" we check with PAL instead to see if she was there?" We tried to comfort
each other. I told him anyway that was a shortest flight from Chicago to California.
We will be with our mother on this longer flight. So, we checked with the PAL.

Q What did you find?

A We learned, Yes, my Mom would be on the flight.

Q Who was that brother?

A Saturnino Saludo.

Q And did you find what was your flight from San Francisco to the Philippines?

A I do not know the number. It was the evening flight of the Philippine Airline(s) from
San Francisco to Manila.

Q You took that flight with your mother?

A We were scheduled to, Sir.

Q Now, you could not locate the remains of your mother in San Francisco could you
tell us what did you feel?
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
A After we were told that my mother was not there?

Q After you learned that your mother could not fly with you from Chicago to
California?

A Well, I was very upset. Of course, I wanted the confirmation that my mother was in
the West Coast. The fliqht was about 5 hours from Chicago to California. We waited
anxiously all that time on the plane. I wanted to be assured about my mother's
remains. But there was nothing and we could not get any assurance from anyone
about it.

Q Your feeling when you reached San Francisco and you could not find out from the
TWA the whereabouts of the remains, what did you feel?

A Something nobody would be able to describe unless he experiences it himself. It is


a kind of panic. I think it's a feeling you are about to go crazy. It is something I do not
want to live through again. (Inting, t.s.n., Aug. 9, 1983, pp. 14-18).

The foregoing does not show any humiliating or arrogant manner with which the personnel of both
defendants treated the two plaintiffs. Even their alleged indifference is not clearly established. The
initial answer of the TWA personnel at the counter that they did not know anything about the
remains, and later, their answer that they have not heard anything about the remains, and the
inability of the TWA counter personnel to inform the two plaintiffs of the whereabouts of the remains,
cannot be said to be total or complete indifference to the said plaintiffs. At any rate, it is any rude or
discourteous conduct, malfeasance or neglect, the use of abusive or insulting language calculated to
humiliate and shame passenger or had faith by or on the part of the employees of the carrier that
gives the passenger an action for damages against the carrier (Zulueta vs. Pan American World
Airways, 43 SCRA 397; Air France vs. Carrascoso, et al., 18 SCRA 155; Lopez, et al. vs. Pan
American World Airways, 16 SCRA 431; Northwest Airlines, Inc. vs. Cuenca, 14 SCRA 1063), and
none of the above is obtaining in the instant case. 67

We stand by respondent court's findings on this point, but only to the extent where it holds that the manner in which
private respondent TWA's employees dealt with petitioners was not grossly humiliating, arrogant or indifferent as
would assume the proportions of malice or bad faith and lay the basis for an award of the damages claimed. It must
however, be pointed out that the lamentable actuations of respondent TWA's employees leave much to be desired,
particularly so in the face of petitioners' grief over the death of their mother, exacerbated by the tension and anxiety
wrought by the impasse and confusion over the failure to ascertain over an appreciable period of time what
happened to her remains.

Airline companies are hereby sternly admonished that it is their duty not only to cursorily instruct but to strictly
require their personnel to be more accommodating towards customers, passengers and the general public. After all,
common carriers such as airline companies are in the business of rendering public service, which is the primary
reason for their enfranchisement and recognition in our law. Because the passengers in a contract of carriage do not
contract merely for transportation, they have a right to be treated with kindness, respect, courtesy and
consideration. 68 A contract to transport passengers is quite different in kind and degree from any other contractual
relation, and generates a relation attended with public duty. The operation of a common carrier is a business affected with
public interest and must be directed to serve the comfort and convenience of passengers. 69 Passengers are human
beings with human feelings and emotions; they should not be treated as mere numbers or statistics for revenue.

The records reveal that petitioners, particularly Maria and Saturnino Saludo, agonized for nearly five hours, over the
possibility of losing their mother's mortal remains, unattended to and without any assurance from the employees of
TWA that they were doing anything about the situation. This is not to say that petitioners were to be regaled with
extra special attention. They were, however, entitled to the understanding and humane consideration called for by
and commensurate with the extraordinary diligence required of common carriers, and not the cold insensitivity to
their predicament. It is hard to believe that the airline's counter personnel were totally helpless about the situation.
Common sense would and should have dictated that they exert a little extra effort in making a more extensive
inquiry, by themselves or through their superiors, rather than just shrug off the problem with a callous and uncaring
remark that they had no knowledge about it. With all the modern communications equipment readily available to
them, which could have easily facilitated said inquiry and which are used as a matter of course by airline companies
in their daily operations, their apathetic stance while not legally reprehensible is morally deplorable.

Losing a loved one, especially one's, parent, is a painful experience. Our culture accords the tenderest human
feelings toward and in reverence to the dead. That the remains of the deceased were subsequently delivered, albeit
belatedly, and eventually laid in her final resting place is of little consolation. The imperviousness displayed by the
airline's personnel, even for just that fraction of time, was especially condemnable particularly in the hour of
bereavement of the family of Crispina Saludo, intensified by anguish due to the uncertainty of the whereabouts of
their mother's remains. Hence, it is quite apparent that private respondents' personnel were remiss in the
observance of that genuine human concern and professional attentiveness required and expected of them.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
The foregoing observations, however, do not appear to be applicable or imputable to respondent PAL or its
employees. No attribution of discourtesy or indifference has been made against PAL by petitioners and, in fact,
petitioner Maria Saludo testified that it was to PAL that they repaired after failing to receive proper attention from
TWA. It was from PAL that they received confirmation that their mother's remains would be on the same flight to
Manila with them.

We find the following substantiation on this particular episode from the deposition of Alberto A. Lim, PAL's cargo
supervisor earlier adverted to, regarding their investigation of and the action taken on learning of petitioner's
problem:

ATTY. ALBERTO C. MENDOZA:

Yes.

Mr. Lim, what exactly was your procedure adopted in your so called investigation?

ALBERTO A. LIM:

I called the lead agent on duty at that time and requested for a copy of airway bill,
transfer manifest and other documents concerning the shipment.

ATTY ALBERTO C. MENDOZA:

Then, what?

ALBERTO A. LIM:

They proceeded to analyze exactly where PAL failed, if any, in forwarding the human
remains of Mrs. Cristina (sic) Saludo. And I found out that there was not (sic) delay in
shipping the remains of Mrs. Saludo to Manila. Since we received the body from
American Airlines on 28 October at 7:45 and we expedited the shipment so that it
could have been loaded on our flight leaving at 9:00 in the evening or just barely one
hour and 15 minutes prior to the departure of the aircraft. That is so (sic) being the
case, I reported to Manila these circumstances. 70

IV. Finally, petitioners insist, as a consequence of the delay in the shipment of their mother's remains allegedly
caused by wilful contractual breach, on their entitlement to actual, moral and exemplary damages as well as
attorney's fees, litigation expenses, and legal interest.

The uniform decisional tenet in our jurisdiction bolds that moral damages may be awarded for wilful or fraudulent
breach of contract 71 or when such breach is attended by malice or bad faith. 72 However, in the absence of strong and
positive evidence of fraud, malice or bad faith, said damages cannot be awarded. 73 Neither can there be an award of
exemplary damages 74 nor of attorney's fees 75 as an item of damages in the absence of proof that defendant acted with
malice, fraud or bad faith.

The censurable conduct of TWA's employees cannot, however, be said to have approximated the dimensions of
fraud, malice or bad faith. It can be said to be more of a lethargic reaction produced and engrained in some people
by the mechanically routine nature of their work and a racial or societal culture which stultifies what would have
been their accustomed human response to a human need under a former and different ambience.

Nonetheless, the facts show that petitioners' right to be treated with due courtesy in accordance with the degree of
diligence required by law to be exercised by every common carrier was violated by TWA and this entitles them, at
least, to nominal damages from TWA alone. Articles 2221 and 2222 of the Civil Code make it clear that nominal
damages are not intended for indemnification of loss suffered but for the vindication or recognition of a right violated
of invaded. They are recoverable where some injury has been done but the amount of which the evidence fails to
show, the assessment of damages being left to the discretion of the court according to the circumstances of the
case. 76 In the exercise of our discretion, we find an award of P40,000.00 as nominal damages in favor of, petitioners to be
a reasonable amount under the circumstances of this case.

WHEREFORE, with the modification that an award of P40,000.00 as and by way of nominal damages is hereby
granted in favor of petitioners to be paid by respondent Trans World Airlines, the appealed decision is AFFIRMED in
all other respects.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Nocon, JJ., concur.


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
G.R. No. L-22425 August 31, 1965

NORTHWEST AIRLINES, INC., petitioner,


vs.
NICOLAS L. CUENCA and COURT OF APPEALS (SPECIAL SIXTH DIVISION), respondents.

Ross, Selph and Carrascoso for petitioner.


Bengzon, Villegas and Zarraga for respondents.

CONCEPCION, J.:

This is an action for damages for alleged breach of contract. After appropriate proceedings the Court of First
Instance of Manila, in which the case was originally filed, rendered judgment sentencing defendant Northwest
Airlines, Inc. hereinafter referred to as petitioner to pay to plaintiff Cuenca hereinafter referred to as
respondent the sum of P20,000 as moral damages, together with the sum of P5,000 as exemplary damages, with
legal interest thereon from the date of the filing of complaint," December 12, 1959, "until fully paid, plus the further
sum of P2,000 as attorney's fees and expenses of litigation." On appeal taken by petitioner, said decision was
affirmed by the Court of Appeals, except as to the P5,000.00 exemplary damages, which was eliminated, and the
P20,000.00 award for moral damages, which was converted into nominal damages. The case is now before us on
petition for review by certiorari filed by petitioner, 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. Indeed the
second assignment of error is predicated upon Articles 17, 18 and 19 of said Convention, reading:

ART. 17. The carrier shall be liable for damages sustained in the event of the death or wounding of a
passenger or any other bodily injury suffered by a passenger, if the accident which caused the damage so
sustained took place on board the aircraft or in the course of any of the operations of embarking or
disembarking.

ART. 18. (1) The carrier shall be liable for damage sustained in the event of the destruction or loss of, or of
damage to, any checked baggage, or any goods, if the occurrence which caused the damage so sustained
took place during the transportation by air.

(2) The transportation by air within the meaning of the preceding paragraph shall comprise the period during
which the baggage or goods are in charge of the carrier, whether in an airport or on board an aircraft, or, in
the case of a landing outside an airport, in any place whatsoever.

(3) The period of the transportation by air shall not extend to any transportation by land, by sea, or by river
performed outside an airport. If, however, such transportation takes place in the performance of a contract
for transportation by air, for the purpose of loading, delivery, or transhipment, any damage is presumed,
subject to proof to the contrary, to have been the result of an event which took place during the
transportation by air.

ART. 19. The carrier shall be liable for damage occasioned by delay in the transportation by air of
passengers, baggage, or goods.

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 damage 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 the 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.

The third assignment of error is based upon Medina vs. Cresencia (52 Off. Gaz. 4606), and Quijano vs. Philippine
Air Lines (CA-G.R. No. 21804-R). Neither case is, however, in point, aside from the fact that the latter is not
controlling upon us. In the first case, this Court eliminated a P10,000 award for nominal damages, because the
aggrieved party had already been awarded P6,000 as compensatory damages, P30,000 as moral damages and
P10,000 as exemplary damages, and "nominal damages cannot co-exist with compensatory damages." In the case
at bar, the Court of Appeals has adjudicated no such compensatory, moral and exemplary damages to respondent
herein.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Moreover, there are special reasons why the P20,000.00 award in favor of respondent herein is justified, even if said
award were characterized as nominal damages. When his contract of carriage was violated by the petitioner,
respondent held the office of Commissioner of Public Highways of the Republic of the Philippines. Having boarded
petitioner's plane in Manila with a first class ticket to Tokyo, he was, upon arrival at Okinawa, transferred to the
tourist class compartment. Although he revealed that he was traveling in his official capacity as official delegate of
the Republic to a conference in Tokyo, an agent of petitioner rudely compelled him in the presence of other
passengers to move, over his objection, to the tourist class, under threat of otherwise leaving him in Okinawa. In
order to reach the conference on time, respondent had no choice but to obey.

It is true that said ticket was marked "W/L," but respondent's attention was not called thereto. Much less was he
advised that "W/L" meant "wait listed." Upon the other hand, having paid the first class fare in full and having been
given first class accommodation as he took petitioner's plane in Manila, respondent was entitled to believe that this
was a confirmation of his first class reservation and that he would keep the same until his ultimate destination,
Tokyo. Then, too, petitioner has not tried to explain or even alleged that the person to whom respondent's first class
seat was given had a better right thereto. In other words, since the offense had been committed with full knowledge
of the fact that respondent was an official representative of the Republic of the Philippines, the sum of P20,000
awarded as damages may well be considered as merely nominal. At any rate, considering that petitioner's agent
had acted in a wanton, reckless and oppressive manner, said award may also be considered as one for exemplary
damages.

WHEREFORE, the decision appealed from is hereby affirmed, with costs against the petitioner. It is so ordered.

Bengzon, C.J., Bautista Angelo, Reyes, J.B.L., Dizon, Regala, Makalintal and Zaldivar, JJ., concur.
Bengzon, J.P., took no part.
Barrera, J., is on leave.

G.R. No. 77011 July 24, 1990

ALITALIA AIRWAYS, petitioner,


vs.
COURT OF APPEALS, and SPS. JOSE O. JULIANO and VICTORIA JULIANO, respondents.

Jose S. Songco and Santiago & Santiago for petitioner.

Christina J. Corral for private respondents.

SARMIENTO, J.:

This petition for review on certiorari of the decision rendered by the respondent court in AC-G.R. CV No. 05340
entitled "Sps. Jose O. Juliano and Victoria G. Juliano v. Alitalia Airways," promulgated on April 11, 1986, and the
resolution of the same court dated January 6, 1987, denying the motion for reconsideration, is brought to the Court
allegedly on pure questions of law.' 1

The facts from which the case now on review arose have a familiar ring and thus this Court will echo a similar
conclusion decreed in jurisprudence.

On September 3, 1981, the private' respondents Spouses Jose and Victoria Juliano (hereinafter referred to as the
Julianos), arrived at the Fumicino Airport in Rome, Italy in order to board Flight AZ 1774 of Alitalia Airways
scheduled to depart at 10:30 a.m. for Hongkong.

However, Flight AZ 1774 left Rome without the Julianos. When private respondent Jose O. Juliano arrived in Manila,
he returned to his employer Bristol-Myers, Inc., of which he was Vice-President for Operations, the unused Rome-
Hongkong leg of the Alitalia ticket. However, the cost of the Thai Airways tickets they had to purchase in lieu of
Alitalia was not refunded by his office.

On December 15, 1981, the Julianos filed a complaint with the Regional Trial Court of Quezon City against the
petitioner for damages from the alleged breach of its contractual obligations when the petitioner failed to transport
the private respondent to Hongkong on the Alitalia Flight AZ 1774. 2

The cause of the non-boarding of the Julianos makes up the bone of contention in this controversy.

According to the herein petitioner Alitalia, boarding time was 9:30 o'clock in the morning for Flight AZ 1774. The
check-in counter was then closed and all confirmed passengers who failed to check-in before that time were marked
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
as NO SHOW in the airline manifest as in the case of the Julianos. 3 Thereafter, chance passengers, or those without
confirmed reservations, were allowed to board.

On the other hand, the Julianos claim that, having left the hotel right after breakfast at 6:30 o'clock in the morning,
they arrived at the airport at around 9:15 o'clock in the morning. 4 Notwithstanding this timely arrival at the airport, the
Julianos had to contend with a long queue for the check-in because there were no individual counters specifically for
Alitalia passengers. 5

Realizing that it was already close to boarding time, the Julianos, armed with confirmed tickets, decided to approach
the check-in counter. 6

At the counter, a lady employee only brushed them aside and ordered them to fall in line, which they did. 7

At any rate, they were getting restless because the lines were no longer moving, so they decided to call the
attention of the airline authorities. 8

To make matters worse, the herein petitioner allegedly began to discriminate. The Julianos noticed that despite the
fact that their line was not moving, some of the passengers were being escorted ahead of the line in order to be
checked-in. 9

For the second time, the Julianos approached the lady at the counter to explain that they would miss the flight 10if
they were not checked in.

It was then that the Julianos ran into Ms. Chuchi Estanislao, 11 an employee of the University of the Philippines Asian
Institute of Tourism, who could not also check in, Together with Ms. Estanislao, they approached the Alitalia employee
wearing a uniform with the tag "supervisor". He only shrugged when shown the confirmed tickets and said that the
Julianos should try to check-in already because it was near departure time. 12

On the witness stand during the hearing at the trial court, Anthony Wong, commercial manager of Alitalia Airways at
Hong Kong, testified that as a matter of policy Alitalia would not deny to anyone the opportunity to board the
airline. 13 It would be contrary to the profit motive of an airline to fly any plane with vacant seats. In fact, the reason why
even chance passengers are admitted is to fill up all the seats not taken because of the number of NO SHOW (failure to
appear) passengers with confirmed tickets. 14

Just the same, an airline could overbook itself precisely to ensure that all seats would be taken and this is what the
lower court found with Alitalia. 15 As a consequence, some of the passengers in Rome has to be "bumped off to
accommodate the passengers embarking at the rest of the leg of the trip. In fact more passengers were picked up by the
same flight as it proceeded to Athens, Bangkok, and then Hongkong. 16

Thus, the lower court adjudged Alitalia liable for damages. The airlines appealed from the decision of the trial court,
the dispositive portion of which reads:

WHEREFORE, premises considered, the Court sentences defendant Alitalia Airways to pay to
plaintiff spouses Jose O. Juliano and Victoria G. Juliano the following:

1. U.S. $2,065.00 as actual damages payable in Philippine Currency at the official rate of exchange
at the time of payment;

2. P400,000.00 as moral damages;

3. P50,000.00 as attorney's fees, Costs. 17

This decision was motu proprio amended by the trial court on September 19, 1984 to include the award of
P50,000.00 as exemplary damages.

Both parties appealed.

The respondent Court of Appeals modified the judgment as follows:

WHEREFORE, the decision sought to be reconsidered is MODIFIED by

1) reducing the award of moral damages to P200,000.00;

2) reducing the award of exemplary damages to P25,000.00; and

3) reducing attorney's fees to P 30,000.00, the rest of the decision is maintained.


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
SO ORDERED. 18

Alitalia assails the decision of the respondent court on the grounds that the trial court had erred in awarding actual,
moral, and exemplary damages and prays for a reversal. 19 On the other hand, the Julianos question the award as
inadequate as compared with the damages awarded in the cases of Lopez, et al. v. Pan American World
Airways20 or Ortigas, Jr. v. Lufthansa German Airlines 21 and now pray that they be increased.

As adverted to at the outset, the present petition is alleged to invoke only pure questions of law, to wit:

1. The finding of the respondent Court of of Appeals to the effect that by Alitalia's own admission the
Julianos arrived for check-in with plenty of time to spare and should have been allowed to board the
plane" was (sic) a gross misapprehension and a quotation out of context of a statement
madearguendo in petitioner's brief and is contrary to private respondents' own admissions and other
uncontroverted evidence on record.

2. The respondent Court of Appeals' finding that Alitalia's Flight AZ 1774 on September 3, 1981 was
overbooked is contrary to all the evidence on record and is a clear misapprehension of this
evidence, if not a deliberate distortion of the same.

3. The finding of the respondent Court of Appeals that the tickets of private respondents are
endorsable is not supported by any evidence and is contrary to private respondents' own admission,
the finding of the trial court and other evidence on record.

4. The respondent Court of Appeals manifestly overlooked certain relevant facts which, if properly
considered, would justify a different conclusion.

5. There is no factual or legal basis for the award of moral and exemplary damages and attorney's
fees. 22

From a consideration of the foregoing, it is evident that this petition for review raises no substantial question of law
but simply and essentially puts in issue the correctness of the factual findings of the Court of Appeals and the trial
court.

For good and sound reasons, the Court has consistently affirmed that review of the findings of fact of the Court of
Appeals is not a function that it ordinarily undertakes such findings being as a nile binding and conclusive. 23 It is true
that certain exceptions have become familiar. However nothing in the records warrants a review based on any of these
well-recognized exceptions.? 24

Thus we re-affirm the ruling laid down by the Court in a long line of cases that when an airline issues a ticket to a
passenger confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger has
every right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a
suit for breach of contract of carriage.

Accordingly, the respondent court erred in holding that the Julianos are not entitled to a refund because the
purchase of the Thai Airways tickets was unnecessary.

After they were denied embarkation, the Julianos did not use their Alitalia tickets but bought passage
on Thai Airways International in order to get to where they were going. The question now is: was this
necessary? 25

xxx xxx xxx

The purchase of tickets on Thai Airways was by calculated choice, not by necessity. This being the
case, since the Julianos could have flown Alitalia just the same there being no compelling necessity
anymore for them to fly the same day, Our conclusion is that they are not entitled to a refund of the
cost of their Thai tickets. 26

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. Besides, why should the Julianos be compelled to wait for another Alitalia tight to risk a similar rebuff
and suffer the consequent further delay?

It was already too much of a coincidence that, at Fumicino Airport, the Julianos would find another Filipino, in the
person of Ms. Estanislao, in the same predicament that they were in. 27 We will no longer go to the extent of indulging
in the conjecture that Ms. Estanislao and the Julianos were singled out to be discriminated against because of their color.
What is plain to see is that the airline had deliberately overbooked and in doing so took the risk of having to deprive some
passengers of their seats in case all of them would show up for check-in.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
That Alitalia had no intention to accommodate all who had 'confirmed their flight reservations could be seen in the
absence of any measure to contract all possible passengers for each flight who might be within the airport
premises. 28 As a result, some passengers would really be left behind in the long and disorderly queue at the check-in
counter.

Common carriers, like commercial airlines, are in the business of rendering service, which is the primary reason for
their recognition in our law. They can not be allowed to disregard our laws as if they are doing the passengers any
favor by accommodating them.

Because the passengers in a contract of carriage do not contract merely for transportation, they have a right to be
treated by the carrier's employees with kindness, respect, courtesy, and consideration. 29 Hence the justification why
passengers must be spared from the indignity and inconvenience of being refused a confirmed seat on the last minute.

As held in Trans World Airlines v. Court of Appeals, 30 such inattention to and lack of care [by the petitioner airline] for
the interest of its passengers who are entitled to its utmost consideration, particularly as to their convenience, amount to
bad faith which entitles the passenger to the award of moral damages. Ergo, we affirm the respondent court's award of
moral damages at P200.000.00. This award should be sufficient to indemnify the Julianos for the delay, inconvenience,
humiliation, and embarrassment they suffered.

Likewise the award of exemplary damages is well-grounded. With dismay, we note, that the imposition of substantial
amounts of damages notwithstanding, international carriers have not been dissuaded from repeating similar
derogatory acts. 31

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. Thus, as well and
aptly put by Justice Serafin Camilon, in his ponencia in this case, the

... Propriety of damage awards is judged by their fairness considering all the circumstances. A man's
stature is but an accident of life. The role it plays is secondary to the concepts of justice and fair
play.32

Nevertheless we have noted the proliferation of similar offenses by international carriers finding their way to this
Court; we have to advocate a punitive stands to stem, if not totally eliminate, this deplorable tide. In the discretion of
the Court, the award of exemplary damages should be increased to P200,000.00. 33

WHEREFORE, the decision of the respondent court is MODIFIED in that the petitioner Alitalia Airways is hereby
ordered to pay the private respondents Jose O. Juliano and Victoria G. Juliano the following amounts:

1) U.S.$2,065.00 as actual damages, payable in Philippine Currency at the official rate of exchange at the time of
payment;

2) P200,000.00, as and for moral damages;

3) P200,000.00, as and for exemplary damages; and

4) P30,000.00, as attorney's fees.

Costs against the petitioner.

SO ORDERED.

Melencio-Herrera (Chairman), Paras, Padilla and Regalado, JJ., concur.

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.


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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. L-20099, 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:
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
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.

Fernan, C.J., Feliciano and Bidin JJ., concur.

Gutierrez, Jr., J., took no part.

Footnotes

* Art. 1750. 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.

** The Warsaw Convention actually provides that "[i]n the transportation of checked baggage and of
goods, the liability of the carrier shall be limited to a sum of 250 francs per kilogram, unless the
consignor has made, at the time when the package was handed over to the carrier, a special
declaration of the value of delivery and has paid a supplementary sum if the case so requires. In that
case, the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves that
the sum is greater than the actual value to the consignor at delivery.... The sums mentioned above
shall be deemed to refer to the French franc consisting of 65-1/2 milligrams of gold at the standard of
fineness of nine hundred thousandths. These sums may be converted into any national currency in
round figures. [51 O.G. 5084, 5091.]

Proclamation No. 201, (September 23, 1955) made public the adherence of the Republic of the
Philippines to the Warsaw Convention. [51 O.G. 4933.]

G.R. No. 152122 July 30, 2003

CHINA AIRLINES, petitioner,


vs.
DANIEL CHIOK, respondent.

PANGANIBAN, J.:

A common carrier has a peculiar relationship with and an exacting responsibility to its passengers. For reasons of
public interest and policy, the ticket-issuing airline acts as principal in a contract of carriage and is thus liable for the
acts and the omissions of any errant carrier to which it may have endorsed any sector of the entire, continuous trip.

The Case

Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to reverse the
August 7, 2001 Decision2 and the February 7, 2002 Resolution3 of the Court of Appeals (CA) in CA-GR CV No.
45832. The challenged Decision disposed as follows:
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
"WHEREFORE, premises considered, the assailed Decision dated July 5, 1991 of Branch 31, Regional Trial
Court, National Capital Judicial Region, Manila, in Civil Case No. 82-13690, is hereby MODIFIED by deleting
that portion regarding defendants-appellants liabilities for the payment of the actual damages amounting to
HK$14,128.80 and US$2,000.00 while all other respects are AFFIRMED. Costs against defendants-
appellants."4

The assailed Resolution denied Petitioners Motion for Partial Reconsideration.

The Facts

The facts are narrated by the CA5 as follows:

"On September 18, 1981, Daniel Chiok (hereafter referred to as Chiok) purchased from China Airlines, Ltd.
(CAL for brevity) airline passenger ticket number 297:4402:004:278:5 for air transportation covering Manila-
Taipei-Hongkong-Manila. Said ticket was exclusively endorseable to Philippine Airlines, Ltd. (PAL for
brevity).

"Subsequently, on November 21, 1981, Chiok took his trip from Manila to Taipei using [the] CAL ticket.
Before he left for said trip, the trips covered by the ticket were pre-scheduled and confirmed by the former.
When he arrived in Taipei, he went to the CAL office and confirmed his Hongkong to Manila trip on board
PAL Flight No. PR 311. The CAL office attached a yellow sticker appropriately indicating that his flight status
was OK.

"When Chiok reached Hongkong, he went to the PAL office and sought to reconfirm his flight back to Manila.
The PAL office confirmed his return trip on board Flight No. PR 311 and attached its own sticker. On
November 24, 1981, Chiok proceeded to Hongkong International Airport for his return trip to Manila.
However, upon reaching the PAL counter, Chiok saw a poster stating that PAL Flight No. PR 311 was
cancelled because of a typhoon in Manila. He was then informed that all the confirmed ticket holders of PAL
Flight No. PR 311 were automatically booked for its next flight, which was to leave the next day. He then
informed PAL personnel that, being the founding director of the Philippine Polysterene Paper Corporation,
he ha[d] to reach Manila on November 25, 1981 because of a business option which he ha[d] to execute on
said date.

"On November 25, 1981, Chiok went to the airport. Cathay Pacific stewardess Lok Chan (hereafter referred
to as Lok) ha[d] taken and received Chioks plane ticket and his luggage. Lok called the attention of Carmen
Chan (hereafter referred to as Carmen), PALs terminal supervisor, and informed the latter that Chioks name
was not in the computer list of passengers. Subsequently, Carmen informed Chiok that his name did not
appear in PALs computer list of passengers and therefore could not be permitted to board PAL Flight No.
PR 307.

"Meanwhile, Chiok requested Carmen to put into writing the alleged reason why he was not allowed to take
his flight. The latter then wrote the following, to wit: PAL STAFF CARMEN CHAN CHKD WITH R/C KENNY
AT 1005H NO SUCH NAME IN COMPUTER FOR 311/24 NOV AND 307/25 NOV. The latter sought to
recover his luggage but found only 2 which were placed at the end of the passengers line. Realizing that his
new Samsonite luggage was missing, which contained cosmetics worth HK$14,128.80, he complained to
Carmen.

"Thereafter, Chiok proceeded to PALs Hongkong office and confronted PALs reservation officer, Carie Chao
(hereafter referred to as Chao), who previously confirmed his flight back to Manila. Chao told Chiok that his
name was on the list and pointed to the latter his computer number listed on the PAL confirmation sticker
attached to his plane ticket, which number was R/MN62.

"Chiok then decided to use another CAL ticket with No. 297:4402:004:370:5 and asked Chao if this ticket
could be used to book him for the said flight. The latter, once again, booked and confirmed the formers trip,
this time on board PAL Flight No. PR 311 scheduled to depart that evening. Later, Chiok went to the PAL
check-in counter and it was Carmen who attended to him. As this juncture, Chiok had already placed his
travel documents, including his clutch bag, on top of the PAL check-in counter.

"Thereafter, Carmen directed PAL personnel to transfer counters. In the ensuing commotion, Chiok lost his
clutch bag containing the following, to wit: (a) $2,000.00; (b) HK$2,000.00; (c) Taipei $8,000.00; (d)
P2,000.00; (e) a three-piece set of gold (18 carats) cross pens valued at P3,500; (f) a Cartier watch worth
about P7,500.00; (g) a tie clip with a garnet birthstone and diamond worth P1,800.00; and (h) a [pair of]
Christian Dior reading glasses. Subsequently, he was placed on stand-by and at around 7:30 p.m., PAL
personnel informed him that he could now check-in.

"Consequently, Chiok as plaintiff, filed a Complaint on November 9, 1982 for damages, against PAL and
CAL, as defendants, docketed as Civil Case No. 82-13690, with Branch 31, Regional Trial Court, National
Capital Judicial Region, Manila.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
"He alleged therein that despite several confirmations of his flight, defendant PAL refused to accommodate
him in Flight No. 307, for which reason he lost the business option aforementioned. He also alleged that
PALs personnel, specifically Carmen, ridiculed and humiliated him in the presence of so many people.
Further, he alleged that defendants are solidarily liable for the damages he suffered, since one is the agent
of the other."6

The Regional Trial Court (RTC) of Manila held CAL and PAL jointly and severally liable to respondent. It did not,
however, rule on their respective cross-claims. It disposed as follows:

"WHEREFORE, judgment is hereby rendered in favor of plaintiff and against the defendants to jointly and
severally pay:

1. Actual damages in the amount of HK$14,128.80 or its equivalent in Philippine Currency at the time of the
loss of the luggage consisting of cosmetic products;

2. US$2,000.00 or its equivalent at the time of the loss of the clutch bag containing the money;

3. P200,000.00 by way of moral damages;

4. P50,000.00 by way of exemplary damages or corrective damages;

5. Attorney[]s fees equivalent to 10% of the amounts due and demandable and awarded in favor of the
plaintiff; and

6. The costs of this proceedings."7

The two carriers appealed the RTC Decision to the CA.

Ruling of the Court of Appeals

Affirming the RTC, the Court of Appeals debunked petitioners claim that it had merely acted as an issuing agent for
the ticket covering the Hong Kong-Manila leg of respondents journey. In support of its Decision, the CA quoted a
purported ruling of this Court in KLM Royal Dutch Airlines v. Court of Appeals8 as follows:

"Article 30 of the Warsaw providing that in case of transportation to be performed by various successive
carriers, the passenger can take action only against the carrier who performed the transportation during
which the accident or the delay occurred presupposes the occurrence of either an accident or delay in the
course of the air trip, and does not apply if the damage is caused by the willful misconduct on the part of the
carriers employee or agent acting within the scope of his employment.

"It would be unfair and inequitable to charge a passenger with automatic knowledge or notice of a condition
which purportedly would excuse the carrier from liability, where the notice is written at the back of the ticket
in letters so small that one has to use a magnifying glass to read the words. To preclude any doubt that the
contract was fairly and freely agreed upon when the passenger accepted the passage ticket, the carrier who
issued the ticket must inform the passenger of the conditions prescribed in the ticket or, in the very least,
ascertain that the passenger read them before he accepted the passage ticket. Absent any showing that the
carriers officials or employees discharged this responsibility to the passenger, the latter cannot be bound by
the conditions by which the carrier assumed the role of a mere ticket-issuing agent for other airlines and
limited its liability only to untoward occurrences in its own lines.

"Where the passage tickets provide that the carriage to be performed thereunder by several successive
carriers is to be regarded as a single operation, the carrier which issued the tickets for the entire trip in
effect guaranteed to the passenger that the latter shall have sure space in the various carriers which would
ferry him through the various segments of the trip, and the ticket-issuing carrier assumes full responsibility
for the entire trip and shall be held accountable for the breach of that guaranty whether the breach occurred
in its own lines or in those of the other carriers."9

On PALs appeal, the appellate court held that the carrier had reneged on its obligation to transport respondent
when, in spite of the confirmations he had secured for Flight PR 311, his name did not appear in the computerized
list of passengers. Ruling that the airlines negligence was the proximate cause of his excoriating experience, the
appellate court sustained the award of moral and exemplary damages.

The CA, however, deleted the RTCs award of actual damages amounting to HK$14,128.80 and US$2,000.00,
because the lost piece of luggage and clutch bag had not actually been "checked in" or delivered to PAL for
transportation to Manila.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
On August 28, 2001, petitioner filed a Motion for Partial Reconsideration, contending that the appellate court had
erroneously relied on a mere syllabus of KLM v. CA, not on the actual ruling therein. Moreover, it argued that
respondent was fully aware that the booking for the PAL sector had been made only upon his request; and that only
PAL, not CAL, was liable for the actual carriage of that segment. Petitioner likewise prayed for a ruling on its cross-
claim against PAL, inasmuch as the latters employees had acted negligently, as found by the trial court.

Denying the Motion, the appellate court ruled that petitioner had failed to raise any new matter or issue that would
warrant a modification or a reversal of the Decision. As to the alleged misquotation, the CA held that while the
portion it had cited appeared to be different from the wording of the actual ruling, the variance was "more apparent
than real since the difference [was] only in form and not in substance."10

CAL and PAL filed separate Petitions to assail the CA Decision. In its October 3, 2001 Resolution, this Court denied
PALs appeal, docketed as GR No. 149544, for failure to serve the CA a copy of the Petition as required by Section
3, Rule 45, in relation to Section 5(d) of Rule 56 and paragraph 2 of Revised Circular No. 1-88 of this Court. PALs
Motion for Reconsideration was denied with finality on January 21, 2002.

Only the appeal of CAL11 remains in this Court.

Issues

In its Memorandum, petitioner raises the following issues for the Courts consideration:

"1. The Court of Appeals committed judicial misconduct in finding liability against the petitioner on the basis
of a misquotation from KLM Royal Dutch Airlines vs. Court of Appeals, et al., 65 SCRA 237 and in
magnifying its misconduct by denying the petitioners Motion for Reconsideration on a mere syllabus,
unofficial at that.

"2. The Court of Appeals committed an error of law when it did not apply applicable precedents on the case
before it.

"3. The Court of Appeals committed a non sequitur when it did not rule on the cross-claim of the petitioner." 12

The Courts Ruling

The Petition is not meritorious.

First Issue:

Alleged Judicial Misconduct

Petitioner charges the CA with judicial misconduct for quoting from and basing its ruling against the two airlines on
an unofficial syllabus of this Courts ruling in KLM v. CA. Moreover, such misconduct was allegedly aggravated when
the CA, in an attempt to justify its action, held that the difference between the actual ruling and the syllabus was
"more apparent than real."13

We agree with petitioner that the CA committed a lapse when it relied merely on the unofficial syllabus of our ruling
in KLM v. CA. Indeed, lawyers and litigants are mandated to quote decisions of this Court accurately.14 By the same
token, judges should do no less by strictly abiding by this rule when they quote cases that support their judgments
and decisions. Canon 3 of the Code of Judicial Conduct enjoins them to perform official duties diligently by being
faithful to the law and maintaining their professional competence.

However, since this case is not administrative in nature, we cannot rule on the CA justices administrative liability, if
any, for this lapse. First, due process requires that in administrative proceedings, the respondents must first be
given an opportunity to be heard before sanctions can be imposed. Second, the present action is an appeal from the
CAs Decision, not an administrative case against the magistrates concerned. These two suits are independent of
and separate from each other and cannot be mixed in the same proceedings.

By merely including the lapse as an assigned error here without any adequate and proper administrative case
therefor, petitioner cannot expect the imposition of an administrative sanction.

In the case at bar, we can only determine whether the error in quotation would be sufficient to reverse or modify the
CA Decision.

Applicability of KLM v. CA
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
In KLM v. CA, the petitioner therein issued tickets to the Mendoza spouses for their world tour. The tour included a
Barcelona-Lourdes route, which was serviced by the Irish airline Aer Lingus. At the KLM office in Frankfurt,
Germany, they obtained a confirmation from Aer Lingus of their seat reservations on its Flight 861. On the day of
their departure, however, the airline rudely off-loaded them.

When sued for breach of contract, KLM sought to be excused for the wrongful conduct of Aer Lingus by arguing that
its liability for damages was limited only to occurrences on its own sectors. To support its argument, it cited Article 30
of the Warsaw Convention, stating that when transportation was to be performed by various successive carriers, the
passenger could take action only against the carrier that had performed the transportation when the accident or
delay occurred.

In holding KLM liable for damages, we ruled as follows:

"1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be sustained.
That article presupposes the occurrence of either an accident or a delay, neither of which took place at the
Barcelona airport; what is here manifest, instead, is that the Aer Lingus, through its manager there, refused
to transport the respondents to their planned and contracted destination.

"2. The argument that the KLM should not be held accountable for the tortious conduct of Aer Lingus
because of the provision printed on the respondents' tickets expressly limiting the KLM's liability for
damages only to occurrences on its own lines is unacceptable. As noted by the Court of Appeals that
condition was printed in letters so small that one would have to use a magnifying glass to read the words.
Under the circumstances, it would be unfair and inequitable to charge the respondents with automatic
knowledge or notice of the said condition so as to preclude any doubt that it was fairly and freely agreed
upon by the respondents when they accepted the passage tickets issued to them by the KLM. As the airline
which issued those tickets with the knowledge that the respondents would be flown on the various legs of
their journey by different air carriers, the KLM was chargeable with the duty and responsibility of specifically
informing the respondents of conditions prescribed in their tickets or, in the very least, to ascertain that the
respondents read them before they accepted their passage tickets. A thorough search of the record,
however, inexplicably fails to show that any effort was exerted by the KLM officials or employees to
discharge in a proper manner this responsibility to the respondents. Consequently, we hold that the
respondents cannot be bound by the provision in question by which KLM unilaterally assumed the role of a
mere ticket-issuing agent for other airlines and limited its liability only to untoward occurrences on its own
lines.

"3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of the
respondents provide that the carriage to be performed thereunder by several successive carriers is to be
regarded as a single operation, which is diametrically incompatible with the theory of the KLM that the
respondents entered into a series of independent contracts with the carriers which took them on the various
segments of their trip. This position of KLM we reject. The respondents dealt exclusively with the KLM which
issued them tickets for their entire trip and which in effect guaranteed to them that they would have sure
space in Aer Lingus flight 861. The respondents, under that assurance of the internationally prestigious
KLM, naturally had the right to expect that their tickets would be honored by Aer Lingus to which, in the legal
sense, the KLM had indorsed and in effect guaranteed the performance of its principal engagement to carry
out the respondents' scheduled itinerary previously and mutually agreed upon between the parties.

"4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary conduct of an
official of the Aer Lingus which the KLM had engaged to transport the respondents on the Barcelona-
Lourdes segment of their itinerary. It is but just and in full accord with the policy expressly embodied in our
civil law which enjoins courts to be more vigilant for the protection of a contracting party who occupies an
inferior position with respect to the other contracting party, that the KLM should be held responsible for the
abuse, injury and embarrassment suffered by the respondents at the hands of a supercilious boor of the Aer
Lingus."15

In the instant case, the CA ruled that under the contract of transportation, petitioner -- as the ticket-issuing carrier
(like KLM) -- was liable regardless of the fact that PAL was to perform or had performed the actual carriage. It
elucidated on this point as follows:

"By the very nature of their contract, defendant-appellant CAL is clearly liable under the contract of carriage
with [respondent] and remains to be so, regardless of those instances when actual carriage was to be
performed by another carrier. The issuance of a confirmed CAL ticket in favor of [respondent] covering his
entire trip abroad concretely attests to this. This also serves as proof that defendant-appellant CAL, in effect
guaranteed that the carrier, such as defendant-appellant PAL would honor his ticket, assure him of a space
therein and transport him on a particular segment of his trip." 16

Notwithstanding the errant quotation, we have found after careful deliberation that the assailed Decision is
supported in substance by KLM v. CA. The misquotation by the CA cannot serve as basis for the reversal of its
ruling.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Nonetheless, to avert similar incidents in the future, this Court hereby exhorts members of the bar and the bench to
refer to and quote from the official repository of our decisions, the Philippine Reports, whenever practicable.17In the
absence of this primary source, which is still being updated, they may resort to unofficial sources like the
SCRA.18 We remind them that the Courts ponencia, when used to support a judgment or ruling, should be quoted
accurately.19

Second Issue:

Liability of the Ticket-Issuing Airline

We now come to the main issue of whether CAL is liable for damages. Petitioner posits that the CA Decision must
be annulled, not only because it was rooted on an erroneous quotation, but also because it disregarded
jurisprudence, notably China Airlines v. Intermediate Appellate Court20 and China Airlines v. Court of Appeals.21

Jurisprudence Supports CA Decision

It is significant to note that the contract of air transportation was between petitioner and respondent, with the former
endorsing to PAL the Hong Kong-to-Manila segment of the journey. Such contract of carriage has always been
treated in this jurisdiction as a single operation. This jurisprudential rule is supported by the Warsaw Convention, 22 to
which the Philippines is a party, and by the existing practices of the International Air Transport Association (IATA).

Article 1, Section 3 of the Warsaw Convention states:

"Transportation to be performed by several successive air carriers shall be deemed, for the purposes of this
Convention, to be one undivided transportation, if it has been regarded by the parties as a single operation,
whether it has been agreed upon under the form of a single contract or of a series of contracts, and it shall
not lose its international character merely because one contract or a series of contracts is to be performed
entirely within a territory subject to the sovereignty, suzerainty, mandate, or authority of the same High
Contracting Party."23

Article 15 of IATA-Recommended Practice similarly provides:

"Carriage to be performed by several successive carriers under one ticket, or under a ticket and any
conjunction ticket issued therewith, is regarded as a single operation."

In American Airlines v. Court of Appeals,24 we have noted that under a general pool partnership agreement, the
ticket-issuing airline is the principal in a contract of carriage, while the endorsee-airline is the agent.

"x x x Members of the IATA are under a general pool partnership agreement wherein they act as agent of
each other in the issuance of tickets to contracted passengers to boost ticket sales worldwide and at the
same time provide passengers easy access to airlines which are otherwise inaccessible in some parts of the
world. Booking and reservation among airline members are allowed even by telephone and it has become
an accepted practice among them. A member airline which enters into a contract of carriage consisting of a
series of trips to be performed by different carriers is authorized to receive the fare for the whole trip and
through the required process of interline settlement of accounts by way of the IATA clearing house an airline
is duly compensated for the segment of the trip serviced. Thus, when the petitioner accepted the unused
portion of the conjunction tickets, entered it in the IATA clearing house and undertook to transport the private
respondent over the route covered by the unused portion of the conjunction tickets, i.e., Geneva to New
York, the petitioner tacitly recognized its commitment under the IATA pool arrangement to act as agent of the
principal contracting airline, Singapore Airlines, as to the segment of the trip the petitioner agreed to
undertake. As such, the petitioner thereby assumed the obligation to take the place of the carrier originally
designated in the original conjunction ticket. The petitioners argument that it is not a designated carrier in
the original conjunction tickets and that it issued its own ticket is not decisive of its liability. The new ticket
was simply a replacement for the unused portion of the conjunction ticket, both tickets being for the same
amount of US$ 2,760 and having the same points of departure and destination. By constituting itself as an
agent of the principal carrier the petitioners undertaking should be taken as part of a single operation under
the contract of carriage executed by the private respondent and Singapore Airlines in Manila." 25

Likewise, as the principal in the contract of carriage, the petitioner in British Airways v. Court of Appeals26 was held
liable, even when the breach of contract had occurred, not on its own flight, but on that of another airline. The
Decision followed our ruling in Lufthansa German Airlines v. Court of Appeals,27 in which we had held that the
obligation of the ticket-issuing airline remained and did not cease, regardless of the fact that another airline had
undertaken to carry the passengers to one of their destinations.

In the instant case, following the jurisprudence cited above, PAL acted as the carrying agent of CAL. In the same
way that we ruled against British Airways and Lufthansa in the aforementioned cases, we also rule that CAL cannot
evade liability to respondent, even though it may have been only a ticket issuer for the Hong Kong-Manila sector.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Moral and Exemplary Damages

Both the trial and the appellate courts found that respondent had satisfactorily proven the existence of the factual
basis for the damages adjudged against petitioner and PAL. As a rule, the findings of fact of the CA affirming those
of the RTC will not be disturbed by this Court.28 Indeed, the Supreme Court is not a trier of facts. As a rule also, only
questions of law -- as in the present recourse -- may be raised in petitions for review under Rule 45.

Moral damages cannot be awarded in breaches of carriage contracts, except in the two instances contemplated in
Articles 1764 and 2220 of the Civil Code, which we quote:

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

xxx xxx xxx

"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." (Italics supplied)

There is no occasion for us to invoke Article 1764 here. We must therefore determine if CAL or its agent (PAL) is
guilty of bad faith that would entitle respondent to moral damages.

In Lopez v. Pan American World Airways,29 we defined bad faith as a breach of a known duty through some motive
of interest or ill will.

In the case at bar, the known duty of PAL was to transport herein respondent from Hong Kong to Manila. That duty
arose when its agent confirmed his reservation for Flight PR 311, 30 and it became demandable when he presented
himself for the trip on November 24, 1981.

It is true that due to a typhoon, PAL was unable to transport respondent on Flight PR 311 on November 24, 1981.
This fact, however, did not terminate the carriers responsibility to its passengers. PAL voluntarily obligated itself to
automatically transfer all confirmed passengers of PR 311 to the next available flight, PR 307, on the following
day.31 That responsibility was subsisting when respondent, holding a confirmed ticket for the former flight, presented
himself for the latter.

The records amply establish that he secured repeated confirmations of his PR 311 flight on November 24, 1981.
Hence, he had every reason to expect that he would be put on the replacement flight as a confirmed passenger.
Instead, he was harangued and prevented from boarding the original and the replacement flights. Thus, PAL
breached its duty to transport him. After he had been directed to pay the terminal fee, his pieces of luggage were
removed from the weighing-in counter despite his protestations. 32

It is relevant to point out that the employees of PAL were utterly insensitive to his need to be in Manila on November
25, 1981, and to the likelihood that his business affairs in the city would be jeopardized because of a mistake on
their part. It was that mistake that had caused the omission of his name from the passenger list despite his
confirmed flight ticket. By merely looking at his ticket and validation sticker, it is evident that the glitch was the
airlines fault. However, no serious attempt was made by PAL to secure the all-important transportation of
respondent to Manila on the following day. To make matters worse, PAL allowed a group of non-revenue
passengers, who had no confirmed tickets or reservations, to board Flight PR 307. 33

Time and time again, this Court has stressed that the business of common carriers is imbued with public interest
and duty; therefore, the law governing them imposes an exacting standard. 34 In Singson v. Court of Appeals,35we
said:

"x x x [T]he carrier's utter lack of care and sensitivity to the needs of its passengers, clearly constitutive of
gross negligence, recklessness and wanton disregard of the rights of the latter, [are] acts evidently
indistinguishable or no different from fraud, malice and bad faith. As the rule now stands, where in breaching
the contract of carriage the defendant airline is shown to have acted fraudulently, with malice or in bad faith,
the award of moral and exemplary damages, in addition to actual damages, is proper." 36(Italics supplied)

In Saludo v. Court of Appeals,37 the Court reminded airline companies that due to the nature of their business, they
must not merely give cursory instructions to their personnel to be more accommodating towards customers,
passengers and the general public; they must require them to be so.

The acts of PALs employees, particularly Chan, clearly fell short of the extraordinary standard of care that the law
requires of common carriers.38 As narrated in Chans oral deposition,39 the manner in which the airline discharged its
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
responsibility to respondent and its other passengers manifested a lack of the requisite diligence and due regard for
their welfare. The pertinent portions of the Oral Deposition are reproduced as follows:

"Q Now you said that flight PR 311 on 24th November was cancelled due to [a] typhoon and naturally
the passengers on said flight had to be accommodated on the first flight the following day or the first flight
subsequently. [W]ill you tell the Honorable Deposition Officer the procedure followed by Philippine Airlines in
the handling of passengers of cancelled flight[s] like that of PR 311 which was cancelled due to [a] typhoon?

A The procedure will be: all the confirmed passengers from [PR] 311 24th November [are] automatically
transfer[red] to [PR] 307, 25th November[,] as a protection for all disconfirmed passengers.

Q Aside from this procedure[,] what do you do with the passengers on the cancelled flight who are
expected to check-in on the flights if this flight is cancelled or not operating due to typhoon or other
reasons[?] In other words, are they not notified of the cancellation?

A I think all these passengers were not notified because of a typhoon and Philippine Airlines
Reservation were [sic] not able to call every passenger by phone.

Atty. Fruto:

Q Did you say were not notified?

A I believe they were not, but believe me, I was on day-off.

Atty. Calica:

Q Per procedure, what should have been done by Reservations Office when a flight is cancelled for
one reason or another?

A If there is enough time, of course, Reservations Office x x x call[s] up all the passengers and tell[s]
them the reason. But if there [is] no time[,] then the Reservations Office will not be able to do that." 40

xxx xxx xxx

"Q I see. Miss Chan, I [will] show you a ticket which has been marked as Exh. A and A-1. Will you
please go over this ticket and tell the court whether this is the ticket that was used precisely by Mr. Chiok
when he checked-in at [F]light 307, 25 November 81?

A [Are you] now asking me whether he used this ticket with this sticker?

Q No, no, no. That was the ticket he used.

A Yes, [are you] asking me whether I saw this ticket?

Atty. Fruto: Yes.

A I believe I saw it.

Q You saw it, O.K. Now of course you will agree with me Miss Chan that this yellow stub here which
has been marked as Exh. A-1-A, show[s] that the status on flight 311, 24th November, is O.K., correct?

A Yes.

Q You agree with me. And you will also agree with me that in this ticket of flight 311, on this, another
sticker Exh. A-1-B for 24 November is O.K.?

A May I x x x look at them. Yes, it says O.K. x x x, but [there is] no validation.

Q O.K. Miss Chan what do you understand by these entries here R bar M N 6 V? 41

A This is what we call a computer reference.

Q I see. This is a computer reference showing that the name of Mr. Chiok has been entered in
Philippine Airlines computer, and this is his computer number.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
A Yes.

Q Now you stated in your answer to the procedure taken, that all confirmed passengers on flight 311,
24 November[,] were automatically transferred to 307 as a protection for the passengers, correct?

A Correct.

Q So that since following the O.K. status of Mr. Chioks reservation [on] flight 311, [he] was also
automatically transferred to flight 307 the following day?

A Should be.

Q Should be. O.K. Now do you remember how many passengers x x x were transferred from flight 311,
24 November to flight 307, 25 November 81?

A I can only give you a very brief idea because that was supposed to be air bus so it should be able to
accommodate 246 people; but how many [exactly], I dont know."42

xxx xxx xxx

"Q So, between six and eight oclock in the evening of 25 November 81, Mr. Chiok already told you that
he just [came] from the Swire Building where Philippine Airlines had [its] offices and that he told you that his
space for 311 25 November 81 was confirmed?

A Yes.

Q That is what he told you. He insisted on that flight?

A Yes.

Q And did you not try to call up Swire Building-- Philippine Airlines and verify indeed if Mr. Chiok was
there?

A Swire House building is not directly under Philippine Airlines. it is just an agency for selling Philippine
Airlines ticket. And besides around six o clock theyre close[d] in Central.

Q So this Swire Building is an agency authorized by Philippine Airlines to issue tickets for and on behalf
of Philippine Airlines and also...

A Yes.

Q And also to confirm spaces for and on behalf of Philippine Airlines.

A Yes."43

Under the foregoing circumstances, we cannot apply our 1989 ruling in China Airlines v. Intermediate Appellate
Court,44 which petitioner urges us to adopt. In that case, the breach of contract and the negligence of the carrier in
effecting the immediate flight connection for therein private respondent was incurred in good faith. 45 Having found no
gross negligence or recklessness, we thereby deleted the award of moral and exemplary damages against it. 46

This Courts 1992 ruling in China Airlines v. Court of Appeals47 is likewise inapplicable. In that case, we found no bad
faith or malice in the airlines breach of its contractual obligation. 48 We held that, as shown by the flow of telexes
from one of the airlines offices to the others, petitioner therein had exercised diligent efforts in assisting the private
respondent change his flight schedule. In the instant case, petitioner failed to exhibit the same care and sensitivity to
respondents needs.

In Singson v. Court of Appeals,49 we said:

"x x x Although the rule is that moral damages predicated upon a breach of contract of carriage may only be
recoverable in instances where the mishap results in the death of a passenger, or where the carrier is guilty
of fraud or bad faith, there are situations where the negligence of the carrier is so gross and reckless as to
virtually amount to bad faith, in which case, the passenger likewise becomes entitled to recover moral
damages."

In the present case, we stress that respondent had repeatedly secured confirmations of his PR 311 flight on
November 24, 1981 -- initially from CAL and subsequently from the PAL office in Hong Kong. The status of this flight
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
was marked "OK" on a validating sticker placed on his ticket. That sticker also contained the entry "RMN6V." Ms
Chan explicitly acknowledged that such entry was a computer reference that meant that respondents name had
been entered in PALs computer.

Since the status of respondent on Flight PR 311 was "OK," as a matter of right testified to by PALs witness, he
should have been automatically transferred to and allowed to board Flight 307 the following day. Clearly resulting
from negligence on the part of PAL was its claim that his name was not included in its list of passengers for the
November 24, 1981 PR 311 flight and, consequently, in the list of the replacement flight PR 307. Since he had
secured confirmation of his flight -- not only once, but twice -- by personally going to the carriers offices where he
was consistently assured of a seat thereon -- PALs negligence was so gross and reckless that it amounted to bad
faith.

In view of the foregoing, we rule that moral and exemplary 50 damages were properly awarded by the lower courts.51

Third Issue:

Propriety of the Cross-Claim

We now look into the propriety of the ruling on CALs cross-claim against PAL. Petitioner submits that the CA should
have ruled on the cross-claim, considering that the RTC had found that it was PALs employees who had acted
negligently.

Section 8 of Rule 6 of the Rules of Court reads:

"Sec. 8. Cross-claim. - A cross claim is any claim by one party against a co-party arising out of the
transaction or occurrence that is the subject matter either of the original action or of a counterclaim therein.
Such cross-claim may include a claim that the party against whom it is asserted is or may be liable to the
cross-claimant for all or part of a claim asserted in the action against the cross-claimant."

For purposes of a ruling on the cross-claim, PAL is an indispensable party. In BA Finance Corporation v. CA,52the
Court stated:

"x x x. An indispensable party is one whose interest will be affected by the courts action in the litigation, and
without whom no final determination of the case can be had. The partys interest in the subject matter of the
suit and in the relief sought are so inextricably intertwined with the other parties that his legal presence as a
party to the proceeding is an absolute necessity. In his absence there cannot be a resolution of the dispute
of the parties before the court which is effective, complete, or equitable.

xxx xxx xxx

"Without the presence of indispensable parties to a suit or proceeding, judgment of a court cannot attain real
finality."

PALs interest may be affected by any ruling of this Court on CALs cross-claim. Hence, it is imperative and in
accordance with due process and fair play that PAL should have been impleaded as a party in the present
proceedings, before this Court can make a final ruling on this matter.

Although PAL was petitioners co-party in the case before the RTC and the CA, petitioner failed to include the airline
in the present recourse. Hence, the Court has no jurisdiction over it. Consequently, to make any ruling on the cross-
claim in the present Petition would not be legally feasible because PAL, not being a party in the present case,
cannot be bound thereby.53

WHEREFORE, the Petition is DENIED. Costs against petitioner.

SO ORDERED.

Puno, Corona, and Carpio-Morales, JJ., concur.


Sandoval-Gutierrez, J., on official leave.

G.R. No. 101538 June 23, 1992

AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian, Augusto Benedicto Santos, petitioner,
vs.
NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law

CRUZ, J.:

This case involves the Proper interpretation of Article 28(1) of the Warsaw Convention, reading as follows:

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

The petitioner is a minor and a resident of the Philippines. Private respondent Northwest Orient Airlines (NOA) is a foreign corporation
with principal office in Minnesota, U.S.A. and licensed to do business and maintain a branch office in the Philippines.

On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San Francisco. U.S.A., for his flight from San Francisco
to Manila via Tokyo and back. The scheduled departure date from Tokyo was December 20, 1986. No date was specified for his return
to San Francisco. 1

On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco airport for his scheduled departure to
Manila. Despite a previous confirmation and re-confirmation, he was informed that he had no reservation for his flight from Tokyo to
Manila. He therefore had to be wait-listed.

On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court of Makati. On April 13, 1987, NOA moved to
dismiss the complaint on the ground of lack of jurisdiction. Citing the above-quoted article, it contended that the complaint could be
instituted only in the territory of one of the High Contracting Parties, before:

1. the court of the domicile of the carrier;

2. the court of its principal place of business;

3. the court where it has a place of business through which the contract had been made;

4. the court of the place of destination.

The private respondent contended that the Philippines was not its domicile nor was this its principal place of business. Neither was the
petitioner's ticket issued in this country nor was his destination Manila but San Francisco in the United States.

On February 1, 1988, the lower court granted the motion and dismissed the case. 2 The petitioner appealed to the Court of
Appeals, which affirmed the decision of the lower court. 3 On June 26, 1991, the petitioner filed a motion for
reconsideration, but the same was denied. 4 The petitioner then came to this Court, raising substantially the same issues it
submitted in the Court of Appeals.

The assignment of errors may be grouped into two major issues, viz:

(1) the constitutionality of Article 28(1) of the Warsaw Convention; and

(2) the jurisdiction of Philippine courts over the case.

The petitioner also invokes Article 24 of the Civil Code on the protection of minors.

THE ISSUE OF CONSTITUTIONALITY

A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of the Warsaw Convention violates
the constitutional guarantees of due process and equal protection.

The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules Relating to International Transportation
by Air, otherwise known as the Warsaw Convention. It took effect on February 13, 1933. The Convention was concurred in by the
Senate, through its Resolution No. 19, on May 16, 1950. The Philippine instrument of accession was signed by President Elpidio
Quirino on October 13, 1950, and was deposited with the Polish government on November 9, 1950. The Convention became applicable
to the Philippines on February 9, 1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201, declaring
our formal adherence thereto. "to the end that the same and every article and clause thereof may be observed and fulfilled in good faith
by the Republic of the Philippines and the citizens thereof." 5

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

The petitioner contends that Article 28(1) cannot be applied in the present case because it is unconstitutional. He argues that there is
no substantial distinction between a person who purchases a ticket in Manila and a person who purchases his ticket in San Francisco.
The classification of the places in which actions for damages may be brought is arbitrary and irrational and thus violates the due
process and equal protection clauses.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
It is well-settled that courts will assume jurisdiction over a constitutional question only if it is shown that the essential requisites of a
judicial inquiry into such a question are first satisfied. Thus, there must be an actual case or controversy involving a conflict of legal
rights susceptible of judicial determination; the constitutional question must have been opportunely raised by the proper party; and the
resolution of the question is unavoidably necessary to the decision of the case itself. 6

Courts generally avoid having to decide a constitutional question. This attitude is based on the doctrine of separation of powers, which
enjoins upon the departments of the government a becoming respect for each other's acts.

The treaty which is the subject matter of this petition was a joint legislative-executive act. The presumption is that it was first carefully
studied and determined to be constitutional before it was adopted and given the force of law in this country.

The petitioner's allegations are not convincing enough to overcome this presumption. Apparently, the Convention considered the four
places designated in Article 28 the most convenient forums for the litigation of any claim that may arise between the airline and its
passenger, as distinguished from all other places. At any rate, we agree with the respondent court that this case can be decided on
other grounds without the necessity of resolving the constitutional issue.

B. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the Warsaw Convention is
inapplicable because of a fundamental change in the circumstances that served as its basis.

The petitioner goes at great lengths to show that the provisions in the Convention were intended to protect airline companies under "the
conditions prevailing then and which have long ceased to exist." He argues that in view of the significant developments in the airline
industry through the years, the treaty has become irrelevant. Hence, to the extent that it has lost its basis for approval, it has become
unconstitutional.

The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup, "this doctrine constitutes an attempt to formulate a
legal principle which would justify non-performance of a treaty obligation if the conditions with relation to which the parties contracted
have changed so materially and so unexpectedly as to create a situation in which the exaction of performance would be
unreasonable." 7 The key element of this doctrine is the vital change in the condition of the contracting parties that they
could not have foreseen at the time the treaty was concluded.

The Court notes in this connection the following observation made in Day v. Trans World Airlines, Inc.: 8

The Warsaw drafters wished to create a system of liability rules that would cover all the hazards of air travel . . . The
Warsaw delegates knew that, in the years to come, civil aviation would change in ways that they could not foresee.
They wished to design a system of air law that would be both durable and flexible enough to keep pace with these
changes . . . The ever-changing needs of the system of civil aviation can be served within the framework they
created.

It is true that at the time the Warsaw Convention was drafted, the airline industry was still in its infancy. However, that circumstance
alone is not sufficient justification for the rejection of the treaty at this time. The changes recited by the petitioner were, realistically, not
entirely unforeseen although they were expected in a general sense only. In fact, the Convention itself, anticipating such developments,
contains the following significant provision:

Article 41. Any High Contracting Party shall be entitled not earlier than two years after the coming into force of this
convention to call for the assembling of a new international conference in order to consider any improvements which
may be made in this convention. To this end, it will communicate with the Government of the French Republic which
will take the necessary measures to make preparations for such conference.

But the more important consideration is that the treaty has not been rejected by the Philippine government. The doctrine of rebus sic
stantibus does not operate automatically to render the treaty inoperative. There is a necessity for a formal act of rejection, usually made
by the head of State, with a statement of the reasons why compliance with the treaty is no longer required.

In lieu thereof, the treaty may be denounced even without an expressed justification for this action. Such denunciation is authorized
under its Article 39, viz:

Article 39. (1) Any one of the High Contracting Parties may denounce this convention by a notification addressed to
the Government of the Republic of Poland, which shall at once inform the Government of each of the High
Contracting Parties.

(2) Denunciation shall take effect six months after the notification of denunciation, and shall operate only as regards
the party which shall have proceeded to denunciation.

Obviously. rejection of the treaty, whether on the ground of rebus sic stantibus or pursuant to Article 39, is not a function of the courts
but of the other branches of government. This is a political act. The conclusion and renunciation of treaties is the prerogative of the
political departments and may not be usurped by the judiciary. The courts are concerned only with the interpretation and application of
laws and treaties in force and not with their wisdom or efficacy.

C. The petitioner claims that the lower court erred in ruling that the plaintiff must sue in the United States, because
this would deny him the right to access to our courts.

The petitioner alleges that the expenses and difficulties he will incur in filing a suit in the United States would constitute a constructive
denial of his right to access to our courts for the protection of his rights. He would consequently be deprived of this vital guaranty as
embodied in the Bill of Rights.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Obviously, the constitutional guaranty of access to courts refers only to courts with appropriate jurisdiction as defined by law. It does not
mean that a person can go to any court for redress of his grievances regardless of the nature or value of his claim. If the petitioner is
barred from filing his complaint before our courts, it is because they are not vested with the appropriate jurisdiction under the Warsaw
Convention, which is part of the law of our land.

II

THE ISSUE OF JURISDICTION.

A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of the Warsaw Convention is a rule
merely of venue and was waived by defendant when it did not move to dismiss on the ground of improper venue.

By its own terms, the Convention applies to all international transportation of persons performed by aircraft for hire.

International transportation is defined in paragraph (2) of Article 1 as follows:

(2) For the purposes of this convention, the expression "international transportation" shall mean any transportation in
which, according to the contract made by the parties, the place of departure and the place of destination, whether or
not there be a break in the transportation or a transshipment, are situated [either] within the territories of two High
Contracting Parties . . .

Whether the transportation is "international" is determined by the contract of the parties, which in the case of passengers is the ticket.
When the contract of carriage provides for the transportation of the passenger between certain designated terminals "within the
territories of two High Contracting Parties," the provisions of the Convention automatically apply and exclusively govern the rights and
liabilities of the airline and its passenger.

Since the flight involved in the case at bar is international, the same being from the United States to the Philippines and back to the
United States, it is subject to the provisions of the Warsaw Convention, including Article 28(1), which enumerates the four places where
an action for damages may be brought.

Whether Article 28(1) refers to jurisdiction or only to venue is a question over which authorities are sharply divided. While the petitioner
cites several cases holding that Article 28(1) refers to venue rather than jurisdiction, 9 there are later cases cited by the private
respondent supporting the conclusion that the provision is jurisdictional. 10

Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent or waiver upon d court which otherwise
would have no jurisdiction over the subject-matter of an action; but the venue of an action as fixed by statute may be changed by the
consent of the parties and an objection that the plaintiff brought his suit in the wrong county may be waived by the failure of the
defendant to make a timely objection. In either case, the court may render a valid judgment. Rules as to jurisdiction can never be left to
the consent or agreement of the parties, whether or not a prohibition exists against their alteration. 11

A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and not a venue provision. First, the wording
of Article 32, which indicates the places where the action for damages "must" be brought, underscores the mandatory nature of Article
28(1). Second, this characterization is consistent with one of the objectives of the Convention, which is to "regulate in a uniform manner
the conditions of international transportation by air." Third, the Convention does not contain any provision prescribing rules of
jurisdiction other than Article 28(1), which means that the phrase "rules as to jurisdiction" used in Article 32 must refer only to Article
28(1). In fact, the last sentence of Article 32 specifically deals with the exclusive enumeration in Article 28(1) as "jurisdictions," which, as
such, cannot be left to the will of the parties regardless of the time when the damage occurred.

This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways, Ltd., 12 where it was held:

. . . Of more, but still incomplete, assistance is the wording of Article 28(2), especially when considered in the light of
Article 32. Article 28(2) provides that "questions of procedure shall be governed by the law of the court to which the
case is submitted" (Emphasis supplied). Section (2) thus may be read to leave for domestic decision questions
regarding the suitability and location of a particular Warsaw Convention case.

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

The petitioner submits that since Article 32 states that the parties are precluded "before the damages occurred" from amending the
rules of Article 28(1) as to the place where the action may be brought, it would follow that the Warsaw Convention was not intended to
preclude them from doing so "after the damages occurred."

Article 32 provides:

Art. 32. Any clause contained in the contract and all special agreements entered into before the damage occurred by
which the parties purport to infringe the rules laid down by this convention, whether by deciding the law to be applied,
or by altering the rules as to jurisdiction, shall be null and void. Nevertheless for the transportation of goods,
arbitration clauses shall be allowed, subject to this convention, if the arbitration is to take place within one of the
jurisdictions referred to in the first paragraph of Article 28.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
His point is that since the requirements of Article 28(1) can be waived "after the damages (shall have) occurred," the article should be
regarded as possessing the character of a "venue" and not of a "jurisdiction" provision. Hence, in moving to dismiss on the ground of
lack of jurisdiction, the private respondent has waived improper venue as a ground to dismiss.

The foregoing examination of Article 28(1) in relation to Article 32 does not support this conclusion. In any event, we agree that even
granting arguendo that Article 28(1) is a venue and not a jurisdictional provision, dismissal of the case was still in order. The respondent
court was correct in affirming the ruling of the trial court on this matter, thus:

Santos' claim that NOA waived venue as a ground of its motion to dismiss is not correct. True it is that NOA averred
in its MOTION TO DISMISS that the ground thereof is "the Court has no subject matter jurisdiction to entertain the
Complaint" which SANTOS considers as equivalent to "lack of jurisdiction over the subject matter . . ." However, the
gist of NOA's argument in its motion is that the Philippines is not the proper place where SANTOS could file the
action meaning that the venue of the action is improperly laid. Even assuming then that the specified ground of the
motion is erroneous, the fact is the proper ground of the motion improper venue has been discussed therein.

Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-waiver if there are special circumstances
justifying this conclusion, as in the petition at bar. As we observed in Javier vs. Intermediate Court of Appeals: 13

Legally, of course, the lack of proper venue was deemed waived by the petitioners when they failed to invoke it in
their original motion to dismiss. Even so, the motivation of the private respondent should have been taken into
account by both the trial judge and the respondent court in arriving at their decisions.

The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our Court of Appeals, where it was held that Article
28(1) is a venue provision. However, the private respondent avers that this was in effect reversed by the case of Aranas v.
United Airlines, 15 where the same court held that Article 28(1) is a jurisdictional provision. Neither of these cases is
binding on this Court, of course, nor was either of them appealed to us. Nevertheless, we here express our own
preference for the later case of Aranas insofar as its pronouncements on jurisdiction conform to the judgment we now
make in this petition.

B. The petitioner claims that the lower court erred in not ruling that under Article 28(1) of the Warsaw Convention, this
case was properly filed in the Philippines, because Manila was the destination of the plaintiff.

The Petitioner contends that the facts of this case are analogous to those in Aanestad v. Air Canada. 16 In that case, Mrs. Silverberg
purchased a round-trip ticket from Montreal to Los Angeles and back to Montreal. The date and time of departure were
specified but not of the return flight. The plane crashed while on route from Montreal to Los Angeles, killing Mrs.
Silverberg. Her administratrix filed an action for damages against Air Canada in the U.S. District Court of California. The
defendant moved to dismiss for lack of jurisdiction but the motion was denied thus:

. . . It is evident that the contract entered into between Air Canada and Mrs. Silverberg as evidenced by the ticket
booklets and the Flight Coupon No. 1, was a contract for Air Canada to carry Mrs. Silverberg to Los Angeles on a
certain flight, a certain time and a certain class, but that the time for her to return remained completely in her power.
Coupon No. 2 was only a continuing offer by Air Canada to give her a ticket to return to Montreal between certain
dates. . . .

The only conclusion that can be reached then, is that "the place of destination" as used in the Warsaw Convention is
considered by both the Canadian C.T.C. and the United States C.A.B. to describe at least two "places of
destination," viz., the "place of destination" of a particular flight either an "outward destination" from the "point of
origin" or from the "outward point of destination" to any place in Canada.

Thus the place of destination under Art. 28 and Art. 1 of the Warsaw Convention of the flight on which Mrs. Silverberg
was killed, was Los Angeles according to the ticket, which was the contract between the parties and the suit is
properly filed in this Court which has jurisdiction.

The Petitioner avers that the present case falls squarely under the above ruling because the date and time of his return flight to San
Francisco were, as in the Aanestad case, also left open. Consequently, Manila and not San Francisco should be considered the
petitioner's destination.

The private respondent for its part invokes the ruling in Butz v. British Airways, 17 where the United States District Court (Eastern
District of Pennsylvania) said:

. . . Although the authorities which addressed this precise issue are not extensive, both the cases and the
commentators are almost unanimous in concluding that the "place of destination" referred to in the Warsaw
Convention "in a trip consisting of several parts . . . is the ultimate destination that is accorded treaty jurisdiction." . . .

But apart from that distinguishing feature, I cannot agree with the Court's analysis in Aanestad; whether the return
portion of the ticket is characterized as an option or a contract, the carrier was legally bound to transport the
passenger back to the place of origin within the prescribed time and. the passenger for her part agreed to pay the
fare and, in fact, did pay the fare. Thus there was mutuality of obligation and a binding contract of carriage, The fact
that the passenger could forego her rights under the contract does not make it any less a binding contract. Certainly,
if the parties did not contemplate the return leg of the journey, the passenger would not have paid for it and the carrier
would not have issued a round trip ticket.

We agree with the latter case. The place of destination, within the meaning of the Warsaw Convention, is determined by the terms of
the contract of carriage or, specifically in this case, the ticket between the passenger and the carrier. Examination of the petitioner's
ticket shows that his ultimate destination is San Francisco. Although the date of the return flight was left open, the contract of carriage
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
between the parties indicates that NOA was bound to transport the petitioner to San Francisco from Manila. Manila should therefore be
considered merely an agreed stopping place and not the destination.

The petitioner submits that the Butz case could not have overruled the Aanestad case because these decisions are from different
jurisdictions. But that is neither here nor there. In fact, neither of these cases is controlling on this Court. If we have preferred the Butz
case, it is because, exercising our own freedom of choice, we have decided that it represents the better, and correct, interpretation of
Article 28(1).

Article 1(2) also draws a distinction between a "destination" and an "agreed stopping place." It is the "destination" and not an "agreed
stopping place" that controls for purposes of ascertaining jurisdiction under the Convention.

The contract is a single undivided operation, beginning with the place of departure and ending with the ultimate destination. The use of
the singular in this expression indicates the understanding of the parties to the Convention that every contract of carriage has one place
of departure and one place of destination. An intermediate place where the carriage may be broken is not regarded as a "place of
destination."

C. The petitioner claims that the lower court erred in not ruling that under Art. 28(1) of the Warsaw Convention, this
case was properly filed in the Philippines because the defendant has its domicile in the Philippines.

The petitioner argues that the Warsaw Convention was originally written in French and that in interpreting its provisions, American
courts have taken the broad view that the French legal meaning must govern. 18 In French, he says, the "domicile" of the carrier
means every place where it has a branch office.

The private respondent notes, however, that in Compagnie Nationale Air France vs. Giliberto, 19 it was held:

The plaintiffs' first contention is that Air France is domiciled in the United States. They say that the domicile of a
corporation includes any country where the airline carries on its business on "a regular and substantial basis," and
that the United States qualifies under such definition. The meaning of domicile cannot, however, be so extended. The
domicile of a corporation is customarily regarded as the place where it is incorporated, and the courts have given the
meaning to the term as it is used in article 28(1) of the Convention. (See Smith v. Canadian Pacific Airways, Ltd. (2d
Cir. 1971), 452 F2d 798, 802; Nudo v. Societe Anonyme Belge d' Exploitation de la Navigation Aerienne Sabena
Belgian World Airlines (E.D. pa. 1962). 207 F. Supp, 191; Karfunkel v. Compagnie Nationale Air France (S.D.N.Y.
1977), 427 F. Suppl. 971, 974). Moreover, the structure of article 28(1), viewed as a whole, is also incompatible with
the plaintiffs' claim. The article, in stating that places of business are among the bases of the jurisdiction, sets out two
places where an action for damages may be brought; the country where the carrier's principal place of business is
located, and the country in which it has a place of business through which the particular contract in question was
made, that is, where the ticket was bought, Adopting the plaintiffs' theory would at a minimum blur these carefully
drawn distinctions by creating a third intermediate category. It would obviously introduce uncertainty into litigation
under the article because of the necessity of having to determine, and without standards or criteria, whether the
amount of business done by a carrier in a particular country was "regular" and "substantial." The plaintiff's request to
adopt this basis of jurisdiction is in effect a request to create a new jurisdictional standard for the Convention.

Furthermore, it was argued in another case 20 that:

. . . In arriving at an interpretation of a treaty whose sole official language is French, are we bound to apply French
law? . . . We think this question and the underlying choice of law issue warrant some discussion
. . . We do not think this statement can be regarded as a conclusion that internal French law is to be "applied" in the
choice of law sense, to determine the meaning and scope of the Convention's terms. Of course, French legal usage
must be considered in arriving at an accurate English translation of the French. But when an accurate English
translation is made and agreed upon, as here, the inquiry into meaning does not then revert to a quest for a past or
present French law to be "applied" for revelation of the proper scope of the terms. It does not follow from the fact that
the treaty is written in French that in interpreting it, we are forever chained to French law, either as it existed when the
treaty was written or in its present state of development. There is no suggestion in the treaty that French law was
intended to govern the meaning of Warsaw's terms, nor have we found any indication to this effect in its legislative
history or from our study of its application and interpretation by other courts. Indeed, analysis of the cases indicates
that the courts, in interpreting and applying the Warsaw Convention, have, not considered themselves bound to apply
French law simply because the Convention is written in French. . . .

We agree with these rulings.

Notably, the domicile of the carrier is only one of the places where the complaint is allowed to be filed under Article 28(1). By specifying
the three other places, to wit, the principal place of business of the carrier, its place of business where the contract was made, and the
place of destination, the article clearly meant that these three other places were not comprehended in the term "domicile."

D. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the Warsaw Convention does not
apply to actions based on tort.

The petitioner alleges that the gravamen of the complaint is that private respondent acted arbitrarily and in bad faith, discriminated
against the petitioner, and committed a willful misconduct because it canceled his confirmed reservation and gave his reserved seat to
someone who had no better right to it. In short. the private respondent committed a tort.

Such allegation, he submits, removes the present case from the coverage of the Warsaw Convention. He argues that in at least two
American cases, 21 it was held that Article 28(1) of the Warsaw Convention does not apply if the action is based on tort.

This position is negated by Husserl v. Swiss Air Transport Company, 22 where the article in question was interpreted thus:
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
. . . Assuming for the present that plaintiff's claim is "covered" by Article 17, Article 24 clearly excludes any relief not
provided for in the Convention as modified by the Montreal Agreement. It does not, however, limit the kind of cause of
action on which the relief may be founded; rather it provides that any action based on the injuries specified in Article
17 "however founded," i.e., regardless of the type of action on which relief is founded, can only be brought subject to
the conditions and limitations established by the Warsaw System. Presumably, the reason for the use of the phrase
"however founded," in two-fold: to accommodate all of the multifarious bases on which a claim might be founded in
different countries, whether under code law or common law, whether under contract or tort, etc.; and to include all
bases on which a claim seeking relief for an injury might be founded in any one country. In other words, if the injury
occurs as described in Article 17, any relief available is subject to the conditions and limitations established by the
Warsaw System, regardless of the particular cause of action which forms the basis on which a plaintiff could seek
relief . . .

The private respondent correctly contends that the allegation of willful misconduct resulting in a tort is insufficient to exclude the case
from the comprehension of the Warsaw Convention. The petitioner has apparently misconstrued the import of Article 25(l) of the
Convention, which reads as follows:

Art. 25 (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 willful 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 willful misconduct.

It is understood under this article that the court called upon to determine the applicability of the limitation provision must first be vested
with the appropriate jurisdiction. Article 28(1) is the provision in the Convention which defines that jurisdiction. Article 22 23 merely fixes
the monetary ceiling for the liability of the carrier in cases covered by the Convention. If the carrier is indeed guilty of willful
misconduct, it can avail itself of the limitations set forth in this article. But this can be done only if the action has first been
commenced properly under the rules on jurisdiction set forth in Article 28(1).

III

THE ISSUE OF PROTECTION TO MINORS

The petitioner calls our attention to Article 24 of the Civil Code, which states:

Art. 24. In all contractual property or other relations, when one of the parties is at a disadvantage on account of his
moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant
for his protection.

Application of this article to the present case is misplaced. The above provision assumes that the court is vested with jurisdiction to rule
in favor of the disadvantaged minor, As already explained, such jurisdiction is absent in the case at bar.

CONCLUSION

A number of countries have signified their concern over the problem of citizens being denied access to their own courts because of the
restrictive provision of Article 28(1) of the Warsaw Convention. Among these is the United States, which has proposed an amendment
that would enable the passenger to sue in his own domicile if the carrier does business in that jurisdiction. The reason for this proposal
is explained thus:

In the event a US citizen temporarily residing abroad purchases a Rome to New York to Rome ticket on a foreign air
carrier which is generally subject to the jurisdiction of the US, Article 28 would prevent that person from suing the
carrier in the US in a "Warsaw Case" even though such a suit could be brought in the absence of the Convention.

The proposal was incorporated in the Guatemala Protocol amending the Warsaw Convention, which was adopted at Guatemala City on
March 8,
1971. 24 But it is still ineffective because it has not yet been ratified by the required minimum number of contracting parties.
Pending such ratification, the petitioner will still have to file his complaint only in any of the four places designated by
Article 28(1) of the Warsaw Convention.

The proposed amendment bolsters the ruling of this Court that a citizen does not necessarily have the right to sue in his own courts
simply because the defendant airline has a place of business in his country.

The Court can only sympathize with the petitioner, who must prosecute his claims in the United States rather than in his own country at
least inconvenience. But we are unable to grant him the relief he seeks because we are limited by the provisions of the Warsaw
Convention which continues to bind us. It may not be amiss to observe at this point that the mere fact that he will have to litigate in the
American courts does not necessarily mean he will litigate in vain. The judicial system of that country in known for its sense of fairness
and, generally, its strict adherence to the rule of law.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.

Narvasa, C.J., Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Grio-Aquino, Medialdea, Regalado, Davide, Jr., Romero, Nocon and
Bellosillo, JJ., concur.

G.R. No. 127768 November 19, 1999


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
UNITED AIRLINES, petitioner,
vs.
WILLIE J. UY, respondent.

BELLOSILLO, J.:

UNITED AIRLINES assails in this petition for review on certiorari under Rule 45 the 29 August 1995 Decision of the
Court of Appeals in CA-G.R. CV No. 39761 which reversed the 7 August 1992 order issued by the trial court in Civil
Case No. Q-92-12410 1 granting petitioner's motion to dismiss based on prescription of cause of action. The issues
sought to be resolved are whether the notice of appeal to the appellate court was timely filed, and whether Art. 29 of the
Warsaw Convention 2 should apply to the case at bar.

On 13 October 1989 respondent Willie J. Uy, a revenue passenger on United Airlines Flight No. 819 for the San
Francisco Manila route, checked in together with his luggage one piece of which was found to be overweight at
the airline counter. To his utter humiliation, an employee of petitioner rebuked him saying that he should have known
the maximum weight allowance to be 70 kgs. per bag and that he should have packed his things accordingly. Then,
in a loud voice in front of the milling crowd, she told respondent to repack his things and transfer some of them from
the overweight luggage to the lighter ones. Not wishing to create further scene, respondent acceded only to find his
luggage still overweight. The airline then billed him overweight charges which he offered to pay with a miscellaneous
charge order (MCO) or an airline pre-paid credit. However, the airline's employee, and later its airport supervisor,
adamantly refused to honor the MCO pointing out that there were conflicting figures listed on it. Despite the
explanation from respondent that the last figure written on the MCO represented his balance, petitioner's employees
did not accommodate him. Faced with the prospect of leaving without his luggage, respondent paid the overweight
charges with his American Express credit card.

Respondent's troubles did not end there. Upon arrival in Manila, he discovered that one of his bags had been
slashed and its contents stolen. He particularized his losses to be around US $5,310.00. In a letter dated 16
October 1989 respondent bewailed the insult, embarrassment and humiliating treatment he suffered in the hands of
United Airlines employees, notified petitioner of his loss and requested reimbursement thereof. Petitioner United
Airlines, through Central Baggage Specialist Joan Kroll, did not refute any of respondent's allegations and mailed a
check representing the payment of his loss based on the maximum liability of US $9.70 per pound. Respondent,
thinking the amount to be grossly inadequate to compensate him for his losses, as well as for the indignities he was
subjected to, sent two (2) more letters to petitioner airline, one dated 4 January 1990 through a certain Atty.
Pesigan, and another dated 28 October 1991 through Atty. Ramon U. Ampil demanding an out-of-court settlement of
P1,000,000.00. Petitioner United Airlines did not accede to his demands.

Consequently, on 9 June 1992 respondent filed a complaint for damages against United Airlines alleging that he was
a person of good station, sitting in the board of directors of several top 500 corporations and holding senior
executive positions for such similar firms; 3 that petitioner airline accorded him ill and shabby treatment to his extreme
embarrassment and humiliation; and, as such he should be paid moral damages of at least P1,000,000.00, exemplary
damages of at least P500,000.00, plus attorney's fees of at least P50,000.00. Similarly, he alleged that the damage to his
luggage and its stolen contents amounted to around $5,310.00, and requested reimbursement therefor.

United Airlines moved to dismiss the complaint on the ground that respondent's cause of action had prescribed,
invoking Art. 29 of the Warsaw Convention which provides

Art. 29 (1) The right to damages shall be extinguished if an action is not brought within two (2) years,
reckoned from the date of arrival at the destination, or from the date on which the aircraft ought to
have arrived, or from the date on which the transportation stopped.

(2) The method of calculating the period of limitation shall be determined by the law of the court to
which the case is submitted.

Respondent countered that par. (1) of Art. 29 of the Warsaw Convention must be reconciled with par. (2) thereof
which states that "the method of calculating the period of limitation shall be determined by the law of the court to
which the case is submitted." Interpreting thus, respondent noted that according to Philippine laws the prescription
of actions is interrupted "when they are filed before the court, when there is a written extrajudicial demand by the
creditors, and when there is any written acknowledgment of the debt by the debtor." 4 Since he made several
demands upon United Airlines: first, through his personal letter dated 16 October 1989; second, through a letter dated 4
January 1990 from Atty. Pesigan; and, finally, through a letter dated 28 October 1991 written for him by Atty. Ampil, the
two (2)-year period of limitation had not yet been exhausted.

On 2 August 1992 the trial court ordered the dismissal of the action holding that the language of Art. 29 is clear that
the action must be brought within two (2) years from the date of arrival at the destination. It held that although the
second paragraph of Art. 29 speaks of deference to the law of the local court in "calculating the period of limitation,"
the same does not refer to the local forum's rules in interrupting the prescriptive period but only to the rules of
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
determining the time in which the action may be deemed commenced, and within our jurisdiction the action shall be
deemed "brought" or commenced by the filing of a complaint. Hence, the trial court concluded that Art. 29 excludes
the application of our interruption rules.

Respondent received a copy of the dismissal order on 17 August 1992. On 31 August 1992, or fourteen (14) days
later, he moved for the reconsideration of the trial court's order. The trial court denied the motion and respondent
received copy of the denial order on 28 September 1992. Two (2) days later, on 1 October 1992 respondent filed his
notice of appeal.

United Airlines once again moved for the dismissal of the case this time pointing out that respondent's fifteen (15)-
day period to appeal had already elapsed. Petitioner argued that having used fourteen (14) days of the
reglementary period for appeal, respondent Uy had only one (1) day remaining to perfect his appeal, and since he
filed his notice of appeal two (2) days later, he failed to meet the deadline.

In its questioned Decision dated 29 August 1995 5 the appellate court gave due course to the appeal holding that
respondent's delay of two (2) days in filing his notice of appeal did not hinder it from reviewing the appealed order of
dismissal since jurisprudence dictates that an appeal may be entertained despite procedural lapses anchored on equity
and justice.

On the applicability of the Warsaw Convention, the appellate court ruled that the Warsaw Convention did not
preclude the operation of the Civil Code and other pertinent laws. Respondent's failure to file his complaint within
the two (2)-year limitation provided in the Warsaw Convention did not bar his action since he could still hold
petitioner liable for breach of other provisions of the Civil Code which prescribe a different period or procedure for
instituting an action. Further, under Philippine laws, prescription of actions is interrupted where, among others, there
is a written extrajudicial demand by the creditors, and since respondent Uy sent several demand letters to petitioner
United Airlines, the running of the two (2)-year prescriptive period was in effect suspended. Hence, the appellate
court ruled that respondent's cause of action had not yet prescribed and ordered the records remanded to the
Quezon City trial court for further proceedings.

Petitioner now contends that the appellate court erred in assuming jurisdiction over respondent's appeal since it is
clear that the notice of appeal was filed out of time. It argues that the courts relax the stringent rule on perfection of
appeals only when there are extraordinary circumstances, e.g., when the Republic stands to lose hundreds of
hectares of land already titled and used for educational purposes; when the counsel of record was already dead;
and wherein appellant was the owner of the trademark for more than thirty (30) years, and the circumstances of the
present case do not compare to the above exceptional cases. 6

Sec. 1 of Rule 45 of the 1997 Rules of Civil Procedure provides that "a party may appeal by certiorari, from a
judgment of the Court of Appeals, by filing with the Supreme Court a petition for certiorari, within fifteen (15) days
from notice of judgment or of the denial of his motion for reconsideration filed in due time . . . ." This Rule however
should not be interpreted as "to sacrifice the substantial right of the appellant in the sophisticated altar of
technicalities with impairment of the sacred principles of justice." 7 It should be borne in mind that the real purpose
behind the limitation of the period of appeal is to forestall or avoid an unreasonable delay in the administration of justice.
Thus, we have ruled that delay in the filing of a notice of appeal does not justify the dismissal of the appeal where the
circumstances of the case show that there is no intent to delay the administration of justice on the part of appellant's
counsel, 8 or when there are no substantial rights affected, 9 or when appellant's counsel committed a mistake in the
computation of the period of appeal, an error not attributable to negligence or bad faith. 10

In the instant case, respondent filed his notice of appeal two (2) days later than the prescribed period. Although his
counsel failed to give the reason for the delay, we are inclined to give due course to his appeal due to the unique
and peculiar facts of the case and the serious question of law it poses. In the now almost trite but still good principle,
technicality, when it deserts its proper office as an aid to justice and becomes its great hindrance and chief enemy,
deserves scant consideration. 11

Petitioner likewise contends that the appellate court erred in ruling that respondent's cause of action has not
prescribed since delegates to the Warsaw Convention clearly intended the two (2)-year limitation incorporated in Art.
29 as an absolute bar to suit and not to be made subject to the various tolling provisions of the laws of the forum.
Petitioner argues that in construing the second paragraph of Art. 29 private respondent cannot read into it Philippine
rules on interruption of prescriptive periods and state that his extrajudicial demand has interrupted the period of
prescription. 12 American jurisprudence has declared that "Art. 29 (2) was not intended to permit forums to consider local
limitation tolling provisions but only to let local law determine whether an action had been commenced within the two-year
period, since the method of commencing a suit varies from country to country." 13

Within our jurisdiction we have held that the Warsaw Convention can be applied, or ignored, depending on the
peculiar facts presented by each case. 14 Thus, we have ruled that the Convention's provisions do not regulate or
exclude liability for other breaches of contract by the carrier or misconduct of its officers and employees, or for some
particular or exceptional type of damage. 15 Neither may the Convention be invoked to justify the disregard of some
extraordinary sort of damage resulting to a passenger and preclude recovery therefor beyond the limits set by said
Convention. 16 Likewise, we have held that the Convention does not preclude the operation of the Civil Code and other
pertinent laws. 17 It does not regulate, much less exempt, the carrier from liability for damages for violating the rights of its
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
passengers under the contract of carriage, especially if willful misconduct on the part of the carrier's employees is found or
established. 18

Respondent's complaint reveals that he is suing on two (2) causes of action: (a) the shabby and humiliating
treatment he received from petitioner's employees at the San Francisco Airport which caused him extreme
embarrassment and social humiliation; and, (b) the slashing of his luggage and the loss of his personal effects
amounting to US $5,310.00.

While his second cause of action an action for damages arising from theft or damage to property or goods is
well within the bounds of the Warsaw Convention, his first cause of action an action for damages arising from the
misconduct of the airline employees and the violation of respondent's rights as passenger clearly is not.

Consequently, insofar as the first cause of action is concerned, respondent's failure to file his complaint within the
two (2)-year limitation of the Warsaw Convention does not bar his action since petitioner airline may still be held
liable for breach of other provisions of the Civil Code which prescribe a different period or procedure for instituting
the action, specifically, Art. 1146 thereof which prescribes four (4) years for filing an action based on torts.

As for respondent's second cause of action, indeed the travaux preparatories of the Warsaw Convention reveal that
the delegates thereto intended the two (2)-year limitation incorporated in Art. 29 as an absolute bar to suit and not to
be made subject to the various tolling provisions of the laws of the forum. This therefore forecloses the application of
our own rules on interruption of prescriptive periods. Article 29, par. (2), was intended only to let local laws
determine whether an action had been commenced within the two (2)-year period, and within our jurisdiction an
action shall be deemed commenced upon the filing of a complaint. Since it is indisputable that respondent filed the
present action beyond the two (2)-year time frame his second cause of action must be barred. Nonetheless, it
cannot be doubted that respondent exerted efforts to immediately convey his loss to petitioner, even employed the
services of two (2) lawyers to follow up his claims, and that the filing of the action itself was delayed because of
petitioner's evasion.

In this regard, Philippine Airlines, Inc. v. Court of Appeals 19 is instructive. In this case of PAL, private respondent filed
an action for damages against petitioner airline for the breakage of the front glass of the microwave oven which she
shipped under PAL Air Waybill No. 0-79-1013008-3. Petitioner averred that, the action having been filed seven (7) months
after her arrival at her port of destination, she failed to comply with par. 12, subpar. (a) (1), of the Air Waybill which
expressly provided that the person entitled to delivery must make a complaint to the carrier in writing in case of visible
damage to the goods, immediately after discovery of the damage and at the latest within 14 days from receipt of the
goods. Despite non-compliance therewith the Court held that by private respondent's immediate submission of a formal
claim to petitioner, which however was not immediately entertained as it was referred from one employee to another, she
was deemed to have substantially complied with the requirement. The Court noted that with private respondent's own
zealous efforts in pursuing her claim it was clearly not her fault that the letter of demand for damages could only be filed,
after months of exasperating follow-up of the claim, on 13 August 1990, and that if there was any failure at all to file the
formal claim within the prescriptive period contemplated in the Air Waybill, this was largely because of the carrier's own
doing, the consequences of which could not in all fairness be attributed to private respondent.

In the same vein must we rule upon the circumstances brought before us. Verily, respondent filed his complaint
more than two (2) years later, beyond the period of limitation prescribed by the Warsaw Convention for filing a claim
for damages. However, it is obvious that respondent was forestalled from immediately filing an action because
petitioner airline gave him the runaround, answering his letters but not giving in to his demands. True, respondent
should have already filed an action at the first instance when his claims were denied by petitioner but the same
could only be due to his desire to make an out-of-court settlement for which he cannot be faulted. Hence, despite
the express mandate of Art. 29 of the Warsaw Convention that an action for damages should be filed within two (2)
years from the arrival at the place of destination, such rule shall not be applied in the instant case because of the
delaying tactics employed by petitioner airline itself. Thus, private respondent's second cause of action cannot be
considered as time-barred under Art. 29 of the Warsaw Convention.

WHEREFORE, the assailed Decision of the Court of Appeals reversing and setting aside the appealed order of the
trial court granting the motion to dismiss the complaint, as well as its Resolution denying reconsideration, is
AFFIRMED. Let the records of the case be remanded to the court of origin for further proceedings taking its
bearings from this disquisition.

SO ORDERED.

Mendoza, Quisumbing, Buena and De Leon, Jr., JJ., concur.

G.R. No. 110581 September 21, 1994


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
TELENGTAN BROTHERS & SONS, INC. (LA SUERTE CIGAR & CIGARETTE), petitioner,
vs.
THE COURT OF APPEALS, KAWASAKI KISHEN KAISHA, LTD. and SMITH, BELL & CO., INC., respondents.

Juan, Luces, Luna and Associates for petitioner.

Bito, Lozada, Ortega & Castillo for private respondents.

MENDOZA, J.:

This is a petition for review of the decision of the Court of Appeals, 1 in CA-G.R. CV No. 09514, affirming with
modification the decision of the Regional Trial Court in a case for specific performance brought by petitioner.

Private respondent Kawasaki Kishen Kaisha, Ltd. (K-Line) is a foreign shipping company doing business in the
Philippines, its shipping agent being respondent the Smith, Bell & Co., Inc. It is a member of the Far East
Conference, the body which fixes rates by agreement of its member-shipowners. The conference is registered with
the U.S. Federal Maritime Commission. 2

On May 8, 1979, the Van Reekum Paper, Inc. entered into a contract of affreightment with the K-Line for the
shipment of 468 rolls of container board liners from Savannah, Georgia to Manila. The shipment was consigned to
herein petitioner La Suerte Cigar & Cigarette Factory. The contract of affreightment was embodied in Bill of Lading
No. 602 issued by the carrier to the shipper. The expenses of loading and unloading were for the account of the
consignee.

The shipment was packed in 12 container vans and loaded on board the carrier's vessel, SS Verrazano Bridge. At
Tokyo, Japan, the cargo was transhipped on two vessels of the K-Line. Ten container vans were loaded on the
SS Far East Friendship, while two were loaded on the SS Hangang Glory.

Shortly thereafter, the consignee (herein petitioner) received from the shipper photocopies of the bill of lading,
consular invoice and packing list, as well as notice of the estimated time of arrival of the cargo.

On June 11, 1979, the SS Far East Friendship arrived at the port of Manila. Aside from the regular advertisements in
the shipping section of the Bulletin Today announcing the arrival of its vessels, petitioner was notified in writing of
the ship's arrival, together with information that container demurrage at the rate of P4.00 per linear foot per day for
the first 5 days and P8.00 per linear foot per day after the 5th day would be charged unless the consignee took
delivery of the cargo within ten days.

On June 21, 1979, the other vessel SS Hangang Glory, carrying petitioner's two other vans, arrived and was
discharged of its contents the next day. On the same day the shipping agent Smith, Bell & Co. released the Delivery
Permit for twelve (12) containers to the broker upon payment of freight charges on the bill of lading.

The next day, June 22, 1979, the Island Brokerage Co. presented, in behalf of petitioner, the shipping documents to
the Customs Marine Division of the Bureau of Customs. But the latter refused to act on them because the manifest
of the SS Far East Friendship covered only 10 containers, whereas the bill of lading covered 12 containers.

The broker, therefore, sent back the manifest to the shipping agent with the request that the manifest be amended.
Smith, Bell & Co. refused on the ground that an amendment, as requested, would violate 1005 of the Tariff and
Customs Code relating to unmanifested cargo. Later, however, it agreed to add a footnote reading "Two container
vans carried by the SS Hangang Glory to complete the shipment of twelve containers under the bill of lading."

On June 29, 1979 the manifest was picked up from the office of respondent shipping agent by an employee of the
IBC and filed with the Bureau of Customs. The manifest was approved for release on July 3, 1979. IBC wrote Smith,
Bell & Co. to make of record that entry of the shipment had been delayed by the error in the manifest.

On July 11, 1979, when the IBC tried to secure the release of the cargo, it was informed by private respondents'
collection agent, the CBCS Guaranteed Fast Collection Services, that the free time for removing the containers from
the container yard had expired on June 26, 1979, in the case of the SS Far East Friendship, and on July 9, in the
case of the SS Hangang Glory, 3 and that demurrage charges had begun to run on June 27, 1979 with respect to the 10
containers on the SS Far East Friendship and on July 10, 1979 with respect to the 2 containers shipped on board the
SS Hangang Glory.

On July 13, 1979, petitioner paid P47,680.00 representing the total demurrage charges on all the containers, but it
was not able to obtain its goods. On July 16, 1979 it was able to obtain the release of two containers and on
July 17, 1979 of one more container. It was able to obtain only a partial release of the cargo because of the
breakdown of the arrastre's equipment at the container yard.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
This matter was reported by IBC in letters of complaint sent to the Philippine Ports Authority. In addition, on July 16,
1979, petitioner sent a letter dated July 12, 1979 (Exh. I) to Smith, Bell & Co., requesting reconsideration of the
demurrage charges, on the ground that the delay in claiming the goods was due to the alleged late arrival of the
shipping documents, the delay caused by the amendment of the manifest, and the fact that two of the containers
arrived separately from the other ten containers.

On July 19, 1979, petitioner paid additional charges in the amount of P20,160.00 for the period July 14-19, 1979 to
secure the release of its cargo, but still petitioner was unable to get any cargo from the remaining nine container
vans. It was only the next day, July 20, 1979, that it was able to have two more containers released from the
container yard, bringing to five the total number of containers whose contents had been delivered to it.

Subsequently, petitioner refused to pay any more demurrage charges on the ground that there was agreement for
their payment in the bill of lading and that the delay in the release of the cargo was not due to its fault but to the
breakdown of the equipment at the container yard. In all, petitioner had paid demurrage charges from June 27 to
July 19, 1979, in the total amount of P67,840.00, computed as follows:

A. Container demurrage paid on July 13, 1979

1. Far East Friendship (Exh. H-1) June 27 July 13 (17 days)

1st 5 days @ P4/day/foot


5 days x P40 ft. x 10 ctrns. P 8,000.00
Next 12 days @ P8/day/foot
12 days x P8 x 40 ft. x 10 ctrns. P 38,400.00

P 46,400.00

2. Hangang Glory (Exh. H) July 10 July 13 (4 days)

1st 4 days:
4 days x P4 x 40 ft. x 2 ctnrs. P 1,280.00

TOTAL PAID ON JULY 13 P 47,680.00

(Exh. H-2)

B. Container demurrage paid on July 19, 1979

1. Far East Friendship

a. on 2 containers released July 16

3 days x P8 x 40 ft. x 2 ctnrs. P 1,920.00

(Exh. L-2)

b. on 1 container released July 17

4 days x P8 x 40 ft. x 7 cntrs. P 1,280.00

(Exh. L-3)

c. remaining 7 containers as of July 19

6 days x P8 x 40 ft. x 7 cntrs. P 13,440.00

(Exh. L-1)

2. Hangang Glory

a. 5th day (July 14)


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
1 day x P4.00 x 40 ft. x 2 cntrs. P 320.00

b. July 15-19:

5 days x P8.00 x 40 ft. x 2 cntrs. P 3,200.00

(Exh. L)

TOTAL P 20,160.00

(Exh. L-4)

OVERALL TOTAL P 67,840.00

=========

On July 20, 1979 petitioner wrote private respondent for a refund of the demurrage charges, but private respondent
replied on July 25, 1979 that, as member of the Far East Conference, it could not modify the rules or authorize
refunds of the stipulated tariffs.

Petitioner, therefore, filed this suit in the RTC for specific performance to compel private respondent carrier, through
it s shipping agent, the Smith, Bell & Co., to release 7 container vans consigned to it free of charge and for a refund
of P67,840.00 which it had paid, plus attorney's fees and other expenses of litigation. Petitioner also asked for the
issuance of a writ of preliminary injunction to restrain private respondents from charging additional demurrage.

In their amended answer, private respondents claimed that collection of container charges was authorized by 2,
23 and 29 of the bill of lading and that they were not free to waive these charges because under the United States
Shipping Act of 1916 it was unlawful for any common carrier engaged in transportation involving the foreign
commerce of the United States to charge or collect a greater or lesser compensation that the rates and charges
specified in its tariffs on file with the Federal Maritime Commission.

Private respondents alleged that petitioner knew that the contract of carriage was subject to the Far East
Conference rules and that the publication of the notice of reimposition of container demurrage charges published in
the shipping section of the Bulletin Today and Businessday newspapers from February 19 February 25, 1979
was binding upon petitioner. They contended further that the collection of container demurrage was an international
practice which is widely accepted in ports all over the world and that it was in conformity with Republic Act No. 1407,
otherwise known as the Philippine Overseas Shipping Act of 1955.

Thereafter, a writ was issued after petitioner had posted a bond of P50,000.00 and the container vans were
released to the petitioner. On March 19, 1986, however, the RTC dismissed petitioner's complaint. It cited the bill of
lading which provided:

23. The ocean carrier shall have a lien on the goods, which shall survive delivery, for all freight, dead
freight, demurrage, damages, loss, charges, expenses and any other sums whatsoever payable or
chargeable to or for the account of the Merchant under this bill of lading . . . .

It likewise invoked clause 29 of the bill of lading which provided:

29. . . .The terms of the ocean carrier's applicable tariff, including tariffs covering intermodal
transportation on file with the Federal Maritime Commission and the Interstate Commission or any
other regulatory body which governs a portion of the carriage of goods, are incorporated herein.

Rule 21 of the Far East Conference Tariff No. 28-FMC No. 12 Rules and Regulations, referred to above, provides:

(D) Free Time, Demurrage, and Equipment Detention at Ports in the Philippines.

Note: Philippine Customs Law prescribes all cargo discharged from vessels to be given into custody
of the Government Arrastre Contractor, appointed by Philippine Customs who undertakes delivery to
the consignee.

xxx xxx xxx


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Demurrage charges on Containers with CY Cargo.

1. Free time will commence at 8:00 a.m. on the first working calendar day following completion of
discharge of the vessel. It shall expire at 12:00 p.m. (midnight) on the tenth working calendar day,
excluding Saturdays, Sundays and holidays.

Work stoppage at a terminal due to labor dispute or other force majeure as defined by the
conference preventing delivery of cargo or containers shall be excluded from the calculation of the
free time for the period of the work stoppage.

2. Demurrage charges are incurred before the container leaves the carrier's designated CY, and
shall be applicable on the container commencing the next working calendar day following expiration
of the allowable free time until the consignee has taken delivery of the container or has fully striped
the container of its contents in the carrier's designated CY.

Demurrage charges shall be assessed hereunder:

Ordinary containers P4.00 per linear foot of the container per day
for the first five days; P8.00 per linear foot of the container per day,
thereafter.

The RTC held that the bill of lading was the contract between the parties and, therefore, petitioner was liable for
demurrage charges. It rejected petitioner's claim of force majeure. It held:

This Court cannot also accord faith and credit on the plaintiff's claim that the delay in the delivery of
the containers was caused by the breaking down of the equipment of the arrastre operator. Such
claim was not supported with competent evidence. Let us assume the fact that the arrastre
operator's equipment broke down still plaintiff has to pay the corresponding demurrage charges. The
possibility that the equipment would break down was not only foreseeable, but actually, foreseen,
and was not caso fortuito. 4

The RTC, therefore, ordered:

WHEREFORE, finding the preponderance of evidence in favor of the defendants and against the
plaintiff, judgment is hereby rendered dismissing the complaint with costs against it. Plaintiff is
hereby ordered to pay defendants the sum of P36,480.00 representing demurrage charges for the
detention of the seven (7) forty-footer container vans from July 20 to August 7, 1979, with legal
interest commencing on August 7, 1979 until fully paid. And plaintiff has to pay the sum of
P10,000.00, by way of attorney's fees.

SO ORDERED.

On appeal, the case was affirmed with modification by the Court of Appeals as follows:

WHEREFORE, modified as indicated above deleting the award of attorney's fees, the decision
appealed from is hereby AFFIRMED in all other respects.

Costs against plaintiff-appellant.

SO ORDERED. 5

Hence, this petition for review in which it is contended:

1 that no demurrage lies in the absence of any showing that the vessels had been
improperly detained or that loss or damage had been incurred as a consequence of
improper detention;

2 that respondent Court's finding that private respondent Smith Bell had promptly
and on the same day amended the defective manifest is contrary to the evidence of
record.

3 that respondent Court manifestly over-looked undisputed evidence presented by


petitioner showing that the breakdown in the facilities and equipment of the arrastre
operator further delayed petitioner's withdrawal of the cargo. 6
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Petitioner prays for a reversal of the decision of the Court of Appeals and the refund to it of the demurrage charges
paid by it, with interest, as well as to pay attorney's fees and expenses of litigation.

Our decision will be presently explained, but in brief it is this: petitioner is liable for demurrage for delay in removing
its cargo from the containers but only for the period July 3 to 13, 1979 with respect to ten containers and from July
10 to July 13, 1979, in respect of two other containers.

First. With respect to petitioner's liability for demurrage, petitioner's contention is that the bill of lading does not
provide for the payment of container demurrage, as Clause 23 of the bill of lading only says "demurrage," i.e.,
damages for the detention of vessels, and here there is no detention of vessels. Petitioner invokes the ruling
inMagellan Manufacturing Marketing Corp. v. Court of Appeals 7, where we defined "demurrage" as follows:

Demurrage, in its strict sense, is the compensation provided for in the contract of affreightment for
the detention of the vessel beyond the time agreed on for loading and unloading. Essentially,
demurrage is the claim for damages for failure to accept delivery. In a broad sense, every improper
detention of a vessel may be considered a demurrage. Liability for demurrage, using the word in its
strictly technical sense, exists only when expressly stipulated in the contract. Using the term in [its
broader sense, damages in the] nature of demurrage are recoverable for a breach of the implied
obligation to load or unload the cargo with reasonable dispatch, but only by the party to whom the
duty is owed and only against one who is a party to the shipping contract.

Whatever may be the merit of petitioner's contention as to the meaning of the word "demurrage" in clause 23 of the
bill of lading, the fact is that clause 29(a) also of the bill of lading, in relation to Rule 21 of the Far East Conference
Tariff No. 28-FMC No. 12, as quoted above, specifically provides for the payment by the consignee of demurrage for
the detention of containers and other equipment after the so-called "free time."

Now a bill of lading is both a receipt and a contract. As a contract, its terms and conditions are conclusive on the
parties, including the consignee. What we said in one case mutatis mutandis applies to this case:

A bill of lading operates both as a receipt and a contract . . . As a contract, it names the contracting
parties which include the consignee, fixes the route, destination, freight rate or charges, and
stipulates the right and obligations assumed by the parties . . . . By receiving the bill of lading, Davao
Parts and Services, Inc. assented to the terms of the consignment contained therein, and became
bound thereby, so far as the conditions named are reasonable in the eyes of the law. Since neither
appellant nor appellee alleges that any provision therein is contrary to law, morals, good customs,
public policy or public order and indeed we found none the validity of the Bill of Lading must be
sustained and the provisions therein properly applies to resolve the conflict between the parties. 8

As the Court of Appeals pointed out in its appealed decision, the enforcement of the rules of the Far East
Conference and the Federal Maritime Commission is in accordance with Republic Act No. 1407, 1 of which
declares that the Philippines, in common with other maritime nations, recognizes the international character of
shipping in foreign trade and existing international practices in maritime transportation and that it is part of the
national policy to cooperate with other friendly nations in the maintenance and improvement of such practices.

Petitioner's argument that it is not bound by the bill of lading issued by K-Line because it is a contract of adhesion,
whose terms as set forth at the back are in small prints and are hardly readable, is without merit. As we held
inServando v. Philippine Steam Navigation: 9

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". It is what is known as a contract of "adhesion," in regards to 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 JBL Reyes, Lawyer's Journal, Jan.
31, 1951, p. 49).

Second. With respect to the period of petitioner's liability, private respondent's position is that the "free time" expired
on June 26, 1979 and demurrage began to toll on June 27, 1979, with respect to 10 containers which were
unloaded from the SS Far East Friendship, while with respect to the 2 containers which were unloaded from the
SS Hangang Glory, the free time expired on July 9, 1979 and demurrage began to run on July 10, 1979.

This contention is without merit. Petitioner cannot be held liable for demurrage starting June 27, 1979 on the 10
containers which arrived on the SS Far East Friendship because the delay in obtaining release of the goods was not
due to its fault. The evidence shows that because the manifest issued by the respondent K-Line, through the Smith,
Bell & Co., stated only 10 containers, whereas the bill of lading also issued by the K-Line showed there were 12
containers, the Bureau of Customs refused to give an entry permit to petitioner. For this reason, petitioner's broker,
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
the IBC, had to see the respondent's agent (Smith, Bell & Co.) on June 22, 1979 but the latter did not immediately
do something to correct the manifest. Smith, Bell & Co. was asked to "amend" the manifest, but it refused to do so
on the ground that this would violate the law. It was only on June 29, 1979 that it thought of adding instead a
footnote to indicate that two other container vans to account for a total of 12 container vans consigned to
petitioner had been loaded on the other vessel
SS Hangang Glory.

It is not true that the necessary correction was made on June 22, 1979, the same day the manifest was presented to
Smith, Bell & Co. There is nothing in the testimonies of witnesses of either party to support the appellate court's
finding that the footnote, explaining the apparent discrepancy between the bill of lading and the manifest, was added
on June 22, 1979 but that petitioner's representative did not return to pick up the manifesst until June 29, 1979. To
the contrary, it is more probable to believe the petitioner's claim that the manifest was corrected only on June 29,
1979 (by which time the "free time" had already expired), because Smith, Bell & Co. did not immediately know what
to do as it insisted it could not amend the manifest and only thought of adding a footnote on June 29, 1979 upon the
suggestion of the IBC.

Now June 29, 1979 was a Friday. Again it is probable the correct manifest was presented to the Bureau of Customs
only on Monday, July 2, 1979 and, therefore, it was only on July 3 that it was approved. It was, therefore, only from
this date (July 3, 1979) that petitioner could have claimed its cargo and charged for any delay in removing its cargo
from the containers. With respect to the other two containers which arrived on the SSHangang Glory, demurrage
was properly considered to have accrued on July 10, 1979 since the "free time" expired on July 9.

The period of delay, however, for all the 12 containers must be deemed to have stopped on July 13, 1979, because
on this date petitioner paid P47,680.00. If it was not able to get its cargo from the container vans, it was because of
the breakdown of the shifter or cranes. This breakdown cannot be blamed on petitioners since these were cranes of
the arrastre service operator. It would be unjust to charge demurrage after July 13, 1979 since the delay in emptying
the containers was not due to the fault of the petitioner.

Indeed, there is no reason why petitioner should not get its cargo after paying all demurrage charges due on July
13, 1979. If it paid P20,180.00 more in demurrage charges after July 13, 1979 it was only because respondents
would not release the goods. Even then petitioner was able to obtain the release of cargo from five container vans.
Its trucks were unable to load anymore cargo and returned to petitioner's premises empty.

In sum, we hold that petitioner can be held liable for demurrage only for the period July 3-13, 1979 and that in
accordance with the stipulation in its bill of lading, it is liable for demurrage only in the amount of P28,480.00
computed as follows;

A. 10 containers ex Far East Friendship (July 3-13, 1979)

1. 1st 5 days @ P4.00/day/foot

5 days x P4 x 40 ft. x 10 ctnrs. P 8,000

2. Next 6 days @ P8.00/day/foot

6 days x P8 x 40 ft. x 10 cntrs. P 19,200 P 27,200

B. 2 containers ex Hangang Glory (July 10-13, 1979)

1st 4 days @ P4.00/day/foot

4 days x P4 x 40 ft. x 10 cntrs. P 1,280

TOTAL DEMURRAGE DUE P 28,480

=======

LESS: TOTAL PAID (P 67,840)

OVERPAYMENT (P 39,360)

As shown above there is an overpayment of P39,360.00 which should be refunded to petitioner.


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED, ORDERING the private
respondents to pay to petitioner the sum of P39,360.00 by way of refund, with legal interest.

SO ORDERED.

Narvasa, C.J., Padilla and Regalado, JJ., concur.

Puno, J., took no part.

G.R. No. 116863 February 12, 1998

KENG HUA PAPER PRODUCTS CO. INC., petitioner,


vs.
COURT OF APPEALS; REGIONAL TRIAL COURT OF MANILA, BR. 21; and SEA-LAND SERVICE,
INC.,respondents.

PANGANIBAN, J.:

What is the nature of a bill of lading? When does a bill of lading become binding on a consignee? Will an alleged
overshipment justify the consignee's refusal to receive the goods described in the bill of lading? When may interest
be computed on unpaid demurrage charges?

Statement of the Case

These are the main questions raised in this petition assailing the Decision 1 of the Court of Appeals 2 promulgated on
May 20, 1994 in C.A.-G.R. CV No. 29953 affirming in toto the decision 3 dated September 28, 1990 in Civil Case No. 85-
33269 of the Regional Trial Court of Manila, Branch 21. The dispositive portion of the said RTC decision reads:

WHEREFORE, the Court finds by preponderance of evidence that Plaintiff has proved its cause of
action and right to relief. Accordingly, judgment is hereby rendered in favor of the Plaintiff and
against Defendant, ordering the Defendant to pay plaintiff:

1. The sum of P67,340.00 as demurrage charges, with interest at the legal rate from the date of the
extrajudicial demand until fully paid;

2. A sum equivalent to ten (10%) percent of the total amount due as Attorney's fees and litigation
expenses.

Send copy to respective counsel of the parties.

SO ORDERED. 4

The Facts

The factual antecedents of this case as found by the Court of Appeals are as follows:

Plaintiff (herein private respondent), a shipping company, is a foreign corporation licensed to do


business in the Philippines. On June 29, 1982, plaintiff received at its Hong Kong terminal a sealed
container, Container No. SEAU 67523, containing seventy-six bales of "unsorted waste paper" for
shipment to defendant (herein petitioner), Keng Hua Paper Products, Co. in Manila. A bill of lading
(Exh. A) to cover the shipment was issued by the plaintiff.

On July 9, 1982, the shipment was discharged at the Manila International Container Port. Notices of
arrival were transmitted to the defendant but the latter failed to discharge the shipment from the
container during the "free time" period or grace period. The said shipment remained inside the
plaintiff's container from the moment the free time period expired on July 29, 1982 until the time
when the shipment was unloaded from the container on November 22, 1983, or a total of four
hundred eighty-one (481) days. During the 481-day period, demurrage charges accrued. Within the
same period, letters demanding payment were sent by the plaintiff to the defendant who, however,
refused to settle its obligation which eventually amounted to P67,340.00. Numerous demands were
made on the defendant but the obligation remained unpaid. Plaintiff thereafter commenced this civil
action for collection and damages.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
In its answer, defendant, by way of special and affirmative defense, alleged that it purchased fifty
(50) tons of waste paper from the shipper in Hong Kong, Ho Kee Waste Paper, as manifested in
Letter of Credit No. 824858 (Exh. 7. p. 110. Original Record) issued by Equitable Banking
Corporation, with partial shipment permitted; that under the letter of credit, the remaining balance of
the shipment was only ten (10) metric tons as shown in Invoice No. H-15/82 (Exh. 8, p. 111, Original
Record); that the shipment plaintiff was asking defendant to accept was twenty (20) metric tons
which is ten (10) metric tons more than the remaining balance; that if defendant were to accept the
shipment, it would be violating Central Bank rules and regulations and custom and tariff laws; that
plaintiff had no cause of action against the defendant because the latter did not hire the former to
carry the merchandise; that the cause of action should be against the shipper which contracted the
plaintiff's services and not against defendant; and that the defendant duly notified the plaintiff about
the wrong shipment through a letter dated January 24, 1983 (Exh. D for plaintiff, Exh. 4 for
defendant, p. 5. Folder of Exhibits).

As previously mentioned, the RTC found petitioner liable for demurrage; attorney's fees and expenses of litigation.
The petitioner appealed to the Court of Appeals, arguing that the lower court erred in (1) awarding the sum of
P67,340 in favor of the private respondent, (2) rejecting petitioner's contention that there was overshipment, (3)
ruling that petitioner's recourse was against the shipper, and (4) computing legal interest from date of extrajudicial
demand. 5

Respondent Court of Appeals denied the appeal and affirmed the lower court's decision in toto. In a subsequent
resolution, 6 it also denied the petitioner's motion for reconsideration.

Hence, this petition for review. 7

The Issues

In its memorandum, petitioner submits the following issues:

I. Whether or not petitioner had accepted the bill of lading;

II. Whether or not the award of the sum of P67,340.00 to private respondent was
proper;

III. Whether or not petitioner was correct in not accepting the overshipment;

IV. Whether or not the award of legal interest from the date of private respondent's
extrajudicial demand was proper; 8

In the main, the case revolves around the question of whether petitioner bound by the bill of lading. We shall, thus,
discuss the above four issues as they intertwine with this main question.

The Court's Ruling

The petition is partly meritorious. We affirm petitioner's liability for demurrage, but modify the interest rate thereon.

Main Issue: Liability Under the Bill of Lading

A bill of lading serves two functions. First, it is a receipt for the goods shipped. Second, it is a contract by which
three parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities and assume
stipulated obligations. 9 A "bill of lading delivered and accepted constitutes the contract of carriage even though not
signed," 10 because the "(a)cceptance of a paper containing the terms of a proposed contract generally constitutes an
acceptance of the contract and of all of its terms and conditions of which the acceptor has actual or constructive
notice." 11In a nutshell, the acceptance of a bill of lading by the shipper and the consignee, with full knowledge of its
contents, gives rise to the presumption that the same was a perfected and binding contract. 12

In the case at bar, both lower courts held that the bill of lading was a valid and perfected contract between the
shipper (Ho Kee), the consignee (Petitioner Keng Hua), and the carrier (Private Respondent Sea-Land). Section 17
of the bill of lading provided that the shipper and the consignee were liable for the payment of demurrage charges
for the failure to discharge the containerized shipment beyond the grace period allowed by tariff rules. Applying said
stipulation, both lower courts found petitioner liable. The aforementioned section of the bill of lading reads:

17. COOPERAGE FINES. The shipper and consignee shall be liable for, indemnify the carrier and
ship and hold them harmless against, and the carrier shall have a lien on the goods for, all expenses
and charges for mending cooperage, baling, repairing or reconditioning the goods, or the van,
trailers or containers, and all expenses incurred in protecting, caring for or otherwise made for the
benefit of the goods, whether the goods be damaged or not, and for any payment, expense, penalty
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
fine, dues, duty, tax or impost, loss, damage, detention, demurrage, or liability of whatsoever nature,
sustained or incurred by or levied upon the carrier or the ship in connection with the goods or by
reason of the goods being or having been on board, or because of shipper's failure to procure
consular or other proper permits, certificates or any papers that may be required at any port or place
or shipper's failure to supply information or otherwise to comply with all laws, regulations and
requirements of law in connection with the goods of from any other act or omission of the shipper or
consignee: (Emphasis supplied.)

Petitioner contends, however, that it should not be bound by the bill of lading because it never gave its consent
thereto. Although petitioner admits "physical acceptance" of the bill of lading, it argues that its subsequent actions
belie the finding that it accepted the terms and conditions printed therein. 13 Petitioner cites as support the "Notice of
Refused or On Hand Freight" it received on November 2, 1982 from private respondent, which acknowledged that
petitioner declined to accept the shipment. Petitioner adds that it sent a copy of the said notice to the shipper on
December 23, 1982. Petitioner points to its January 24, 1983 letter to the private respondent, stressing "that its
acceptance of the bill of lading would be tantamount to an act of smuggling as the amount it had imported (with full
documentary support) was only (at that time) for 10,000 kilograms and not for 20,313 kilograms as stated in the bill of
lading" and "could lay them vulnerable to legal sanctions for violation of customs and tariff as well as Central Bank
laws." 14 Petitioner further argues that the demurrage "was a consequence of the shipper's mistake" of shipping more than
what was bought. The discrepancy in the amount of waste paper it actually purchased, as reflected in the invoice vis-a-
vis the excess amount in the bill of lading, allegedly justifies its refusal to accept the shipment. 15

Petitioner Bound by
the Bill of Lading

We are not persuaded. Petitioner admits that it "received the bill of lading immediately after the arrival of the
shipment" 16 on July 8, 1982. 17 Having been afforded an opportunity to examine the said document, petitioner did not
immediately object to or dissent from any term or stipulation therein. It was only six months later, on January 24, 1983,
that petitioner sent a letter to private respondent saying that it could not accept the shipment. Petitioner's inaction for such
a long period conveys the clear inference that it accepted the terms and conditions of the bill of lading. Moreover, said
letter spoke only of petitioner's inability to use the delivery permit, i.e. to pick up the cargo, due to the shipper's failure to
comply with the terms and conditions of the letter of credit, for which reason the bill of lading and other shipping
documents were returned by the "banks" to the shipper. 18 The letter merely proved petitioner's refusal to pick up the
cargo, not its rejection of the bill of lading.

Petitioner's reliance on the Notice of Refused or On Hand Freight, as proof of its nonacceptance of the bill of lading,
is of no consequence. Said notice was not written by petitioner; it was sent by private respondent to petitioner in
November 1982, or four months after petitioner received the bill of lading. If the notice has any legal significance at
all, it is to highlight petitioner's prolonged failure to object to the bill of lading. Contrary to petitioner's contention, the
notice and the letter support not belie the findings of the two lower courts that the bill of lading was impliedly
accepted by petitioner.

As aptly stated by Respondent Court of Appeals:

In the instant case, (herein petitioner) cannot and did not allege non-receipt of its copy of the bill of
lading from the shipper. Hence, the terms and conditions as well as the various entries contained
therein were brought to its knowledge. (Herein petitioner) accepted the bill of lading without
interposing any objection as to its contents. This raises the presumption that (herein petitioner)
agreed to the entries and stipulations imposed therein.

Moreover, it is puzzling that (herein petitioner) allowed months to pass, six (6) months to be exact,
before notifying (herein private respondent) of the "wrong shipment". It was only on January 24,
1983 that (herein petitioner) sent (herein private respondent) such a letter of notification (Exh D for
plaintiff, Exh. 4 for defendant; p. 5, Folder of Exhibits). Thus, for the duration of those six months
(herein private respondent never knew the reason for (herein petitioner's) refusal to discharge the
shipment.

After accepting the bill of lading, receiving notices of arrival of the shipment, failing to object thereto,
(herein petitioner) cannot now deny that it is bound by the terms in the bill of lading. If it did not
intend to be bound, (herein petitioner) would not have waited for six months to lapse before finally
bringing the matter to (herein private respondent's attention. The most logical reaction in such a case
would be to immediately verify the matter with the other parties involved. In this case, however,
(herein petitioner) unreasonably detained (herein private respondent's) vessel to the latter's
prejudice. 19

Petitioner's attempt to evade its obligation to receive the shipment on the pretext that this may cause it to violate
customs, tariff and central bank laws must likewise fail. Mere apprehension of violating said laws, without a clear
demonstration that taking delivery of the shipment has become legally impossible, 20 cannot defeat the petitioner's
contractual obligation and liability under the bill of lading.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
In any event, the issue of whether petitioner accepted the bill of lading was raised for the first time only in petitioner's
memorandum before this Court. Clearly, we cannot now entertain an issue raised for the very first time on appeal, in
deference to the well-settled doctrine that "(a)n issue raised for the first time on appeal and not raised timely in the
proceedings in the lower court is barred by estoppel. Questions raised on appeal must be within the issues framed
by the parties and, consequently, issues not raised in the trial court cannot be raised for the first time on appeal." 21

In the case at bar, the prolonged failure of petitioner to receive and discharge the cargo from the private
respondent's vessel constitutes a violation of the terms of the bill of lading. It should thus be liable for demurrage to
the former.

In The Apollon, 22 Justice Story made the following relevant comment on the nature of demurrage:

In truth, demurrage is merely an allowance or compensation for the delay or detention of a vessel. It
is often a matter of contract, but not necessarily so. The very circumstance that in ordinary
commercial voyages, a particular sum is deemed by the parties a fair compensation for delays, is the
very reason why it is, and ought to be, adopted as a measure of compensation, in cases ex delicto.
What fairer rule can be adopted than that which founds itself upon mercantile usage as to indemnity,
and fixes a recompense upon the deliberate consideration of all the circumstances attending the
usual earnings and expenditures in common voyages? It appears to us that an allowance, by way of
demurrage, is the true measure of damages in all cases of mere detention, for that allowance has
reference to the ship's expenses, wear and tear, and common employment. 23

Amount of Demurrage Charges

Petitioner argues that it is not obligated to pay any demurrage charges because, prior to the filing of the complaint,
private respondent made no demand for the sum of P67,340. Moreover, private respondent's loss and prevention
manager, Loi Gillera, demanded P50,260; but its counsel, Sofronio Larcia, subsequently asked for a different
amount of P37,800.

Petitioner's position is puerile. The amount of demurrage charges in the sum of P67,340 is a factual conclusion of
the trial court that was affirmed by the Court of Appeals and, thus, binding on this Court. 24 Besides, such factual
finding is supported by the extant evidence. 25 The apparent discrepancy was a result of the variance of the dates when
the two demands were made. Necessarily, the longer the cargo remained unclaimed, the higher the demurrage. Thus,
while in his letter dated April 24, 1983, 26 private respondent's counsel demanded payment of only P37,800, the additional
demurrage incurred petitioner due to its continued refusal to receive delivery of the cargo ballooned to P67,340 by
November 22, 1983. The testimony of Counsel Sofronio Larcia as regards said letter of April 24, 1983 elucidates, viz:

Q Now, after you sent this letter, do you know what happened?

A Defendant continued to refuse to take delivery of the shipment and the shipment
stayed at the port for a longer period.

Q So, what happened to the shipment?

A The shipment incurred additional demurrage charges which amounted to


P67,340.00 as of November 22, 1983 or more than a year after almost a year
after the shipment arrived at the port.

Q So, what did you do?

A We requested our collection agency to pursue the collection of this amount. 27

Bill of Lading Separate from


Other Letter of Credit Arrangements

In a letter of credit, there are three distinct and independent contracts:

(1) the contract of sale between the buyer and the seller, (2) the contract of the buyer with the issuing bank, and (3)
the letter of credit proper in which the bank promises to pay the seller pursuant to the terms and conditions stated
therein. "Few things are more clearly settled in law than that the three contracts which make up the letter of credit
arrangement are to be maintained in a state of perpetual separation." 28 A transaction involving the purchase of goods
may also require, apart from a letter of credit, a contract of transportation specially when the seller and the buyer are not
in the same locale or country, and the goods purchased have to be transported to the latter.

Hence, the contract of carriage, as stipulated in the bill of lading in the present case, must be treated independently
of the contract of sale between the seller and the buyer, and the contract for the issuance of a letter of credit
between the buyer and the issuing bank. Any discrepancy between the amount of the goods described in the
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect the validity and
enforceability of the contract of carriage as embodied in the bill of lading. As the bank cannot be expected to look
beyond the documents presented to it by the seller pursuant to the letter of credit, 29neither can the carrier be
expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis-a-viz the
commercial invoice and the letter of a credit. Thus, the discrepancy between the amount of goods indicated in the invoice
and the amount in the bill of lading cannot negate petitioner's obligation to private respondent arising from the contract of
transportation. Furthermore, private respondent, as carrier, had no knowledge of the contents of the container. The
contract of carriage was under the arrangement known as "Shipper's Load And Count," and shipper was solely
responsible for the loading of the container while carrier was oblivious to the contents of the shipment. Petitioner's remedy
in case of overshipment lies against the seller/shipper, not against the carrier.

Payment of Interest

Petitioner posits that it "first knew" of the demurrage claim of P67,340 only when it received, by summons, private
respondent's complaint. Hence, interest may not be allowed to run from the date of private respondent's extrajudicial
demands on March 8, 1983 for P50,260 or on April 24, 1983 for P37,800, considering that, in both cases, "there was
no demand for interest." 30 We agree.

Jurisprudence teaches us:

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on


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

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit. 31

The case before us involves an obligation not arising from a loan or forbearance of money; thus, pursuant to Article
2209 of the Civil Code, the applicable interest rate is six percent per annum. Since the bill of lading did not specify
the amount of demurrage, and the sum claimed by private respondent increased as the days went by, the total
amount demanded cannot be deemed to have been established with reasonable certainty until the trial court
rendered its judgment. Indeed, "(u)nliquidated damages or claims, it is said, are those which are not or cannot be
known until definitely ascertained, assessed and determined by the courts after presentation of proof.
" 32Consequently, the legal interest rate is six percent, to be computed from September 28, 1990, the date of the trial
court's decision. And in accordance with Philippine National Bank 33 and Eastern Shipping, 34 the rate of twelve percent per
annumshall be charged on the total then outstanding, from the time the judgment becomes final and executory until its
satisfaction.

Finally, the Court notes that the matter of attorney's fees was taken up only in the dispositive portion of the trial
court's decision. This falls short of the settled requirement that the text of the decision should state the reason for
the award of attorney's fees, for without such justification, its award would be a "conclusion without a premise, its
basis being improperly left to speculation and conjecture." 35

WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that the legal interest of six
percent per annum shall be computed from September 28, 1990 until its full payment before finality of judgment.
The rate of interest shall be adjusted to twelve percent per annum, computed from the time said judgment became
final and executory until full satisfaction. The award of attorney's fees is DELETED.

SO ORDERED.

Davide, Jr., Bellosillo, Vitug and Quisumbing, JJ., concur.


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
VIII. ACTIONS IN CASE OF BREACH OF CONTRACT OF CARRIAGE

A. Causes of action and nature/extent of liability (culpa contractual, culpa aquiliana


and culpa delictual)

B. Prescriptive period and conditions precedent


1. Overland transportation of goods and coastwise shipping (Art. 366, CC)

Art. 366. Within twenty-four hours following the receipt of the merchandise a claim may be made against the carrier
on account of damage or average found upon opening the packages, provided that the indications of the damage or
average giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim
shall only be admitted at the time of the receipt of the packages.

After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever
shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.

2. International carriage of goods by sea (Sec. 3[6] COGSA)

RESPONSIBILITIES AND LIABILITIES

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

Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery
thereof.

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

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the goods should have been delivered:
Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of
the goods or the date when the goods should have been delivered

In the case of any actual or apprehended loss or damage the carrier and the receiver shall give all reasonable
facilities to each other for inspecting and tallying the goods.

C. Recoverable Damages

Cases:

G.R. No. 111127 July 26, 1996

MR. & MRS. ENGRACIO FABRE, JR. and PORFIRIO CABIL, petitioners,
vs.
COURT OF APPEALS, THE WORD FOR THE WORLD CHRISTIAN FELLOWSHIP, INC., AMYLINE ANTONIO,
JOHN RICHARDS, GONZALO GONZALES, VICENTE V. QUE, JR., ICLI CORDOVA, ARLENE GOJOCCO,
ALBERTO ROXAS CORDERO, RICHARD BAUTISTA, JOCELYN GARCIA, YOLANDA CORDOVA, NOEL
ROQUE, EDWARD TAN, ERNESTO NARCISO, ENRIQUETA LOCSIN, FRANCIS NORMAN O. LOPES, JULIUS
CAESAR, GARCIA, ROSARIO MA. V. ORTIZ, MARIETTA C. CLAVO, ELVIE SENIEL, ROSARIO MARA-MARA,
TERESITA REGALA, MELINDA TORRES, MARELLA MIJARES, JOSEFA CABATINGAN, MARA NADOC,
DIANE MAYO, TESS PLATA, MAYETTE JOCSON, ARLENE Y. MORTIZ, LIZA MAYO, CARLOS RANARIO,
ROSAMARIA T. RADOC and BERNADETTE FERRER, respondents.

MENDOZA, J.:p
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
This is a petition for review on certiorari of the decision of the Court of Appeals 1 in CA-GR No. 28245, dated
September 30, 1992, which affirmed with modification the decision of the Regional Trial Court of Makati, Branch 58,
ordering petitioners jointly and severally to pay damages to private respondent Amyline Antonio, and its resolution which
denied petitioners' motion for reconsideration for lack of merit.

Petitioners Engracio Fabre, Jr. and his wife were owners of a 1982 model Mazda minibus. They used the bus
principally in connection with a bus service for school children which they operated in Manila. The couple had a
driver, Porfirio J. Cabil, whom they hired in 1981, after trying him out for two weeks, His job was to take school
children to and from the St. Scholastica's College in Malate, Manila.

On November 2, 1984 private respondent Word for the World Christian Fellowship Inc. (WWCF) arranged with
petitioners for the transportation of 33 members of its Young Adults Ministry from Manila to La Union and back in
consideration of which private respondent paid petitioners the amount of P3,000.00.

The group was scheduled to leave on November 2, 1984, at 5:00 o'clock in the afternoon. However, as several
members of the party were late, the bus did not leave the Tropical Hut at the corner of Ortigas Avenue and EDSA
until 8:00 o'clock in the evening. Petitioner Porfirio Cabil drove the minibus.

The usual route to Caba, La Union was through Carmen, Pangasinan. However, the bridge at Carmen was under
repair, sot hat petitioner Cabil, who was unfamiliar with the area (it being his first trip to La Union), was forced to take
a detour through the town of Baay in Lingayen, Pangasinan. At 11:30 that night, petitioner Cabil came upon a sharp
curve on the highway, running on a south to east direction, which he described as "siete." The road was slippery
because it was raining, causing the bus, which was running at the speed of 50 kilometers per hour, to skid to the left
road shoulder. The bus hit the left traffic steel brace and sign along the road and rammed the fence of one Jesus
Escano, then turned over and landed on its left side, coming to a full stop only after a series of impacts. The bus
came to rest off the road. A coconut tree which it had hit fell on it and smashed its front portion.

Several passengers were injured. Private respondent Amyline Antonio was thrown on the floor of the bus and
pinned down by a wooden seat which came down by a wooden seat which came off after being unscrewed. It took
three persons to safely remove her from this portion. She was in great pain and could not move.

The driver, petitioner Cabil, claimed he did not see the curve until it was too late. He said he was not familiar with the
area and he could not have seen the curve despite the care he took in driving the bus, because it was dark and
there was no sign on the road. He said that he saw the curve when he was already within 15 to 30 meters of it. He
allegedly slowed down to 30 kilometers per hour, but it was too late.

The Lingayen police investigated the incident the next day, November 3, 1984. On the basis of their finding they filed
a criminal complaint against the driver, Porfirio Cabil. The case was later filed with the Lingayen Regional Trial
Court. Petitioners Fabre paid Jesus Escano P1,500.00 for the damage to the latter's fence. On the basis of Escano's
affidavit of desistance the case against petitioners Fabre was dismissed.

Amyline Antonio, who was seriously injured, brought this case in the RTC of Makati, Metro Manila. As a result of the
accident, she is now suffering from paraplegia and is permanently paralyzed from the waist down. During the trial
she described the operations she underwent and adduced evidence regarding the cost of her treatment and therapy.
Immediately after the accident, she was taken to the Nazareth Hospital in Baay, Lingayen. As this hospital was not
adequately equipped, she was transferred to the Sto. Nio Hospital, also in the town of Ba-ay, where she was given
sedatives. An x-ray was taken and the damage to her spine was determined to be too severe to be treated there.
She was therefore brought to Manila, first to the Philippine General Hospital and later to the Makati Medical Center
where she underwent an operation to correct the dislocation of her spine.

In its decision dated April 17, 1989, the trial court found that:

No convincing evidence was shown that the minibus was properly checked for travel to a long distance trip and that
the driver was properly screened and tested before being admitted for employment. Indeed, all the evidence
presented have shown the negligent act of the defendants which ultimately resulted to the accident subject of this
case.

Accordingly, it gave judgment for private respondents holding:

Considering that plaintiffs Word for the World Christian Fellowship, Inc. and Ms. Amyline Antonio were the only ones
who adduced evidence in support of their claim for damages, the Court is therefore not in a position to award
damages to the other plaintiffs.

WHEREFORE, premises considered, the Court hereby renders judgment against defendants Mr. & Mrs. Engracio
Fabre, Jr. and Porfirio Cabil y Jamil pursuant to articles 2176 and 2180 of the Civil Code of the Philippines and said
defendants are ordered to pay jointly and severally to the plaintiffs the following amount:
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
1) P93,657.11 as compensatory and actual damages;

2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages; and

5) 25% of the recoverable amount as attorney's fees;

6) Costs of suit.

SO ORDERED.

The Court of Appeals affirmed the decision of the trial court with respect to Amyline Antonio but dismissed it with
respect to the other plaintiffs on the ground that they failed to prove their respective claims. The Court of Appeals
modified the award of damages as follows:

1) P93,657.11 as actual damages;

2) P600,000.00 as compensatory damages;

3) P50,000.00 as moral damages;

4) P20,000.00 as exemplary damages;

5) P10,000.00 as attorney's fees; and

6) Costs of suit.

The Court of Appeals sustained the trial court's finding that petitioner Cabil failed to exercise due care and
precaution in the operation of his vehicle considering the time and the place of the accident. The Court of Appeals
held that the Fabres were themselves presumptively negligent. Hence, this petition. Petitioners raise the following
issues:

I. WHETHER OR NOT PETITIONERS WERE NEGLIGENT.

II. WHETHER OF NOT PETITIONERS WERE LIABLE FOR THE INJURIES


SUFFERED BY PRIVATE RESPONDENTS.

III WHETHER OR NOT DAMAGES CAN BE AWARDED AND IN THE POSITIVE, UP


TO WHAT EXTENT.

Petitioners challenge the propriety of the award of compensatory damages in the amount of P600,000.00. It is
insisted that, on the assumption that petitioners are liable an award of P600,000.00 is unconscionable and highly
speculative. Amyline Antonio testified that she was a casual employee of a company called "Suaco," earning
P1,650.00 a month, and a dealer of Avon products, earning an average of P1,000.00 monthly. Petitioners contend
that as casual employees do not have security of tenure, the award of P600,000.00, considering Amyline Antonio's
earnings, is without factual basis as there is no assurance that she would be regularly earning these amounts.

With the exception of the award of damages, the petition is devoid of merit.

First, it is unnecessary for our purpose to determine whether to decide this case on the theory that petitioners are
liable for breach of contract of carriage or culpa contractual or on the theory of quasi delict or culpa aquiliana as both
the Regional Trial Court and the Court of Appeals held, for although the relation of passenger and carrier is
"contractual both in origin and nature," nevertheless "the act that breaks the contract may be also a tort." 2 In either
case, the question is whether the bus driver, petitioner Porfirio Cabil, was negligent.

The finding that Cabil drove his bus negligently, while his employer, the Fabres, who owned the bus, failed to
exercise the diligence of a good father of the family in the selection and supervision of their employee is fully
supported by the evidence on record. These factual findings of the two courts we regard as final and conclusive,
supported as they are by the evidence. Indeed, it was admitted by Cabil that on the night in question, it was raining,
and as a consequence, the road was slippery, and it was dark. He averred these facts to justify his failure to see that
there lay a sharp curve ahead. However, it is undisputed that Cabil drove his bus at the speed of 50 kilometers per
hour and only slowed down when he noticed the curve some 15 to 30 meters ahead. 3 By then it was too late for him
to avoid falling off the road. Given the conditions of the road and considering that the trip was Cabil's first one outside of
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Manila, Cabil should have driven his vehicle at a moderate speed. There is testimony 4 that the vehicles passing on that
portion of the road should only be running 20 kilometers per hour, so that at 50 kilometers per hour, Cabil was running at a
very high speed.

Considering the foregoing the fact that it was raining and the road was slippery, that it was dark, that he drove his
bus at 50 kilometers an hour when even on a good day the normal speed was only 20 kilometers an hour, and that
he was unfamiliar with the terrain, Cabil was grossly negligent and should be held liable for the injuries suffered by
private respondent Amyline Antonio.

Pursuant to Arts. 2176 and 2180 of the Civil Code his negligence gave rise to the presumption that his employers,
the Fabres, were themselves negligent in the selection and supervisions of their employee.

Due diligence in selection of employees is not satisfied by finding that the applicant possessed a professional
driver's license. The employer should also examine the applicant for his qualifications, experience and record of
service. 5 Due diligence in supervision, on the other hand, requires the formulation of rules and regulations for the
guidance of employees and issuance of proper instructions as well as actual implementation and monitoring of consistent
compliance with the rules. 6

In the case at bar, the Fabres, in allowing Cabil to drive the bus to La Union, apparently did not consider the fact that
Cabil had been driving for school children only, from their homes to the St. Scholastica's College in Metro
Manila. 7 They had hired him only after a two-week apprenticeship. They had hired him only after a two-week
apprenticeship. They had tested him for certain matters, such as whether he could remember the names of the children
he would be taking to school, which were irrelevant to his qualification to drive on a long distance travel, especially
considering that the trip to La Union was his first. The existence of hiring procedures and supervisory policies cannot be
casually invoked to overturn the presumption of negligence on the part of an employer. 8

Petitioners argue that they are not liable because (1) an earlier departure (made impossible by the congregation's
delayed meeting) could have a averted the mishap and (2) under the contract, the WWCF was directly responsible
for the conduct of the trip. Neither of these contentions hold water. The hour of departure had not been fixed. Even if
it had been, the delay did not bear directly on the cause of the accident. With respect to the second contention, it
was held in an early case that:

[A] person who hires a public automobile and gives the driver directions as to the place to which he wishes to be
conveyed, but exercises no other control over the conduct of the driver, is not responsible for acts of negligence of
the latter or prevented from recovering for injuries suffered from a collision between the automobile and a train,
caused by the negligence or the automobile driver. 9

As already stated, this case actually involves a contract of carriage. Petitioners, the Fabres, did not have to be
engaged in the business of public transportation for the provisions of the Civil Code on common carriers to apply to
them. As this Court has held: 10

Art. 1732. Common carriers are persons, corporations, firms or associations engaged in the
business of carrying or transporting passengers or goods or both, by land, water, or air for
compensation, offering their services to the public.

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.

As common carriers, the Fabres were found to exercise "extraordinary diligence" for the safe
transportation of the passengers to their destination. This duty of care is not excused by proof that
they exercise the diligence of a good father of the family in the selection and supervision of their
employee. As Art. 1759 of the Code provides:

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

This liability of the common carriers does not cease upon proof that they exercised all the diligence
of a good father of a family in the selection and supervision of their employees.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
The same circumstances detailed above, supporting the finding of the trial court and of the appellate court that
petitioners are liable under Arts. 2176 and 2180 for quasi delict, fully justify findings them guilty of breach of contract
of carriage under Arts. 1733, 1755 and 1759 of the Civil Code.

Secondly, we sustain the award of damages in favor of Amyline Antonio. However, we think the Court of Appeals
erred in increasing the amount of compensatory damages because private respondents did not question this award
as inadequate. 11 To the contrary, the award of P500,000.00 for compensatory damages which the Regional Trial Court
made is reasonable considering the contingent nature of her income as a casual employee of a company and as
distributor of beauty products and the fact that the possibility that she might be able to work again has not been
foreclosed. In fact she testified that one of her previous employers had expressed willingness to employ her again.

With respect to the other awards, while the decisions of the trial court and the Court of Appeals do not sufficiently
indicate the factual and legal basis for them, we find that they are nevertheless supported by evidence in the
records of this case. Viewed as an action for quasi delict, this case falls squarely within the purview of Art. 2219(2)
providing for the payment of moral damages in cases of quasi delict. On the theory that petitioners are liable for
breach of contract of carriage, the award of moral damages is authorized by Art. 1764, in relation to Art. 2220, since
Cabil's gross negligence amounted to bad faith. 12 Amyline Antonio's testimony, as well as the testimonies of her father
and copassengers, fully establish the physical suffering and mental anguish she endured as a result of the injuries caused
by petitioners' negligence.

The award of exemplary damages and attorney's fees was also properly made. However, for the same reason that it
was error for the appellate court to increase the award of compensatory damages, we hold that it was also error for
it to increase the award of moral damages and reduce the award of attorney's fees, inasmuch as private
respondents, in whose favor the awards were made, have not appealed. 13

As above stated, the decision of the Court of Appeals can be sustained either on the theory of quasi delict or on that
of breach of contract. The question is whether, as the two courts below held, petitioners, who are the owners and
driver of the bus, may be made to respond jointly and severally to private respondent. We hold that they may be.
In Dangwa Trans. Co. Inc. v. Court of Appeals, 14 on facts similar to those in this case, this Court held the bus company
and the driver jointly and severally liable for damages for injuries suffered by a passenger. Again, in Bachelor Express,
Inc. v. Court of
Appeals 15 a driver found negligent in failing to stop the bus in order to let off passengers when a fellow passenger ran
amuck, as a result of which the passengers jumped out of the speeding bus and suffered injuries, was held also jointly
and severally liable with the bus company to the injured passengers.

The same rule of liability was applied in situations where the negligence of the driver of the bus on which plaintiff
was riding concurred with the negligence of a third party who was the driver of another vehicle, thus causing an
accident. In Anuran v. Buo, 16 Batangas Laguna Tayabas Bus Co. v. Intermediate Appellate Court, 17 and Metro Manila
Transit Corporation v. Court of Appeals, 18 the bus company, its driver, the operator of the other vehicle and the driver of
the vehicle were jointly and severally held liable to the injured passenger or the latters' heirs. The basis of this allocation of
liability was explained in Viluan v. Court of Appeals, 19 thus:

Nor should it make any difference that the liability of petitioner [bus owner] springs from contract
while that of respondents [owner and driver of other vehicle] arises from quasi-delict. As early as
1913, we already ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that in case of injury to a passenger
due to the negligence of the driver of the bus on which he was riding and of the driver of another
vehicle, the drivers as well as the owners of the two vehicles are jointly and severally liable for
damages. Some members of the Court, though, are of the view that under the circumstances they
are liable on quasi-delict. 20

It is true that in Philippine Rabbit Bus Lines, Inc. v. Court of Appeals 21 this Court exonerated the jeepney driver from
liability to the injured passengers and their families while holding the owners of the jeepney jointly and severally liable, but
that is because that case was expressly tried and decided exclusively on the theory of culpa contractual. As this Court
there explained:

The trial court was therefore right in finding that Manalo (the driver) and spouses Mangune and Carreon (the
jeepney owners) were negligent. However, its ruling that spouses Mangune and Carreon are jointly and severally
liable with Manalo is erroneous. The driver cannot be held jointly and severally liable with carrier in case of breach of
the contract of carriage. The rationale behind this is readily discernible. Firstly, the contract of carriage is between
the carrier is exclusively responsible therefore to the passenger, even if such breach be due to the negligence of his
driver (see Viluan v. The Court of Appeals, et al., G.R. Nos. L-21477-81, April 29, 1966, 16 SCRA 742). 22

As in the case of BLTB, private respondents in this case and her coplaintiffs did not stake out their claim against the
carrier and the driver exclusively on one theory, much less on that of breach of contract alone. After all, it was
permitted for them to allege alternative causes of action and join as many parties as may be liable on such causes
of action 23 so long as private respondent and her coplaintiffs do not recover twice for the same injury. What is clear from
the cases is the intent of the plaintiff there to recover from both the carrier and the driver, thus, justifying the holding that
the carrier and the driver were jointly and severally liable because their separate and distinct acts concurred to produce
the same injury.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with MODIFICATION as to award of damages.
Petitioners are ORDERED to PAY jointly and severally the private respondent Amyline Antonio the following
amounts:

1) P93,657.11 as actual damages;

2) P500,000.00 as the reasonable amount of loss of earning capacity of plaintiff Amyline Antonio;

3) P20,000.00 as moral damages;

4) P20,000.00 as exemplary damages;

5) 25% of the recoverable amount as attorney's fees; and

6) costs of suit.

SO ORDERED.

Regalado, Romero, Puno and Torres, Jr., JJ., concur.

Footnotes

G.R. No. 87434 August 5, 1992

PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and TAGUM PLASTICS, INC., petitioners,
vs.
SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and HON. COURT OF
APPEALS, respondents.

De Lara, De Lunas & Rosales for petitioners.

Carlo L. Aquino for Sweet Lines, Inc.

REGALADO, J.:

A maritime suit 1 was commenced on May 12, 1978 by herein Petitioner Philippine American General Insurance Co., Inc.
(Philamgen) and Tagum Plastics, Inc. (TPI) against private respondents Sweet Lines, Inc. (SLI) and Davao Veterans
Arrastre and Port Services, Inc. (DVAPSI), along with S.C.I. Line (The Shipping Corporation of India Limited) and F.E.
Zuellig, Inc., as co-defendants in the court a quo, seeking recovery of the cost of lost or damaged shipment plus
exemplary damages, attorney's fees and costs allegedly due to defendants' negligence, with the following factual
backdrop yielded by the findings of the court below and adopted by respondent court:

It would appear that in or about March 1977, the vessel SS "VISHVA YASH" belonging to or
operated by the foreign common carrier, took on board at Baton Rouge, LA, two (2) consignments of
cargoes for shipment to Manila and later for transhipment to Davao City, consisting of 600 bags Low
Density Polyethylene 631 and another 6,400 bags Low Density Polyethylene 647, both consigned to
the order of Far East Bank and Trust Company of Manila, with arrival notice to Tagum Plastics, Inc.,
Madaum, Tagum, Davao City. Said cargoes were covered, respectively, by Bills of Lading Nos. 6 and
7 issued by the foreign common carrier (Exhs. E and F). The necessary packing or Weight List
(Exhs. A and B), as well as the Commercial Invoices (Exhs. C and D) accompanied the shipment.
The cargoes were likewise insured by the Tagum Plastics Inc. with plaintiff Philippine American
General Insurance Co., Inc., (Exh. G).

In the course of time, the said vessel arrived at Manila and discharged its cargoes in the Port of
Manila for transhipment to Davao City. For this purpose, the foreign carrier awaited and made use of
the services of the vessel called M/V "Sweet Love" owned and operated by defendant interisland
carrier.

Subject cargoes were loaded in Holds Nos. 2 and 3 of the interisland carrier. These were
commingled with similar cargoes belonging to Evergreen Plantation and also Standfilco.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
On May 15, 1977, the shipment(s) were discharged from the interisland carrier into the custody of
the consignee. A later survey conducted on July 8, 1977, upon the instance of the plaintiff, shows the
following:

Of the cargo covered by Bill of Lading No. 25 or (2)6, supposed to contain 6,400 bags of Low
Density Polyethylene 647 originally inside 160 pallets, there were delivered to the consignee 5,413
bags in good order condition. The survey shows shortages, damages and losses to be as follows:

Undelivered/Damaged bags as tallied during discharge from vessel-173 bags;


undelivered and damaged as noted and observed whilst stored at the pier-699 bags;
and shortlanded-110 bags (Exhs. P and P-1).

Of the 600 bags of Low Density Polyethylene 631, the survey conducted on the same day shows an
actual delivery to the consignee of only 507 bags in good order condition. Likewise noted were the
following losses, damages and shortages, to wit:

Undelivered/damaged bags and tally sheets during discharge from vessel-17 bags.

Undelivered and damaged as noted and observed whilst stored at the pier-66 bags;
Shortlanded-10 bags.

Therefore, of said shipment totalling 7,000 bags, originally contained in 175 pallets, only a total of
5,820 bags were delivered to the consignee in good order condition, leaving a balance of 1,080
bags. Such loss from this particular shipment is what any or all defendants may be answerable to
(sic).

As already stated, some bags were either shortlanded or were missing, and some of the 1,080 bags
were torn, the contents thereof partly spilled or were fully/partially emptied, but, worse, the contents
thereof contaminated with foreign matters and therefore could no longer serve their intended
purpose. The position taken by the consignee was that even those bags which still had some
contents were considered as total losses as the remaining contents were contaminated with foreign
matters and therefore did not (sic) longer serve the intended purpose of the material. Each bag was
valued, taking into account the customs duties and other taxes paid as well as charges and the
conversion value then of a dollar to the peso, at P110.28 per bag (see Exhs. L and L-1 M and O). 2

Before trial, a compromise agreement was entered into between petitioners, as plaintiffs, and defendants S.C.I. Line
and F.E. Zuellig, upon the latter's payment of P532.65 in settlement of the claim against them. Whereupon, the trial
court in its order of August 12, 1981 3 granted plaintiffs' motion to dismiss grounded on said amicable settlement and the
case as to S.C.I. Line and F.E. Zuellig was consequently "dismissed with prejudice and without pronouncement as to
costs."

The trial court thereafter rendered judgment in favor of herein petitioners on this dispositive portion:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff Philippine General American
Insurance Company Inc. and against the remaining defendants, Sweet Lines Inc. and Davao
Veterans Arrastre Inc. as follows:

Defendant Sweet Lines, Inc. is ordered to pay said plaintiff the sum of P34,902.00, with legal interest
thereon from date of extrajudicial demand on April 28, 1978 (Exh. M) until fully paid;

Defendant Sweet Lines Inc. and Davao Veterans Arrastre and (Port) Services Inc. are directed to
pay jointly and severally, the plaintiff the sum of P49,747.55, with legal interest thereon from April 28,
1978 until fully paid;

Each of said defendants are ordered to pay the plaintiffs the additional sum of P5,000 is
reimbursable attorney's fees and other litigation expenses;

Each of said defendants shall pay one-fourth (1/4) costs. 4

Due to the reversal on appeal by respondent court of the trial court's decision on the ground of prescription, 5 in
effect dismissing the complaint of herein petitioners, and the denial of their motion for reconsideration, 6 petitioners filed
the instant petition for review on certiorari, faulting respondent appellate court with the following errors: (1) in upholding,
without proof, the existence of the so-called prescriptive period; (2) granting arguendo that the said prescriptive period
does exist, in not finding the same to be null and void; and (3) assuming arguendo that the said prescriptive period is valid
and legal, in failing to conclude that petitioners substantially complied therewith. 7
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Parenthetically, we observe that herein petitioners are jointly pursuing this case, considering their common interest
in the shipment subject of the present controversy, to obviate any question as to who the real party in interest is and
to protect their respective rights as insurer and insured. In any case, there is no impediment to the legal standing of
Petitioner Philamgen, even if it alone were to sue herein private respondents in its own capacity as insurer, it having
been subrogated to all rights of recovery for loss of or damage to the shipment insured under its Marine Risk Note
No. 438734 dated March 31, 1977 8 in view of the full settlement of the claim thereunder as evidenced by the subrogation receipt 9 issued in its
favor by Far East Bank and Trust Co., Davao Branch, for the account of petitioner TPI.

Upon payment of the loss covered by the policy, the insurer's entitlement to subrogation pro tanto, being of the
highest equity, equips it with a cause of action against a third party in case of contractual breach. 10 Further, the
insurer's subrogatory right to sue for recovery under the bill of lading in case of loss of or damage to the cargo is
jurisprudentially upheld. 11 However, if an insurer, in the exercise of its subrogatory right, may proceed against the erring
carrier and for all intents and purposes stands in the place and in substitution of the consignee, a fortiori such insurer is
presumed to know and is just as bound by the contractual terms under the bill of lading as the insured.

On the first issue, petitioners contend that it was error for the Court of Appeals to reverse the appealed decision on
the supposed ground of prescription when SLI failed to adduce any evidence in support thereof and that the bills of
lading said to contain the shortened periods for filing a claim and for instituting a court action against the carrier
were never offered in evidence. Considering that the existence and tenor of this stipulation on the aforesaid periods
have allegedly not been established, petitioners maintain that it is inconceivable how they can possibly comply
therewith. 12 In refutation, SLI avers that it is standard practice in its operations to issue bills of lading for shipments
entrusted to it for carriage and that it in fact issued bills of lading numbered MD-25 and MD-26 therefor with proof of their
existence manifest in the records of the case. 13 For its part, DVAPSI insists on the propriety of the dismissal of the
complaint as to it due to petitioners' failure to prove its direct responsibility for the loss of and/or damage to the cargo. 14

On this point, in denying petitioner's motion for reconsideration, the Court of Appeals resolved that although the bills
of lading were not offered in evidence, the litigation obviously revolves on such bills of lading which are practically
the documents or contracts sued upon, hence, they are inevitably involved and their provisions cannot be
disregarded in the determination of the relative rights of the parties thereto. 15

Respondent court correctly passed upon the matter of prescription, since that defense was so considered and
controverted by the parties. This issue may accordingly be taken cognizance of by the court even if not inceptively
raised as a defense so long as its existence is plainly apparent on the face of relevant pleadings. 16 In the case at bar,
prescription as an affirmative defense was seasonably raised by SLI in its answer, 17 except that the bills of lading
embodying the same were not formally offered in evidence, thus reducing the bone of contention to whether or not
prescription can be maintained as such defense and, as in this case, consequently upheld on the strength of mere
references thereto.

As petitioners are suing upon SLI's contractual obligation under the contract of carriage as contained in the bills of
lading, such bills of lading can be categorized as actionable documents which under the Rules must be properly
pleaded either as causes of action or defenses, 18 and the genuineness and due execution of which are deemed
admitted unless specifically denied under oath by the adverse party. 19 The rules on actionable documents cover and
apply to both a cause of action or defense based on said documents. 20

In the present case and under the aforestated assumption that the time limit involved is a prescriptive period,
respondent carrier duly raised prescription as an affirmative defense in its answer setting forth paragraph 5 of the
pertinent bills of lading which comprised the stipulation thereon by parties, to wit:

5. Claims for shortage, damage, must be made at the time of delivery to consignee or agent, if
container shows exterior signs of damage or shortage. Claims for non-delivery, misdelivery, loss or
damage must be filed within 30 days from accrual. Suits arising from shortage, damage or loss, non-
delivery or misdelivery shall be instituted within 60 days from date of accrual of right of action.
Failure to file claims or institute judicial proceedings as herein provided constitutes waiver of claim or
right of action. In no case shall carrier be liable for any delay, non-delivery, misdelivery, loss of
damage to cargo while cargo is not in actual custody of carrier. 21

In their reply thereto, herein petitioners, by their own assertions that

2. In connection with Pars. 14 and 15 of defendant Sweet Lines, Inc.'s Answer, plaintiffs state that
such agreements are what the Supreme Court considers as contracts of adhesion (see Sweet Lines,
Inc. vs. Hon. Bernardo Teves, et al., G.R. No. L-37750, May 19, 1978) and, consequently, the
provisions therein which are contrary to law and public policy cannot be availed of by answering
defendant as valid defenses. 22

thereby failed to controvert the existence of the bills of lading and the aforequoted provisions therein, hence they
impliedly admitted the same when they merely assailed the validity of subject stipulations.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Petitioners' failure to specifically deny the existence, much less the genuineness and due execution, of the
instruments in question amounts to an admission. Judicial admissions, verbal or written, made by the parties in the
pleadings or in the course of the trial or other proceedings in the same case are conclusive, no evidence being
required to prove the same, and cannot be contradicted unless shown to have been made through palpable mistake
or that no such admission was made. 23 Moreover, when the due execution and genuineness of an instrument are
deemed admitted because of the adverse party's failure to make a specific verified denial thereof, the instrument need not
be presented formally in evidence for it may be considered an admitted fact. 24

Even granting that petitioners' averment in their reply amounts to a denial, it has the procedural earmarks of what in
the law on pleadings is called a negative pregnant, that is, a denial pregnant with the admission of the substantial
facts in the pleading responded to which are not squarely denied. It is in effect an admission of the averment it is
directed to. 25 Thus, while petitioners objected to the validity of such agreement for being contrary to public policy, the
existence of the bills of lading and said stipulations were nevertheless impliedly admitted by them.

We find merit in respondent court's comments that petitioners failed to touch on the matter of the non-presentation
of the bills of lading in their brief and earlier on in the appellate proceedings in this case, hence it is too late in the
day to now allow the litigation to be overturned on that score, for to do so would mean an over-indulgence in
technicalities. Hence, for the reasons already advanced, the non-inclusion of the controverted bills of lading in the
formal offer of evidence cannot, under the facts of this particular case, be considered a fatal procedural lapse as
would bar respondent carrier from raising the defense of prescription. Petitioners' feigned ignorance of the
provisions of the bills of lading, particularly on the time limitations for filing a claim and for commencing a suit in
court, as their excuse for non-compliance therewith does not deserve serious attention.

It is to be noted that the carriage of the cargo involved was effected pursuant to an "Application for Delivery of
Cargoes without Original Bill of Lading" issued on May 20, 1977 in Davao City 26 with the notation therein that said
application corresponds to and is subject to the terms of bills of lading MD-25 and MD-26. It would be a safe assessment
to interpret this to mean that, sight unseen, petitioners acknowledged the existence of said bills of lading. By having the
cargo shipped on respondent carrier's vessel and later making a claim for loss on the basis of the bills of lading,
petitioners for all intents and purposes accepted said bills. Having done so they are bound by all stipulations contained
therein. 27 Verily, as petitioners are suing for recovery on the contract, and in fact even went as far as assailing its validity
by categorizing it as a contract of adhesion, then they necessarily admit that there is such a contract, their knowledge of
the existence of which with its attendant stipulations they cannot now be allowed to deny.

On the issue of the validity of the controverted paragraph 5 of the bills of lading above quoted which unequivocally
prescribes a time frame of thirty (30) days for filing a claim with the carrier in case of loss of or damage to the cargo
and sixty (60) days from accrual of the right of action for instituting an action in court, which periods must concur,
petitioners posit that the alleged shorter prescriptive period which is in the nature of a limitation on petitioners' right
of recovery is unreasonable and that SLI has the burden of proving otherwise, citing the earlier case of Southern
Lines, Inc. vs. Court of Appeals, et al. 28 They postulate this on the theory that the bills of lading containing the same
constitute contracts of adhesion and are, therefore, void for being contrary to public policy, supposedly pursuant to the
dictum in Sweet Lines, Inc. vs. Teves, et al. 29

Furthermore, they contend, since the liability of private respondents has been clearly established, to bar petitioners'
right of recovery on a mere technicality will pave the way for unjust enrichment. 30 Contrarily, SLI asserts and defends
the reasonableness of the time limitation within which claims should be filed with the carrier; the necessity for the same,
as this condition for the carrier's liability is uniformly adopted by nearly all shipping companies if they are to survive the
concomitant rigors and risks of the shipping industry; and the countervailing balance afforded by such stipulation to the
legal presumption of negligence under which the carrier labors in the event of loss of or damage to the cargo. 31

It has long been held that Article 366 of the Code of Commerce applies not only to overland and river transportation
but also to maritime
transportation. 32 Moreover, we agree that in this jurisdiction, as viewed from another angle, it is more accurate to state
that the filing of a claim with the carrier within the time limitation therefor under Article 366 actually constitutes a condition
precedent to the accrual of a right of action against a carrier for damages caused to the merchandise. The shipper or the
consignee must allege and prove the fulfillment of the condition and if he omits such allegations and proof, no right of
action against the carrier can accrue in his favor. As the requirements in Article 366, restated with a slight modification in
the assailed paragraph 5 of the bills of lading, are reasonable conditions precedent, they are not limitations of
action. 33 Being conditions precedent, their performance must precede a suit for enforcement 34 and the vesting of the right
to file spit does not take place until the happening of these conditions. 35

Now, before an action can properly be commenced all the essential elements of the cause of action must be in
existence, that is, the cause of action must be complete. All valid conditions precedent to the institution of the
particular action, whether prescribed by statute, fixed by agreement of the parties or implied by law must be
performed or complied with before commencing the action, unless the conduct of the adverse party has been such
as to prevent or waive performance or excuse non-performance of the condition. 36

It bears restating that a right of action is the right to presently enforce a cause of action, while a cause of action
consists of the operative facts which give rise to such right of action. The right of action does not arise until the
performance of all conditions precedent to the action and may be taken away by the running of the statute of
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
limitations, through estoppel, or by other circumstances which do not affect the cause of action. 37 Performance or
fulfillment of all conditions precedent upon which a right of action depends must be sufficiently alleged, 38 considering that
the burden of proof to show that a party has a right of action is upon the person initiating the suit. 39

More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss of or
injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or the right to
enforce the carrier's liability. Such requirement is not an empty formalism. The fundamental reason or purpose of
such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been
damaged and that it is charged with liability therefor, and to give it an opportunity to examine the nature and extent
of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the
matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims. 40

Stipulations in bills of lading or other contracts of shipment which require notice of claim for loss of or damage to
goods shipped in order to impose liability on the carrier operate to prevent the enforcement of the contract when not
complied with, that is, notice is a condition precedent and the carrier is not liable if notice is not given in accordance
with the stipulation, 41 as the failure to comply with such a stipulation in a contract of carriage with respect to notice of loss
or claim for damage bars recovery for the loss or damage suffered. 42

On the other hand, the validity of a contractual limitation of time for filing the suit itself against a carrier shorter than
the statutory period therefor has generally been upheld as such stipulation merely affects the shipper's remedy and
does not affect the liability of the carrier. In the absence of any statutory limitation and subject only to the
requirement on the reasonableness of the stipulated limitation period, the parties to a contract of carriage may fix by
agreement a shorter time for the bringing of suit on a claim for the loss of or damage to the shipment than that
provided by the statute of limitations. Such limitation is not contrary to public policy for it does not in any way defeat
the complete vestiture of the right to recover, but merely requires the assertion of that right by action at an earlier
period than would be necessary to defeat it through the operation of the ordinary statute of limitations. 43

In the case at bar, there is neither any showing of compliance by petitioners with the requirement for the filing of a
notice of claim within the prescribed period nor any allegation to that effect. It may then be said that while petitioners
may possibly have a cause of action, for failure to comply with the above condition precedent they lost whatever
right of action they may have in their favor or, token in another sense, that remedial right or right to relief had
prescribed. 44

The shipment in question was discharged into the custody of the consignee on May 15, 1977, and it was from this
date that petitioners' cause of action accrued, with thirty (30) days therefrom within which to file a claim with the
carrier for any loss or damage which may have been suffered by the cargo and thereby perfect their right of action.
The findings of respondent court as supported by petitioners' formal offer of evidence in the court below show that
the claim was filed with SLI only on April 28, 1978, way beyond the period provided in the bills of lading 45 and
violative of the contractual provision, the inevitable consequence of which is the loss of petitioners' remedy or right to sue.
Even the filing of the complaint on May 12, 1978 is of no remedial or practical consequence, since the time limits for the
filing thereof, whether viewed as a condition precedent or as a prescriptive period, would in this case be productive of the
same result, that is, that petitioners had no right of action to begin with or, at any rate, their claim was time-barred.

What the court finds rather odd is the fact that petitioner TPI filed a provisional claim with DVAPSI as early as June
14, 1977 46 and, as found by the trial court, a survey fixing the extent of loss of and/or damage to the cargo was
conducted on July 8, 1977 at the instance of petitioners. 47 If petitioners had the opportunity and awareness to file such
provisional claim and to cause a survey to be conducted soon after the discharge of the cargo, then they could very easily
have filed the necessary formal, or even a provisional, claim with SLI itself 48 within the stipulated period therefor, instead
of doing so only on April 28, 1978 despite the vessel's arrival at the port of destination on May 15, 1977. Their failure to
timely act brings us to no inference other than the fact that petitioners slept on their rights and they must now face the
consequences of such inaction.

The ratiocination of the Court of Appeals on this aspect is worth reproducing:

xxx xxx xxx

It must be noted, at this juncture, that the aforestated time limitation in the presentation of claim for
loss or damage, is but a restatement of the rule prescribed under Art. 366 of the Code of Commerce
which reads as follows:

Art. 366. Within the twenty-four hours following the receipt of the merchandise, the
claim against the carrier for damage or average which may be found therein upon
opening the packages, may be made, provided that the indications of the damage or
average which gives rise to the claim cannot be ascertained from the outside part of
the packages, in which case the claims shall be admitted only at the time of the
receipt.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
After the periods mentioned have elapsed, or the transportation charges have been
paid, no claim shall be admitted against the carrier with regard to the condition in
which the goods transported were delivered.

Gleanable therefrom is the fact that subject stipulation even lengthened the period for presentation
of claims thereunder. Such modification has been sanctioned by the Supreme Court. In the case
of Ong Yet (M)ua Hardware Co., Inc. vs. Mitsui Steamship Co., Ltd., et al., 59 O.G. No. 17, p. 2764,
it ruled that Art. 366 of the Code of Commerce can be modified by a bill of lading prescribing the
period of 90 days after arrival of the ship, for filing of written claim with the carrier or agent, instead of
the 24-hour time limit after delivery provided in the aforecited legal provision.

Tested, too, under paragraph 5 of said Bill of Lading, it is crystal clear that the commencement of the
instant suit on May 12, 1978 was indeed fatally late. In view of the express provision that "suits
arising from
. . . damage or loss shall be instituted within 60 days from date of accrual of right of action," the
present action necessarily fails on ground of prescription.

In the absence of constitutional or statutory prohibition, it is usually held or


recognized that it is competent for the parties to a contract of shipment to agree on a
limitation of time shorter than the statutory period, within which action for breach of
the contract shall be brought, and such limitation will be enforced if reasonable . . .
(13 C.J.S. 496-497)

A perusal of the pertinent provisions of law on the matter would disclose that there is no
constitutional or statutory prohibition infirming paragraph 5 of subject Bill of Lading. The stipulated
period of 60 days is reasonable enough for appellees to ascertain the facts and thereafter to sue, if
need be, and the 60-day period agreed upon by the parties which shortened the statutory period
within which to bring action for breach of contract is valid and binding. . . . (Emphasis in the original
text.) 49

As explained above, the shortened period for filing suit is not unreasonable and has in fact been generally
recognized to be a valid business practice in the shipping industry. Petitioners' advertence to the Court's holding in
the Southern Lines case, supra, is futile as what was involved was a claim for refund of excess payment. We ruled
therein that non-compliance with the requirement of filing a notice of claim under Article 366 of the Code of
Commerce does not affect the consignee's right of action against the carrier because said requirement applies only
to cases for recovery of damages on account of loss of or damage to cargo, not to an action for refund of
overpayment, and on the further consideration that neither the Code of Commerce nor the bills of lading therein
provided any time limitation for suing for refund of money paid in excess, except only that it be filed within a
reasonable time.

The ruling in Sweet Lines categorizing the stipulated limitation on venue of action provided in the subject bill of
lading as a contract of adhesion and, under the circumstances therein, void for being contrary to public policy is
evidently likewise unavailing in view of the discrete environmental facts involved and the fact that the restriction
therein was unreasonable. In any case, Ong Yiu vs. Court of Appeals, et al., 50 instructs us that "contracts of adhesion
wherein one party imposes a ready-made form of contract on the other . . . 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." In the present case,
not even an allegation of ignorance of a party excuses non-compliance with the contractual stipulations since the
responsibility for ensuring full comprehension of the provisions of a contract of carriage devolves not on the carrier but on
the owner, shipper, or consignee as the case may be.

While it is true that substantial compliance with provisions on filing of claim for loss of or damage to cargo may
sometimes suffice, the invocation of such an assumption must be viewed vis-a-vis the object or purpose which such
a provision seeks to attain and that is to afford the carrier a reasonable opportunity to determine the merits and
validity of the claim and to protect itself against unfounded impositions. 51 Petitioners' would nevertheless adopt an
adamant posture hinged on the issuance by SLI of a "Report on Losses and Damages," dated May 15, 1977, 52 from
which petitioners theorize that this charges private respondents with actual knowledge of the loss and damage involved in
the present case as would obviate the need for or render superfluous the filing of a claim within the stipulated period.

Withal, it has merely to be pointed out that the aforementioned report bears this notation at the lower part thereof:
"Damaged by Mla. labor upon unloading; B/L noted at port of origin," as an explanation for the cause of loss of
and/or damage to the cargo, together with an iterative note stating that "(t)his Copy should be submitted together
with your claim invoice or receipt within 30 days from date of issue otherwise your claim will not be honored."

Moreover, knowledge on the part of the carrier of the loss of or damage to the goods deducible from the issuance of
said report is not equivalent to nor does it approximate the legal purpose served by the filing of the requisite claim,
that is, to promptly apprise the carrier about a consignee's intention to file a claim and thus cause the prompt
investigation of the veracity and merit thereof for its protection. It would be an unfair imposition to require the carrier,
upon discovery in the process of preparing the report on losses or damages of any and all such loss or damage, to
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
presume the existence of a claim against it when at that time the carrier is expectedly concerned merely with
accounting for each and every shipment and assessing its condition. Unless and until a notice of claim is therewith
timely filed, the carrier cannot be expected to presume that for every loss or damage tallied, a corresponding claim
therefor has been filed or is already in existence as would alert it to the urgency for an immediate investigation of
the soundness of the claim. The report on losses and damages is not the claim referred to and required by the bills
of lading for it does not fix responsibility for the loss or damage, but merely states the condition of the goods
shipped. The claim contemplated herein, in whatever form, must be something more than a notice that the goods
have been lost or damaged; it must contain a claim for compensation or indicate an intent to claim. 53

Thus, to put the legal effect of respondent carrier's report on losses or damages, the preparation of which is
standard procedure upon unloading of cargo at the port of destination, on the same level as that of a notice of claim
by imploring substantial compliance is definitely farfetched. Besides, the cited notation on the carrier's report itself
makes it clear that the filing of a notice of claim in any case is imperative if carrier is to be held liable at all for the
loss of or damage to cargo.

Turning now to respondent DVAPSI and considering that whatever right of action petitioners may have against
respondent carrier was lost due to their failure to seasonably file the requisite claim, it would be awkward, to say the
least, that by some convenient process of elimination DVAPSI should proverbially be left holding the bag, and it
would be pure speculation to assume that DVAPSI is probably responsible for the loss of or damage to cargo. Unlike
a common carrier, an arrastre operator does not labor under a presumption of negligence in case of loss,
destruction or deterioration of goods discharged into its custody. In other words, to hold an arrastre operator liable
for loss of and/or damage to goods entrusted to it there must be preponderant evidence that it did not exercise due
diligence in the handling and care of the goods.

Petitioners failed to pinpoint liability on any of the original defendants and in this seemingly wild goose-chase, they
cannot quite put their finger down on when, where, how and under whose responsibility the loss or damage
probably occurred, or as stated in paragraph 8 of their basic complaint filed in the court below, whether "(u)pon
discharge of the cargoes from the original carrying vessel, the SS VISHVA YASH," and/or upon discharge of the
cargoes from the interisland vessel the MV "SWEET LOVE," in Davao City and later while in the custody of
defendant arrastre operator. 54

The testimony of petitioners' own witness, Roberto Cabato, Jr., Marine and Aviation Claims Manager of petitioner
Philamgen, was definitely inconclusive and the responsibility for the loss or damage could still not be ascertained
therefrom:

Q In other words, Mr. Cabato, you only computed the loss on the basis of the figures
submitted to you and based on the documents like the survey certificate and the
certificate of the arrastre?

A Yes, sir.

Q Therefore, Mr. Cabato, you have no idea how or where these losses were
incurred?

A No, sir.

xxx xxx xxx

Q Mr. Witness, you said that you processed and investigated the claim involving the
shipment in question. Is it not a fact that in your processing and investigation you
considered how the shipment was transported? Where the losses could have
occurred and what is the extent of the respective responsibilities of the bailees and/or
carriers involved?

xxx xxx xxx

A With respect to the shipment being transported, we have of course to get into it in
order to check whether the shipment coming in to this port is in accordance with the
policy condition, like in this particular case, the shipment was transported to Manila
and transhipped through an interisland vessel in accordance with the policy. With
respect to the losses, we have a general view where losses could have occurred. Of
course we will have to consider the different bailees wherein the shipment must have
passed through, like the ocean vessel, the interisland vessel and the arrastre, but
definitely at that point and time we cannot determine the extent of each liability. We
are only interested at that point and time in the liability as regards the underwriter in
accordance with the policy that we issued.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
xxx xxx xxx

Q Mr. Witness, from the documents, namely, the survey of Manila Adjusters and
Surveyors Company, the survey of Davao Arrastre contractor and the bills of lading
issued by the defendant Sweet Lines, will you be able to tell the respective liabilities
of the bailees and/or carriers concerned?

A No, sir. (Emphasis ours.) 55

Neither did nor could the trial court, much less the Court of Appeals, precisely establish the stage in the course of
the shipment when the goods were lost, destroyed or damaged. What can only be inferred from the factual findings
of the trial court is that by the time the cargo was discharged to DVAPSI, loss or damage had already occurred and
that the same could not have possibly occurred while the same was in the custody of DVAPSI, as demonstrated by
the observations of the trial court quoted at the start of this opinion.

ACCORDINGLY, on the foregoing premises, the instant petition is DENIED and the dismissal of the complaint in the
court a quo as decreed by respondent Court of Appeals in its challenged judgment is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

G.R. No. L-22491 January 27, 1967

DOMINGO ANG, plaintiff-appellant,


vs.
AMERICAN STEAMSHIP AGENCIES, INC., defendant-appellee.

Juan T. David and M.C. Ginigundo for plaintiff-appellant.


Ross, Salcedo, Del Rosario, Bito & Misa for defendant-appellee.

BENGZON, J.P., J.:

Yau Yue Commercial Bank Ltd. of Hongkong, referred to hereafter as Yau Yue agreed to sell 140 packages of
galvanized steel durzinc sheets to one Herminio G. Teves (the date of said agreement is not shown in the record
here) for the sum of $32,458.26 (US). Said agreement was subject to the following terms and arrangements: (a) the
purchase price should be covered by a bank draft for the corresponding amount which should be paid by Herminio
G. Teves in exchange for the delivery to him of the corresponding bill of lading to be deposited with a local bank, the
Hongkong & Shanghai Bank of Manila (b) upon arrival of the articles in Manila, Teves would be notified and he
would have to pay the amount called for in the corresponding demand draft, after which the bill of lading would be
delivered to him; and (c) Teves would present said bill of lading to the carrier's agent, American Steamship
Agencies, Inc. which would then issue the corresponding "Permit To Deliver Imported Articles" to be presented to
the Bureau of Customs to obtain the release of the articles.

Pursuant to said terms and arrangements, Yau Yue through Tokyo Boeki Ltd. of Tokyo, Japan, shipped the articles
at Yawata, Japan, on April 30, 1961 aboard the S.S. TENSAI MARU, Manila, belonging to the Nissho Shipping Co.,
Ltd. of Japan, of which the American Steamship Agencies, Inc. is the agent in the Philippines, under a shipping
agreement, Bill of Lading No. WM-2 dated April 30, 1961, consigned "to order of the shipper with Herminio G. Teves
as the party to be notified of the arrival of the 140 packages of galvanized steel durzinc sheets in Manila.

The bill of lading was indorsed to the order of and delivered to Yau Yue by the shipper. Upon receipt thereof, Yau
Yue drew a demand draft together with the bill of lading against Herminio G. Teves, through the Hongkong &
Shanghai Bank.

When the articles arrived in Manila on or about May 9, 1961, Hongkong & Shanghai Bank notified Teves, the "notify
party" under the bill of lading, of the arrival of the goods and requested payment of the demand draft representing
the purchase price of the articles. Teves, however, did not pay the demand draft, prompting the bank to make the
corresponding protest. The bank likewise returned the bill of lading and demand draft to Yau Yue which indorsed the
said bill of lading to Domingo Ang.

Meanwhile, despite his non-payment of the purchase price of the articles, Teves was able to obtain a bank guaranty
in favor of the American Steamship Agencies, Inc., as carrier's agent, to the effect that he would surrender the
original and negotiable bill of lading duly indorsed by Yau Yue. On the strength of this guaranty, Teves succeeded in
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
securing a "Permit To Deliver Imported Articles" from the carrier's agent, which he presented to the Bureau of
Customs which in turn released to him the articles covered by the bill of lading.

Subsequently, Domingo Ang claimed for the articles from American Steamship Agencies, Inc., by presenting the
indorsed bill of lading, but he was informed by the latter that it had delivered the articles to Teves.

On October 30, 1963 Domingo Ang filed a complaint in the Court of First Instance of Manila against the American
Steamship Agencies, Inc., for having allegedly wrongfully delivered and/or converted the goods covered by the bill
of lading belonging to plaintiff Ang, to the damage and prejudice of the latter.

On December 2, 1963, defendant filed a motion to dismiss upon the ground that plaintiff's cause of action has
prescribed under the Carriage of Goods by Sea Act (Commonwealth Act No. 65), more particularly Section 3 (6),
paragraph 4, which provides:

In any event, the carrier and the ship shall be discharged from all liability in respect to loss or damage unless
suit is brought within one year, after delivery of the goods or the date when the goods should have been
delivered.

It argued that the cargo should have been delivered to the person entitled to the delivery thereof (meaning
the plaintiff) on May 9, 1961, the date of the vessel's arrival in Manila, and that even allowing a reasonable
time (even one month) after such arrival within which to make delivery, still, the action commenced on
October 30, 1963 was filed beyond the prescribed period of one year.

By order dated December 21, 1963, copy of which was received by plaintiff on December 26, 1963, the lower court
dismissed the action on the ground of prescription. His motion for reconsideration dated December 26, 1963 having
been denied by the lower court in its order dated January 13, 1964, plaintiff appealed directly to this Court on a
question of law: Has plaintiff-appellant's cause of action prescribed under Section 3(6), paragraph 4 of the Carriage
of Goods by Sea Act?

The provision of law involved in this case speaks of "loss or damage". That there was no damage caused to the
goods which were delivered intact to Herminio G. Teves who did not file any notice of damage, is admitted by both
parties in this case. What is to be resolved in order to determine the applicability of the prescriptive period of one
year to the case at bar is whether or not there was "loss" of the goods subject matter of the complaint.

Nowhere is "loss" defined in the Carriage of Goods by Sea Act. Therefore, recourse must be had to the Civil Code
which provides in Article 18 thereof that, "In matters which are governed by the Code of Commerce and special
laws, their deficiency shall be supplied by the provisions of this Code."

Article 1189 of the Civil Code defines the word "loss" in cases where conditions have been imposed with the
intention of suspending the efficacy of an obligation to give. The contract of carriage under consideration entered
into by and between American Steamship Agencies, Inc. and the Yau Yue (which later on endorsed the bill of lading
covering the shipment to plaintiff herein Domingo Ang), is one involving an obligation to give or to deliver the goods
"to the order of shipper", that is, upon the presentation and surrender of the bill of lading. This being so, said article
can be applied to the present controversy, more specifically paragraph 2 thereof which provides that, "... it is
understood that a thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its
existence unknown or it cannot be recovered."

As defined in the Civil Code and as applied to Section 3 (6) paragraph 4 of the Carriage of Goods by Sea Act, "loss"
contemplates merely a situation where no delivery at all was made by the shipper of the goods because the same
had perished, gone out of commerce, or disappeared that their existence is unknown or they cannot be recovered. It
does not include a situation where there was indeed delivery but delivery to the wrong person, or a misdelivery,
as alleged in the complaint in this case.

The distinction between non-delivery and misdelivery has reference to bills of lading. As this Court shall in Tan Pho
vs. Hassamal Dalamal, 67 Phil. 555, 557-558:

Considering that the bill of lading covering the goods in question has been made to order, which means that
said goods cannot be delivered without previous payment of the value thereof, it is evident that, the said
goods having been delivered to Aldeguer without paying the price of the same, these facts constitute
misdelivery and not nondelivery, because their was in fact delivery of merchandise. We do not believe it can
be seriously and reasonably argued that what took place, as contended of by the petitioner, is a case of
misdelivery with respect to Aldeguer and at the same time nondelivery with respect to the PNB who had the
bill of lading, because the only thing to consider in this question is whether Enrique Aldeguer was entitled to
get the merchandise or whether, on the contrary, the PNB is the one entitled thereto. Under the facts, the
defendant petitioner should not have delivered the goods to Aldeguer but to the Philippine National Bank.
Having made the delivery to Aldeguer, the delivery is a case of misdelivery. If the goods have been
delivered, it cannot at the same time be said that they have not been delivered.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
According to the bill of lading which was issued in the case at bar to the order of the shipper, the carrier was
under a duty not to deliver the merchandise mentioned in the bill of lading except upon presentation of the
bill of lading duly endorsed by the shipper. (10 C.J., 259) Hence, the defendant-petitioner Tan Pho having
delivered the goods to Enrique Aldeguer without the presentation by the latter of the bill of lading duly
endorsed to him by the shipper, the said defendant made a misdelivery and violated the bill of lading,
because his duty was not only to transport the goods entrusted to him safely, but to deliver them to the
person indicated in the bill of lading. (Emphasis supplied)

Now, it is well settled in this jurisdiction that when a defendant files a motion to dismiss, he thereby hypothetically
admits the truth of the allegations of fact contained in the complaint (Philippine National Bank v. Hipolito, et al., L-
16463, Jan. 30, 1965; Republic v. Ramos, L-15484, Jan. 31, 1963; Pascual v. Secretary of Public Works &
Communications, L-10405, Dec. 29, 1960; Pangan v. Evening News Publishing Co., Inc., L-13308, Dec. 29, 1960).
Thus, defendant-appellant having filed a motion to dismiss, it is deemed to have admitted, hypothetically,
paragraphs 6, 7 and 8 of the complaint, and these alleges:

6. That, when the said articles arrived in Manila, the defendant authorized the delivery thereof to Herminio
G. Teves, through the issuance of the corresponding Permit To Deliver Imported Articles, without the
knowledge and consent of the plaintiff, who is the holder in due course of said bill of lading, notwithstanding
the fact that the said Herminio G. Teves could not surrender the corresponding bill of lading; .

7. That, without any evidence of the fact that Herminio G. Teves is the holder of the corresponding bill of
lading in due course; without the surrender of the bill of lading without the knowledge and consent of the
plaintiff, as holder thereof in due course, and in violation of the provision on the bill of lading which requires
that the articles are only to be delivered to the person who is the holder in due course of the said bill of
lading, or his order, the defendant issued the corresponding 'Permit To Deliver Imported Articles' in favor of
the defendant, without the knowledge and consent of the plaintiff as holder in due course of said bill of
lading, which, originally was Yau Yue subsequently, the plaintiff Domingo Ang;

8. That, as a result of the issuance by the defendant of said permit, Herminio G. Teves was able to secure
the release of the articles from the Bureau of Customs, which is not legally possible without the presentation
of said permit to the said Bureau; ...

From the allegations of the complaint, therefore, the goods cannot be deemed "lost". They were delivered to
Herminio G. Teves, so that there can only be either delivery, if Teves really was entitled to receive them, or
misdelivery, if he was not so entitled. It is not for Us now to resolve whether or not delivery of the goods to Teves
was proper, that is, whether or not there was rightful delivery or misdelivery.

The point that matters here is that the situation is either delivery or misdelivery, but not nondelivery. Thus, the goods
were either rightly delivered or misdelivered, but they were not lost. There being no loss or damage to the goods,
the aforequoted provision of the Carriage of Good by Sea Act stating that "In any event, the carrier and the ship
shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery
of the goods or the date when the goods should have been delivered," does not apply. The reason is not difficult to
see. Said one-year period of limitation is designed to meet the exigencies of maritime hazards. In a case where the
goods shipped were neither last nor damaged in transit but were, on the contrary, delivered in port to someone who
claimed to be entitled thereto, the situation is different, and the special need for the short period of limitation in cases
of loss or damage caused by maritime perils does not obtain.

It follows that for suits predicated not upon loss or damage but on alleged misdelivery (or conversion) of the goods,
the applicable rule on prescription is that found in the Civil Code, namely, either ten years for breach of a written
contract or four years for quasi-delict. (Arts. 1144[1], 1146, Civil Code) In either case, plaintiff's cause of action has
not vet prescribed, since his right of action would have accrued at the earliest on May 9, 1961 when the ship arrived
in Manila and he filed suit on October 30, 1963.

Wherefore, the dismissal order appealed from is hereby reversed and set aside and this case is remanded to the
court a quo for further proceedings. No costs. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez and Castro, JJ., concur.

G.R. No. 119571 March 11, 1998

MITSUI O.S.K. LINES LTD., represented by MAGSAYSAY AGENCIES, INC., petitioner,


vs.
COURT OF APPEALS and LAVINE LOUNGEWEAR MFG. CORP., respondents.

MENDOZA, J.:
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
This is a petition for review on certiorari of the January 25, 1995 decision of the Court of Appeals and its resolution
1

of March 22, 1995 denying petitioner's motion for reconsideration. The appellate court upheld orders of Branch 68
(Pasig) of the Regional Trial Court, National Capital Judicial Region, denying petitioner's motion to dismiss in the
original action filed against petitioner by private respondent.

The facts are not in dispute. 2

Petitioner Mitsui O.S.K. Lines Ltd. is a foreign corporation represented in the Philippines by its agent, Magsaysay
Agencies. It entered into a contract of carriage through Meister Transport, Inc., an international freight forwarder,
with private respondent Lavine Loungewear Manufacturing Corporation to transport goods of the latter from Manila
to Le Havre, France. Petitioner undertook to deliver the goods to France 28 days from initial loading. On July 24,
1991, petitioner's vessel loaded private respondent's container van for carriage at the said port of origin.

However, in Kaoshiung, Taiwan the goods were not transshipped immediately, with the result that the shipment
arrived in Le Havre only on November 14, 1991. The consignee allegedly paid only half the value of the said goods
on the ground that they did not arrive in France until the "off season" in that country. The remaining half was
allegedly charged to the account of private respondent which in turn demanded payment from petitioner through its
agent.

As petitioner denied private respondent's claim, the latter filed a case in the Regional Trial Court on April 14, 1992.
In the original complaint, private respondent impleaded as defendants Meister Transport, Inc. and Magsaysay
Agencies, Inc., the latter as agent of petitioner Mitsui O.S.K. Lines Ltd. On May 20, 1993, it amended its complaint
by impleading petitioner as defendant in lieu of its agent. The parties to the case thus became private respondent as
plaintiff, on one side, and Meister Transport Inc. and petitioner Mitsui O.S.K. Lines Ltd. as represented by
Magsaysay Agencies, Inc., as defendants on the other.

Petitioner filed a motion to dismiss alleging that the claim against it had prescribed under the Carriage of Goods by
Sea Act.

The Regional Trial Court, as aforesaid, denied petitioner's motion as well as its subsequent motion for
reconsideration. On petition for certiorari, the Court of Appeals sustained the trial court's orders. Hence this petition
containing one assignment of error:

THE RESPONDENT COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN


RULING THAT PRIVATE RESPONDENT'S AMENDED COMPLAINT IS (sic) NOT PRESCRIBED
PURSUANT TO SECTION 3(6) OF THE CARRIAGE OF GOODS BY SEA ACT.

The issue raised by the instant petition is whether private respondent's action is for "loss or damage" to goods
shipped, within the meaning of 3(6) of the Carriage of Goods by Sea Act (COGSA).

Section 3 provides:

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

Said notice of loss or damage may be endorsed upon the receipt for the goods given by the person
taking delivery thereof.

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

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should
have been delivered: Provided, that, if a notice of loss or damage, either apparent or concealed, is
not given as provided for in this section, that fact shall not affect or prejudice the right of the shipper
to bring suit within one year after the delivery of the goods or the date when the goods should have
been delivered.

In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all
reasonable facilities to each other for inspecting and tallying the goods.

In Ang v. American Steamship Agencies, Inc., the question was whether an action for the value of goods which had
been delivered to a party other than the consignee is for "loss or damage" within the meaning of 3(6) of the
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
COGSA. It was held that there was no loss because the goods had simply been misdelivered. "Loss" refers to the
deterioration or disappearance of goods. 3

As defined in the Civil Code and as applied to Section 3(6), paragraph 4 of the Carriage of Goods by
Sea Act, "loss" contemplates merely a situation where no delivery at all was made by the shipper of
the goods because the same had perished, gone out of commerce, or disappeared in such a way
that their existence is unknown or they cannot be recovered. 4

Conformably with this concept of what constitutes "loss" or "damage," this Court held in another case that the
5

deterioration of goods due to delay in their transportation constitutes "loss" or "damage" within the meaning of 3(6),
so that as suit was not brought within one year the action was barred:

Whatever damage or injury is suffered by the goods while in transit would result in loss or damage to
either the shipper or the consignee. As long as it is claimed, therefore, as it is done here, that the
losses or damages suffered by the shipper or consignee were due to the arrival of the goods in
damaged or deteriorated condition, the action is still basically one for damage to the goods, and
must be filed within the period of one year from delivery or receipt, under the above-quoted provision
of the Carriage of Goods by Sea Act. 6

But the Court allowed that

There would be some merit in appellant's insistence that the damages suffered by him as a result of
the delay in the shipment of his cargo are not covered by the prescriptive provision of the Carriage of
Goods by Sea Act above referred to, if such damages were due, not to the deterioration and decay
of the goods while in transit, but to other causes independent of the condition of the cargo upon
arrival, like a drop in their market value. . . .
7

The rationale behind limiting the said definitions to such parameters is not hard to find or fathom. As this Court held
in Ang:

Said one-year period of limitation is designed to meet the exigencies of maritime hazards. In a case
where the goods shipped were neither lost nor damaged in transit but were, on the contrary,
delivered in port to someone who claimed to be entitled thereto, the situation is different, and the
special need for the short period of limitation in cases of loss or damage caused by maritime perils
does not obtain. 8

In the case at bar, there is neither deterioration nor disappearance nor destruction of goods caused by the carrier's
breach of contract. Whatever reduction there may have been in the value of the goods is not due to their
deterioration or disappearance because they had been damaged in transit.

Petitioner contends:

Although we agree that there are places in the section (Article III) in which the phrase need have no
broader meaning than loss or physical damage to the goods, we disagree with the conclusion that it
must so be limited wherever it is used. We take it that the phrase has a uniform meaning, not merely
in Section 3, but throughout the Act; and there are a number of places in which the restricted
interpretation suggested would be inappropriate. For example Section 4(2) [Article IV(2) (sic)
exempts exempts (sic) the carrier, the ship (sic), from liability "loss or damage" (sic) resulting from
certain courses beyond their control. 9

Indeed, what is in issue in this petition is not the liability of petitioner for its handling of goods as provided by
3(6) of the COGSA, but its liability under its contract of carriage with private respondent as covered by laws
of more general application.

Precisely, the question before the trial court is not the particular sense of "damages" as it refers to the physical loss
or damage of a shipper's goods as specifically covered by 3(6) of COGSA but petitioner's potential liability for the
damages it has caused in the general sense and, as such, the matter is governed by the Civil Code, the Code of
Commerce and COGSA, for the breach of its contract of carriage with private respondent.

We conclude by holding that as the suit below is not for "loss or damage" to goods contemplated in 3(6), the
question of prescription of action is governed not by the COGSA but by Art. 1144 of the Civil Code which provides
for a prescriptive period of ten years.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Regalado, Melo, Puno and Martinez, JJ., concur.

G.R. No. L-54140 October 14, 1986

FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,


vs.
HONORABLE JOSE ALEJANDRO, Presiding Judge of Branch XXVI of the Court of First Instance of Manila
and FROTA OCEANICA BRASILIERA, respondents.

G.R. No. L-62001 October 14, 1986

FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,


vs.
HONORABLE ALFREDO BENIPAYO, Presiding Judge of Branch XVI of the Court of First Instance of Manila
and AUSTRALIA-WEST PACIFIC LINE, respondents.

GUTIERREZ, JR., J.:

These consolidated petitions raise the issue of whether or not the one-year period within which to file a suit against
the carrier and theship, in case of damage or loss as provided for in the Carriage of Goods by Sea Act applies to the
insurer of the goods.

On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint, docketed as Civil Case No. 109911, against the
petitioner before the then Court of First Instance of Manila for recovery of a sum of money under the marine
insurance policy on cargo. Mr. Choa alleged that the goods he insured with the petitioner sustained loss and
damage in the amount of P35,987.26. The vessel SS Frotario which was owned and operated by private respondent
Frota Oceanica Brasiliera, (Frota) discharged the goods at the port of Manila on December 13, 1976. The said
goods were delivered to the arrastre operator E. Razon, Inc., on December 17, 1976 and on the same date were
received by the consignee-plaintiff.

On December 19, 1977, the petitioner filed its amended answer disclaiming liability, imputing against the plaintiff the
commission of fraud and counterclaiming for damages.

On January 9, 1978, the petitioner filed a third-party complaint against the carrier, private respondent Frota and the
arrastre contractor, E. Razon, Inc. for indemnity, subrogation, or reimbursement in the event that it is held liable to
the plaintiff.

Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a similar complaint against the petitioner which was
docketed as Civil Case No. 110061, for recovery under the marine insurance policy for cargo alleging that the goods
insured with the petitioner sustained loss and damage in the sum of P55,996.49.

The goods were delivered to the plaintiff-consignee on or about January 25-28, 1977.

On May 31, 1978, the petitioner filed its answer. On September 28, 1978, it filed an amended third-party complaint
against respondent carrier, the Australia-West Pacific Line (Australia-West).

In both cases, the private respondents filed their respective answers and subsequently filed a motion for preliminary
hearing on their affirmative defense of prescription. The private respondents alleged in their separate answers that
the petitioner is already barred from filing a claim because under the Carriage of Goods by Sea Act, the suit against
the carrier must be filed within one year after delivery of the goods or the date when the goods should have been
delivered...

The petitioner contended that the provision relied upon by the respondents applies only to the shipper and not to the
insurer of the goods.

On April 30, 1980, the respondent judge in Civil Case No. 109911, upheld respondent Frota and dismissed the
petitioner's third-party complaint. Likewise, on August 31, 1982, the respondent judge in Civil Case No. 110061
dismissed the petitioner's third-party complaint against respondent Australia-West on the ground that the same was
filed beyond the prescriptive period provide in Section 3 (6) of the Carriage of Goods by Sea Act of 1936. These
both cases, the petitioner appealed to us on a pure question of law, raising the issue of whether or not the
prescriptive period of one year under the said Act also applies to an insurer such as herein petitioner.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
The petitioner maintains that the one-year prescriptive period cannot cover an insurer which has not settled the
claim of its insured because it cannot be considered as the person referred to in the applicable provision of the said
Act that has the duty or right to give notice of loss or damage to the carrier or to sue such carrier within the period of
one year and that where an insurer does not settle the claim of its insured it cannot be considered as subrogated to
the rights of said insured that would then authorize it to sue the carrier within the time-bar of one year. The petitioner
further contends that the period for the filing of a third-party complaint must be reckoned from the date when the
principal action was filed, that is, from the time the insured filed a suit against the petitioner, because the third-party
complaint is merely an incident of the main action.

On the other hand, the respondents argue that the one-year prescriptive period within which to file a case against
the carrier also applies to a claim filed by an insurer who stands as a subrogee to the insured and that the third-
party complaint filed by the petitioner cannot be reckoned from the firing of the main action because such complaint
is independent of, and separate and distinct from the insured's action against the petitioner.

The lower courts did not err.

Section 3(b) of the Carriage of Goods by Sea Act provides:

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

Said notice of loss or damage may be endorsed upon the receipt for the goods given by the person
taking delivery thereof.

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

In any event the carrier and the ship shall be discharged from all liability in respect of loss or
damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered: Provided, that if a notice of loss or damage, either apparent or
concealed, is not given as provided for in this section, that fact shall not affect or prejudice the right
of the shipper to bring the suit within one year after the delivery of the goods or the date when the
goods should have been delivered.

In the case of any actual or apprehended loss or damage, the carrier and the receiver shall give all
reasonable facilities to each other for inspecting and tallying the goods. (Emphasis supplied)
Philippine Permanent and General Statutes (Revised Edition, Vol. 1, pp. 663-666).

Chua Kuy v. Everett Steamship Corporation (93 Phil 207, 213-214), expounds on the extent of the applicability of
the aforequoted provision. We ruled:

Neither do we find tenable the claim that the prescriptive period contained in said act can only be
invoked by the shipper, excluding all other parties to the transaction. While apparently the proviso
contained in the portion of section 3(6) of the act we have quoted gives the impression that the right
to file suit within one year after delivery of the goods applies to the shipper alone, however, reading
the proviso in conjunction with the rest of section 3(6), it at once becomes apparent that the
conclusion drawn by petitioner is unwarranted. In the first place, said section provides that the notice
of loss or damage for which a claim for indemnity may be made should be given in writing to the
carrier at the port of discharge before or at the time of the removal of the goods, and if the loss or
damage is not apparent said notice should be given 'within three days on delivery.' From the
language of this section, it seems clear that the notice of loss or damage is required to be filed not
necessarily by the shipper but also by the consignee or any legal holder of the bill of lading. In fact,
said section requires that the notice be given at the port of discharge and the most logical party to
file the notice is either the consignee or the endorsee of the bill of lading. In the second place, a
study of the historical background of this particular provision will show that although the word shipper
is used in the proviso referred to by the petitioner, the intention of the law was not to exclude the
consignee or endorsee of the bill of lading from bringing the action but merely to limit the filing of the
same within one year after the delivery of the goods at the port of discharge. [The Southern Cross,
1940, A. M. C. 59 (SDNY); Lindgren v. Farley, 1938 A. M. C. 805 (SDNY)].

Arnold W. Knauth, an eminent authority on admiralty, commenting on this proviso, says:

xxx xxx xxx


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
It seems evident that this language does not alter the sense of the text of the Hague Rules; it merely
reiterates in another form the rule already laid down. Curiously, the proviso seems limited to the
rights of shippers, and might strictly be construed not to give any rights to consignees,
representatives, or subrogated parties; whereas the Hague Rules phraseology is broader. As the Act
contains both phrases, it would seem to be as broad as the broader of the two forms of words.
(Ocean Bills of Lading, by Knauth, p. 229).

Clearly, the coverage of the Act includes the insurer of the goods. Otherwise, what the Act intends to prohibit after
the lapse of the one-year prescriptive period can be done indirectly by the shipper or owner of the goods by simply
filing a claim against the insurer even after the lapse of one year. This would be the result if we follow the petitioner's
argument that the insurer can, at any time, proceed against the carrier and the ship since it is not bound by the time-
bar provision. In this situation, the one-year limitation will be practically useless. This could not have been the
intention of the law which has also for its purpose the protection of the carrier and the ship from fraudulent claims by
having "matters affecting transportation of goods by sea be decided in as short a time as possible" and by avoiding
incidents which would "unnecessarily extend the period and permit delays in the settlement of questions affecting
the transportation." (See The Yek Tong Fire and Marine Insurance Co., Ltd., v. American President Lines, Inc., 103
Phil. 1125-1126).

In the case of Aetna Insurance Co. v. Luzon Stevedoring Corporation (62 SCRA 11, 15), we denied the appeal of an
insurance company which filed a suit against the carrier after the lapse of one year. We ruled:

There is no merit in the appeal. The trial court correctly held that the one-year statutory and
contractual prescriptive period had already expired when appellant company filed on April 7, 1965 its
action against Barber Line Far East Service. The one-year period commenced on February 25, 1964
when the damaged cargo was delivered to the consignee. (See Chua Kuy v. Everrett Steamship
Corporation, 93 Phil. 207; Yek Tong Fire & Marine Insurance Co., Ltd. v. American President Lines,
Inc., 103 Phil. 1125).

We likewise agree with the respondents that the third-party complaint of the petitioner cannot be considered to have
been filed upon the filing of the main action because although it can be said that a third-party complaint is but
ancilliary to the main action (Eastern Assurance and Surety Corporation v. Cui 105 SCRA 622), it cannot abridge,
enlarge, nor modify the substantive rights of any litigant. It creates no substantive rights. Thus, unless there is some
substantive basis for the third-party Plaintiff's claim, he cannot utilized the filing of such action to acquire any right of
action against the third-party defendant. (See also Francisco, The Revised Rules of Court in the Philippines, Vol. 1,
1973 Ed., p. 507). The petitioner can only rightfully file a third-party complaint against the respondents if, in the first
place, it can still validly maintain an action against the latter.

In the case at bar, the petitioner's action has prescribed under the provisions of the Carriage of Goods by Sea Act.
Hence, whether it files a third-party complaint or chooses to maintain an independent action against herein
respondents is of no moment. Had the plaintiffs in the civil cases below filed an action against the petitioner after the
one-year prescriptive period, then the latter could have successfully denied liability on the ground that by their own
doing, the plaintiffs had prevented the petitioner from being subrogated to their respective rights against the herein
respondents by filing a suit after the one-year prescriptive period. The situation, however, does not obtain in the
present case. The plaintiffs in the civil cases below gave extra-judicial notice to their respective carriers and filed suit
against the petitioner well within one year from their receipt of the goods. The petitioner had plenty of time within
which to act. In Civil Case No. 109911, the petitioner had more than four months to file a third-party complaint while
in Civil Case No. 110061, it had more than five months to do so. In both instances, however, the petitioner failed to
file the appropriate action.

WHEREFORE, IN VIEW OF THE FOREGOING, the petitions in G. R. No. 54140 and G. R. No. 62001 are hereby
DISMISSED for lack of merit. Costs against the petitioner.

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.

G.R. No. 124050 June 19, 1997

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT, petitioners,
vs.
COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER INSURANCE
CORPORATION, respondents.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
PUNO, J.:

This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of Appeals dated
December 14, 1995 1 and its Resolution dated February 22, 1996 2 in CA-G.R. CV No. 45805 entitled Mayer Steel Pipe
Corporation and Hongkong Government Supplies Department v. South Sea Surety Insurance Co., Inc. and The Charter
Insurance Corporation. 3

In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer Steel Pipe
Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August to October, 1983,
Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-
1025, MSPC-1020, MSPC-1017 and MSPC-1022. 4

Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private respondents South
Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter). The pipes and fittings
covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount of US$212,772.09 were insured with
respondent South Sea, while those covered by Invoice Nos. 1020, 1017 and 1022 with a total amount of
US$149,470.00 were insured with respondent Charter.

Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party inspector to
examine whether the pipes and fittings are manufactured in accordance with the specifications in the contract.
Industrial Inspection certified all the pipes and fittings to be in good order condition before they were loaded in the
vessel. Nonetheless, when the goods reached Hongkong, it was discovered that a substantial portion thereof was
damaged.

Petitioners filed a claim against private respondents for indemnity under the insurance contract. Respondent Charter
paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded payment of the balance of
HK$299,345.30 representing the cost of repair of the damaged pipes. Private respondents refused to pay because
the insurance surveyor's report allegedly showed that the damage is a factory defect.

On April 17, 1986, petitioners filed an action against private respondents to recover the sum of HK$299,345.30. For
their defense, private respondents averred that they have no obligation to pay the amount claimed by petitioners
because the damage to the goods is due to factory defects which are not covered by the insurance policies.

The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to manufacturing
defects. It also noted that the insurance contracts executed by petitioner Mayer and private respondents are "all
risks" policies which insure against all causes of conceivable loss or damage. The only exceptions are those
excluded in the policy, or those sustained due to fraud or intentional misconduct on the part of the insured. The
dispositive portion of the decision states:

WHEREFORE, judgment is hereby rendered ordering the defendants jointly and severally, to pay the
plaintiffs the following:

1. the sum equivalent in Philippine currency of HK$299,345.30, with legal rate of interest as of the
filing of the complaint;

2. P100,000.00 as and for attorney's fees; and

3. costs of suit.

SO ORDERED. 5

Private respondents elevated the case to respondent Court of Appeals.

Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and that it was
covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer. However, it set aside
the decision of the trial court and dismissed the complaint on the ground of prescription. It held that the action is
barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only on April 17, 1986, more than
two years from the time the goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea Act
provides that "the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the goods should have been delivered."
Respondent court ruled that this provision applies not only to the carrier but also to the insurer, citing Filipino
Merchants Insurance Co., Inc. v. Alejandro. 6

Hence this petition with the following assignments of error:


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
1. The respondent Court of Appeals erred in holding that petitioners' cause of action had already
prescribed on the mistaken application of the Carriage of Goods by Sea Act and the doctrine of
Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and

2. The respondent Court of Appeals committed an error in dismissing the complaint. 7

The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage of Goods by
Sea Act.

Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged from all
liability for loss or damage to the goods if no suit is filed within one year after delivery of the goods or the date when
they should have been delivered. Under this provision, only the carrier's liability is extinguished if no suit is brought
within one year. But the liability of the insurer is not extinguished because the insurer's liability is based not on the
contract of carriage but on the contract of insurance. A close reading of the law reveals that the Carriage of Goods
by Sea Act governs the relationship between the carrier on the one hand and the shipper, the consignee and/or the
insurer on the other hand. It defines the obligations of the carrier under the contract of carriage. It does not,
however, affect the relationship between the shipper and the insurer. The latter case is governed by the Insurance
Code.

Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro 8 and the other cases 9 cited therein does not support
respondent court's view that the insurer's liability prescribes after one year if no action for indemnity is filed against the
carrier or the insurer. In that case, the shipper filed a complaint against the insurer for recovery of a sum of money as
indemnity for the loss and damage sustained by the insured goods. The insurer, in turn, filed a third-party complaint
against the carrier for reimbursement of the amount it paid to the shipper. The insurer filed the third-party complaint on
January 9, 1978, more than one year after delivery of the goods on December 17, 1977. The court held that the insurer
was already barred from filing a claim against the carrier because under the Carriage of Goods by Sea Act, the suit
against the carrier must be filed within one year after delivery of the goods or the date when the goods should have been
delivered. The court said that "the coverage of the Act includes the insurer of the goods." 10

The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer which filed a
claim against the carrier for reimbursement of the amount it paid to the shipper. In the case at bar, it was the shipper
which filed a claim against the insurer. The basis of the shipper's claim is the "all risks" insurance policies issued by
private respondents to petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper, the
consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the Carriage of Goods by
Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim against the carrier
beyond the one-year period provided in the law. But it does not mean that the shipper may no longer file a claim
against the insurer because the basis of the insurer's liability is the insurance contract. An insurance contract is a
contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or
damage which he may suffer from a specified peril. 11 An "all risks" insurance policy covers all kinds of loss other than
those due to willful and fraudulent act of the insured. 12 Thus, when private respondents issued the "all risks" policies to
petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such
obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code. 13

IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals dated December 14,
1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and the Decision of the Regional Trial
Court is hereby REINSTATED. No costs.

SO ORDERED.

Regalado, Romero, Mendoza and Torres, Jr., JJ., concur.

G.R. No. L-61352 February 27, 1987

DOLE PHILIPPINES, INC., plaintiff-appellant,


vs.
MARITIME COMPANY OF THE PHILIPPINES, defendant-appellee.

Domingo E. de Lara & Associates for plaintiff-appellant.

Bito, Misa and Lozada Law Office for defendant-appellee.


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
NARVASA, J.:

This appeal, which was certified to the Court by the Court of Appeals as involving only questions of law, 1 relates to a
claim for loss and/or damage to a shipment of machine parts sought to be enforced by the consignee, appellant Dole
Philippines, Inc. (hereinafter caged Dole) against the carrier, Maritime Company of the Philippines (hereinafter called
Maritime), under the provisions of the Carriage of Goods by Sea Act. 2

The basic facts are succinctly stated in the order of the Trial Court 3 dated March 16, 1977, the relevant portion of
which reads:

xxx xxx xxx

Before the plaintiff started presenting evidence at today's trial at the instance of the Court the
lawyers entered into the following stipulation of facts:

1. The cargo subject of the instant case was discharged in Dadiangas unto the custody of the
consignee on December 18, 1971;

2. The corresponding claim for the damages sustained by the cargo was filed by the plaintiff with the
defendant vessel on May 4, 1972;

3. On June 11, 1973 the plaintiff filed a complaint in the Court of First Instance of Manila, docketed
therein as Civil Case No. 91043, embodying three (3) causes of action involving three (3) separate
and different shipments. The third cause of action therein involved the cargo now subject of this
present litigation;

4. On December 11, 1974, Judge Serafin Cuevas issued an Order in Civil Case No. 91043
dismissing the first two causes of action in the aforesaid case with prejudice and without
pronouncement as to costs because the parties had settled or compromised the claims involved
therein. The third cause of action which covered the cargo subject of this case now was likewise
dismissed but without prejudice as it was not covered by the settlement. The dismissal of that
complaint containing the three causes of action was upon a joint motion to dismiss filed by the
parties;

5. Because of the dismissal of the (complaint in Civil Case No. 91043 with respect to the third cause
of action without prejudice, plaintiff instituted this present complaint on January 6, 1975.

xxx xxx xxx 4

To the complaint in the subsequent action Maritime filed an answer pleading inter alia the affirmative defense of
prescription under the provisions of the Carriage of Goods by Sea Act, 5 and following pre-trial, moved for a preliminary
hearing on said defense. 6 The Trial Court granted the motion, scheduling the preliminary hearing on April 27, 1977. 7 The
record before the Court does not show whether or not that hearing was held, but under date of May 6, 1977, Maritime filed
a formal motion to dismiss invoking once more the ground of prescription. 8 The motion was opposed by Dole9 and the
Trial Court, after due consideration, resolved the matter in favor of Maritime and dismissed the complaint 10 Dole sought a
reconsideration, which was denied, 11 and thereafter took the present appeal from the order of dismissal.

The pivotal issue is whether or not Article 1155 of the Civil Code providing that the prescription of actions is
interrupted by the making of an extrajudicial written demand by the creditor is applicable to actions brought under
the Carriage of Goods by Sea Act which, in its Section 3, paragraph 6, provides that:

*** the carrier and the ship shall be discharged from all liability in respect of loss or damage unless
suit is brought within one year after delivery of the goods or the date when the goods should have
been delivered; Provided, That, if a notice of loss or damage, either apparent or conceded, is not
given as provided for in this section, that fact shall not affect or prejudice the right of the shipper to
bring suit within one year after the delivery of the goods or the date when the goods should have
been delivered.

xxx xxx xxx

Dole concedes that its action is subject to the one-year period of limitation prescribe in the above-cited
provision.12 The substance of its argument is that since the provisions of the Civil Code are, by express mandate of said
Code, suppletory of deficiencies in the Code of Commerce and special laws in matters governed by the latter, 13 and there
being "*** a patent deficiency *** with respect to the tolling of the prescriptive period ***" provided for in the Carriage of
Goods by Sea Act, 14 prescription under said Act is subject to the provisions of Article 1155 of the Civil Code on tolling and
because Dole's claim for loss or damage made on May 4, 1972 amounted to a written extrajudicial demand which would
toll or interrupt prescription under Article 1155, it operated to toll prescription also in actions under the Carriage of Goods
by Sea Act. To much the same effect is the further argument based on Article 1176 of the Civil Code which provides that
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
the rights and obligations of common carriers shag be governed by the Code of Commerce and by special laws in all
matters not regulated by the Civil Code.

These arguments might merit weightier consideration were it not for the fact that the question has already received
a definitive answer, adverse to the position taken by Dole, in The Yek Tong Lin Fire & Marine Insurance Co., Ltd. vs.
American President Lines, Inc. 15 There, in a parallel factual situation, where suit to recover for damage to cargo shipped
by vessel from Tokyo to Manila was filed more than two years after the consignee's receipt of the cargo, this Court
rejected the contention that an extrajudicial demand toiled the prescriptive period provided for in the Carriage of Goods by
Sea Act, viz:

In the second assignment of error plaintiff-appellant argues that it was error for the court a quo not to
have considered the action of plaintiff-appellant suspended by the extrajudicial demand which took
place, according to defendant's own motion to dismiss on August 22, 1952. We notice that while
plaintiff avoids stating any date when the goods arrived in Manila, it relies upon the allegation made
in the motion to dismiss that a protest was filed on August 22, 1952 which goes to show that
plaintiff-appellant's counsel has not been laying the facts squarely before the court for the
consideration of the merits of the case. We have already decided that in a case governed by the
Carriage of Goods by Sea Act, the general provisions of the Code of Civil Procedure on prescription
should not be made to apply. (Chua Kuy vs. Everett Steamship Corp., G.R. No. L-5554, May 27,
1953.) Similarly, we now hold that in such a case the general provisions of the new Civil Code (Art.
1155) cannot be made to apply, as such application would have the effect of extending the one-year
period of prescription fixed in the law. It is desirable that matters affecting transportation of goods by
sea be decided in as short a time as possible; the application of the provisions of Article 1155 of the
new Civil Code would unnecessarily extend the period and permit delays in the settlement of
questions affecting transportation, contrary to the clear intent and purpose of the law. * * *

Moreover, no different result would obtain even if the Court were to accept the proposition that a written extrajudicial
demand does toll prescription under the Carriage of Goods by Sea Act. The demand in this instance would be the
claim for damage-filed by Dole with Maritime on May 4, 1972. The effect of that demand would have been to renew
the one- year prescriptive period from the date of its making. Stated otherwise, under Dole's theory, when its claim
was received by Maritime, the one-year prescriptive period was interrupted "tolled" would be the more precise
term and began to run anew from May 4, 1972, affording Dole another period of one (1) year counted from that
date within which to institute action on its claim for damage. Unfortunately, Dole let the new period lapse without
filing action. It instituted Civil Case No. 91043 only on June 11, 1973, more than one month after that period has
expired and its right of action had prescribed.

Dole's contention that the prescriptive period "*** remained tolled as of May 4, 1972 *** (and that) in legal
contemplation *** (the) case (Civil Case No. 96353) was filed on January 6, 1975 *** well within the one-year
prescriptive period in Sec. 3(6) of the Carriage of Goods by Sea Act." 16 equates tolling with indefinite suspension. It is
clearly fallacious and merits no consideration.

WHEREFORE, the order of dismissal appealed from is affirmed, with costs against the appellant, Dole Philippines,
Inc.

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Cruz, Feliciano, Gancayco and Sarmiento, JJ., concur.

G.R. No. 180784 February 15, 2012

INSURANCE COMPANY OF NORTH AMERICA, Petitioner,


vs.
ASIAN TERMINALs, INC., Respondent.

DECISION

PERALTA, J.:

This is a petition for review on certiorari1 of the Decision of the Regional Trial Court (RTC) of Makati City, Branch 138
(trial court) in Civil Case No. 05-809 and its Order dated December 4, 2007 on the ground that the trial court
committed reversible error of law.

The trial court dismissed petitioners complaint for actual damages on the ground of prescription under the Carriage
of Goods by Sea Act (COGSA).
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
The facts are as follows:

On November 9, 2002, Macro-Lite Korea Corporation shipped to San Miguel Corporation, through M/V "DIMI P"
vessel, one hundred eighty-five (185) packages (231,000 sheets) of electrolytic tin free steel, complete and in good
order condition and covered by Bill of Lading No. POBUPOHMAN20638. 2 The shipment had a declared value of
US$169,850.353 and was insured with petitioner Insurance Company of North America against all risks under
Marine Policy No. MOPA-06310.4

The carrying vessel arrived at the port of Manila on November 19, 2002, and when the shipment was discharged
therefrom, it was noted that seven (7) packages thereof were damaged and in bad order.5 The shipment was then
turned over to the custody of respondent Asian Terminals, Inc. (ATI) on November 21, 2002 for storage and
safekeeping pending its withdrawal by the consignee's authorized customs broker, R.V. Marzan Brokerage Corp.
(Marzan).

On November 22, 23 and 29, 2002, the subject shipment was withdrawn by Marzan from the custody of respondent.
On November 29, 2002, prior to the last withdrawal of the shipment, a joint inspection of the said cargo was
conducted per the Request for Bad Order Survey6 dated November 29, 2002, and the examination report, which
was written on the same request, showed that an additional five (5) packages were found to be damaged and in bad
order.

On January 6, 2003, the consignee, San Miguel Corporation, filed separate claims 7 against respondent and
petitioner for the damage to 11,200 sheets of electrolytic tin free steel.

Petitioner engaged the services of an independent adjuster/surveyor, BA McLarens Phils., Inc., to conduct an
investigation and evaluation on the claim and to prepare the necessary report. 8 BA McLarens Phils., Inc. submitted
to petitioner an Survey Report9 dated January 22, 2003 and another report10 dated May 5, 2003 regarding the
damaged shipment. It noted that out of the reported twelve (12) damaged skids, nine (9) of them were rejected and
three (3) skids were accepted by the consignees representative as good order. BA McLarens Phils., Inc. evaluated
the total cost of damage to the nine (9) rejected skids (11,200 sheets of electrolytic tin free steel) to be P431,592.14.

The petitioner, as insurer of the said cargo, paid the consignee the amount of P431,592.14 for the damage caused
to the shipment, as evidenced by the Subrogation Receipt dated January 8, 2004. Thereafter, petitioner, formally
demanded reparation against respondent. As respondent failed to satisfy its demand, petitioner filed an action for
damages with the RTC of Makati City.

The trial court found, thus:

The Court finds that the subject shipment indeed suffered additional damages. The Request for Bad Order Survey
No. 56422 shows that prior to the turn over of the shipment from the custody of ATI to the consignee, aside from the
seven (7) packages which were already damaged upon arrival at the port of Manila, five (5) more packages were
found with "dent, cut and crumple" while in the custody of ATI. This document was issued by ATI and was jointly
executed by the representatives of ATI, consignee and customs, and the Shed Supervisor. Thus, ATI is now
estopped from claiming that there was no additional damage suffered by the shipment. It is, therefore, only logical to
conclude that the damage was caused solely by the negligence of defendant ATI. This evidence of the plaintiff was
refuted by the defendant by merely alleging that "the damage to the 5 Tin Plates is only in its external packaging."
However, the fact remains that the consignee has rejected the same as total loss for not being suitable for their
intended purpose. In addition, the photographs presented by the plaintiff show that the shipment also suffered
severe dents and some packages were even critically crumpled. 11

As to the extent of liability, ATI invoked the Contract for Cargo Handling Services executed between the Philippine
Ports Authority and Marina Ports Services, Inc. (now Asian Terminals, Inc.). Under the said contract, ATI's liability for
damage to cargoes in its custody is limited to P5,000.00 for each package, unless the value of the cargo shipment is
otherwise specified or manifested or communicated in writing, together with the declared Bill of Lading value and
supported by a certified packing list to the contractor by the interested party or parties before the discharge or lading
unto vessel of the goods.

The trial court found that there was compliance by the shipper and consignee with the above requirement. The Bill
of Lading, together with the corresponding invoice and packing list, was shown to ATI prior to the discharge of the
goods from the vessel. Since the shipment was released from the custody of ATI, the trial court found that the same
was declared for tax purposes as well as for the assessment of arrastre charges and other fees. For the purpose,
the presentation of the invoice, packing list and other shipping documents to ATI for the proper assessment of the
arrastre charges and other fees satisfied the condition of declaration of the actual invoices of the value of the goods
to overcome the limitation of liability of the arrastre operator.12

Further, the trial court found that there was a valid subrogation between the petitioner and the assured/consignee
San Miguel Corporation. The respondent admitted the existence of Global Marine Policy No. MOPA-06310 with San
Miguel Corporation and Marine Risk Note No. 3445,13 which showed that the cargo was indeed insured with
petitioner. The trial court held that petitioners claim is compensable because the Subrogation Receipt, 16 which was
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
admitted as to its existence by respondent, was sufficient to establish not only the relationship of the insurer and the
assured, but also the amount paid to settle the insurance claim. 14

However, the trial court dismissed the complaint on the ground that the petitioners claim was already barred by the
statute of limitations. It held that COGSA, embodied in Commonwealth Act (CA) No. 65, applies to this case, since
the goods were shipped from a foreign port to the Philippines. The trial court stated that under the said law,
particularly paragraph 4, Section 3 (6)15 thereof, the shipper has the right to bring a suit within one year after the
delivery of the goods or the date when the goods should have been delivered, in respect of loss or damage thereto.

The trial court held:

In the case at bar, the records show that the shipment was delivered to the consignee on 22, 23 and 29 of
November 2002. The plaintiff took almost a year to approve and pay the claim of its assured, San Miguel, despite
the fact that it had initially received the latter's claim as well as the inspection report and survey report of McLarens
as early as January 2003. The assured/consignee had only until November of 2003 within which to file a suit against
the defendant. However, the instant case was filed only on September 7, 2005 or almost three (3) years from the
date the subject shipment was delivered to the consignee. The plaintiff, as insurer of the shipment which has paid
the claim of the insured, is subrogated to all the rights of the said insured in relation to the reimbursement of such
claim. As such, the plaintiff cannot acquire better rights than that of the insured. Thus, the plaintiff has no one but
itself to blame for having acted lackadaisically on San Miguel's claim.

WHEREFORE, the complaint and counterclaim are hereby DISMISSED. 16

Petitioners motion for reconsideration was denied by the trial court in the Order 17 dated December 4, 2007.

Petitioner filed this petition under Rule 45 of the Rules of Court directly before this Court, alleging that it is raising a
pure question of law:

THE TRIAL COURT COMMITTED A PURE AND SERIOUS ERROR OF LAW IN APPLYING THE ONE-YEAR
PRESCRIPTIVE PERIOD FOR FILING A SUIT UNDER THE CARRIAGE OF GOODS BY SEA ACT (COGSA) TO
AN ARRASTRE OPERATOR.18

Petitioner states that while it is in full accord with the trial court in finding respondent liable for the damaged
shipment, it submits that the trial courts dismissal of the complaint on the ground of prescription under the COGSA
is legally erroneous. It contends that the one-year limitation period for bringing a suit in court under the COGSA is
not applicable to this case, because the prescriptive period applies only to the carrier and the ship. It argues that
respondent, which is engaged in warehousing, arrastre and stevedoring business, is not a carrier as defined by the
COGSA, because it is not engaged in the business of transportation of goods by sea in international trade as a
common carrier. Petitioner asserts that since the complaint was filed against respondent arrastre operator only,
without impleading the carrier, the prescriptive period under the COGSA is not applicable to this case.

Moreover, petitioner contends that the term "carriage of goods" in the COGSA covers the period from the time the
goods are loaded to the vessel to the time they are discharged therefrom. It points out that it sued respondent only
for the additional five (5) packages of the subject shipment that were found damaged while in respondents custody,
long after the shipment was discharged from the vessel. The said damage was confirmed by the trial court and
proved by the Request for Bad Order Survey No. 56422. 19

Petitioner prays that the decision of the trial court be reversed and set aside and a new judgment be promulgated
granting its prayer for actual damages.

The main issues are: (1) whether or not the one-year prescriptive period for filing a suit under the COGSA applies to
this action for damages against respondent arrastre operator; and (2) whether or not petitioner is entitled to recover
actual damages in the amount of P431,592.14 from respondent.

To reiterate, petitioner came straight to this Court to appeal from the decision of the trial court under Rule 45 of the
Rules of Court on the ground that it is raising only a question of law.

Microsoft Corporation v. Maxicorp, Inc.20 explains the difference between questions of law and questions of fact,
thus:

The distinction between questions of law and questions of fact is settled. A question of law exists when the doubt or
difference centers on what the law is on a certain state of facts. A question of fact exists if the doubt centers on the
truth or falsity of the alleged facts. Though this delineation seems simple, determining the true nature and extent of
the distinction is sometimes problematic. For example, it is incorrect to presume that all cases where the facts are
not in dispute automatically involve purely questions of law.
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative
value of the evidence. The resolution of the issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed is one
of fact. If the query requires a re-evaluation of the credibility of witnesses, or the existence or relevance of
surrounding circumstances and their relation to each other, the issue in that query is factual. x x x 21

In this case, although petitioner alleged that it is merely raising a question of law, that is, whether or not the
prescriptive period under the COGSA applies to an action for damages against respondent arrastre operator, yet
petitioner prays for the reversal of the decision of the trial court and that it be granted the relief sought, which is the
award of actual damages in the amount of P431,592.14. For a question to be one of law, it must not involve an
examination of the probative value of the evidence presented by the litigants or any of them. 22 However, to resolve
the issue of whether or not petitioner is entitled to recover actual damages from respondent requires the Court to
evaluate the evidence on record; hence, petitioner is also raising a question of fact.

Under Section 1, Rule 45, providing for appeals by certiorari before the Supreme Court, it is clearly enunciated that
only questions of law may be set forth.23 The Court may resolve questions of fact only when the case falls under the
following exceptions:

(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the inference made
is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings the
Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to those of the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition
as well as in the petitioner's main and reply briefs are not disputed by the respondent; and (10) when the findings of
fact are premised on the supposed absence of evidence and contradicted by the evidence on record. 24

In this case, the fourth exception cited above applies, as the trial court rendered judgment based on a
misapprehension of facts.

We first resolve the issue on whether or not the one-year prescriptive period for filing a suit under the COGSA
applies to respondent arrastre operator.

The Carriage of Goods by Sea Act (COGSA), Public Act No. 521 of the 74th US Congress, was accepted to be
made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade by
virtue of CA No. 65.

Section 1 of CA No. 65 states:

Section 1. That the provisions of Public Act Numbered Five hundred and twenty-one of the Seventy-fourth
Congress of the United States, approved on April sixteenth, nineteen hundred and thirty-six, be accepted, as it is
hereby accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports
in foreign trade: Provided, That nothing in the Act shall be construed as repealing any existing provision of the Code
of Commerce which is now in force, or as limiting its application.

Section 1, Title I of CA No. 65 defines the relevant terms in Carriage of Goods by Sea, thus:

Section 1. When used in this Act -

(a) The term "carrier" includes the owner or the charterer who enters into a contract of carriage with a
shipper.

(b) The term "contract of carriage" applies only to contracts of carriage covered by a bill of lading or any
similar document of title, insofar as such document relates to the carriage of goods by sea, including any bill
of lading or any similar document as aforesaid issued under or pursuant to a charter party from the moment
at which such bill of lading or similar document of title regulates the relations between a carrier and a holder
of the same.

(c) The term "goods" includes goods, wares, merchandise, and articles of every kind whatsoever, except live
animals and cargo which by the contract of carriage is stated as being carried on deck and is so carried.

(d) The term "ship" means any vessel used for the carriage of goods by sea.

(e) The term "carriage of goods" covers the period from the time when the goods are loaded to the time
when they are discharged from the ship.25
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
It is noted that the term "carriage of goods" covers the period from the time when the goods are loaded to the time
when they are discharged from the ship; thus, it can be inferred that the period of time when the goods have been
discharged from the ship and given to the custody of the arrastre operator is not covered by the COGSA.

The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is found in
paragraph (6), Section 3, thus:

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

Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery
thereof.

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

In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the goods should have been delivered:
Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of
the goods or the date when the goods should have been delivered. 26

From the provision above, the carrier and the ship may put up the defense of prescription if the action for damages
is not brought within one year after the delivery of the goods or the date when the goods should have been
delivered. It has been held that not only the shipper, but also the consignee or legal holder of the bill may invoke the
prescriptive period.27 However, the COGSA does not mention that an arrastre operator may invoke the prescriptive
period of one year; hence, it does not cover the arrastre operator.

Respondent arrastre operators responsibility and liability for losses and damages are set forth in Section 7.01 of the
Contract for Cargo Handling Services executed between the Philippine Ports Authority and Marina Ports Services,
Inc. (now Asian Terminals, Inc.), thus:

Section 7.01 Responsibility and Liability for Losses and Damages; Exceptions - The CONTRACTOR shall, at its
own expense, handle all merchandise in all work undertaken by it hereunder, diligently and in a skillful, workman-like
and efficient manner. The CONTRACTOR shall be solely responsible as an independent contractor, and
hereby agrees to accept liability and to pay to the shipping company, consignees, consignors or other interested
party or parties for the loss, damage or non-delivery of cargoes in its custody and control to the extent of the actual
invoice value of each package which in no case shall be more than FIVE THOUSAND PESOS (P5,000.00) each,
unless the value of the cargo shipment is otherwise specified or manifested or communicated in writing together
with the declared Bill of Lading value and supported by a certified packing list to the CONTRACTOR by the
interested party or parties before the discharge or loading unto vessel of the goods. This amount of Five Thousand
Pesos (P5,000.00) per package may be reviewed and adjusted by the AUTHORITY from time to time. The
CONTRACTOR shall not be responsible for the condition or the contents of any package received, nor for the
weight nor for any loss, injury or damage to the said cargo before or while the goods are being received or remains
in the piers, sheds, warehouses or facility, if the loss, injury or damage is caused by force majeure or other causes
beyond the CONTRACTOR's control or capacity to prevent or remedy; PROVIDED, that a formal claim together with
the necessary copies of Bill of Lading, Invoice, Certified Packing List and Computation arrived at covering the loss,
injury or damage or non-delivery of such goods shall have been filed with the CONTRACTOR within fifteen (15)
days from day of issuance by the CONTRACTOR of a certificate of non-delivery; PROVIDED, however, that if said
CONTRACTOR fails to issue such certification within fifteen (15) days from receipt of a written request by the
shipper/consignee or his duly authorized representative or any interested party, said certification shall be deemed to
have been issued, and thereafter, the fifteen (15) day period within which to file the claim commences; PROVIDED,
finally, that the request for certification of loss shall be made within thirty (30) days from the date of delivery of the
package to the consignee.28

Based on the Contract above, the consignee has a period of thirty (30) days from the date of delivery of the package
to the consignee within which to request a certificate of loss from the arrastre operator. From the date of the request
for a certificate of loss, the arrastre operator has a period of fifteen (15) days within which to issue a certificate of
non-delivery/loss either actually or constructively. Moreover, from the date of issuance of a certificate of non-
delivery/loss, the consignee has fifteen (15) days within which to file a formal claim covering the loss, injury, damage
or non-delivery of such goods with all accompanying documentation against the arrastre operator.

Petitioner clarified that it sued respondent only for the additional five (5) packages of the subject shipment that were
found damaged while in respondents custody, which fact of damage was sustained by the trial court and proved by
the Request for Bad Order Survey No. 56422.29
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Petitioner pointed out the importance of the Request for Bad Order Survey by citing New Zealand Insurance
Company Limited v. Navarro.30 In the said case, the Court ruled that the request for, and the result of, the bad order
examination, which were filed and done within fifteen days from the haulage of the goods from the vessel, served
the purpose of a claim, which is to afford the carrier or depositary reasonable opportunity and facilities to check the
validity of the claims while facts are still fresh in the minds of the persons who took part in the transaction and
documents are still available. Hence, even if the consignee therein filed a formal claim beyond the stipulated period
of 15 days, the arrastre operator was not relieved of liability as the purpose of a formal claim had already been
satisfied by the consignees timely request for the bad order examination of the goods shipped and the result of the
said bad order examination.

To elaborate, New Zealand Insurance Company, Ltd. v. Navarro held:

We took special note of the above pronouncement six (6) years later in Firemans Fund Insurance Co. v. Manila Port
Service Co., et al. There, fifteen (15) cases of nylon merchandise had been discharged from the carrying vessel and
received by defendant Manila Port Service Co., the arrastre operator, on 7 July 1961. Out of those fifteen (15)
cases, however, only twelve (12) had been delivered to the consignee in good condition. Consequently, on 20 July
1961, the consignee's broker requested a bad order examination of the shipment, which was later certified by
defendant's own inspector to be short of three (3) cases. On 15 August 1961, a formal claim for indemnity was then
filed by the consignee, who was later replaced in the action by plaintiff Fireman's Fund Insurance Co., the insurer of
the goods. Defendant, however, refused to honor the claim, arguing that the same had not been filed within fifteen
(15) days from the date of discharge of the shipment from the carrying vessel, as required under the arrastre
Management Contract then in force between itself and the Bureau of Customs. The trial court upheld this argument
and hence dismissed the complaint. On appeal by the consignee, this Court, speaking through Mr. Justice J.B.L.
Reyes, reversed the trial court and found the defendant arrastre operator liable for the value of the lost cargo,
explaining as follows:

"However, the trial court has overlooked the significance of the request for, and the result of, the bad order
examination, which were filed and done within fifteen days from the haulage of the goods from the vessel. Said
request and result, in effect, served the purpose of a claim, which is

to afford the carrier or depositary reasonable opportunity and facilities to check the validity of the claims while facts
are still fresh in the minds of the persons who took part in the transaction and documents are still available.
(Consunji vs. Manila Port Service, L-15551, 29 November 1960)

Indeed, the examination undertaken by the defendant's own inspector not only gave the defendant an opportunity to
check the goods but is itself a verification of its own liability x x x.

In other words, what the Court considered as the crucial factor in declaring the defendant arrastre operator liable for
the loss occasioned, in the Fireman's Fund case, was the fact that defendant, by virtue of the consignee's request
for a bad order examination, had been able formally to verify the existence and extent of its liability within fifteen (15)
days from the date of discharge of the shipment from the carrying vessel -- i.e., within the same period stipulated
under the Management Contract for the consignee to file a formal claim. That a formal claim had been filed by the
consignee beyond the stipulated period of fifteen (15) days neither relieved defendant of liability nor excused
payment thereof, the purpose of a formal claim, as contemplated in Consunji, having already been fully served and
satisfied by the consignee's timely request for, and the eventual result of, the bad order examination of the nylon
merchandise shipped.

Relating the doctrine of Fireman's Fund to the case at bar, the record shows that delivery to the warehouse of
consignee Monterey Farms Corporation of the 5,974 bags of soybean meal, had been completed by respondent
Razon (arrastre operator) on 9 July 1974. On that same day, a bad order examination of the goods delivered was
requested by the consignee and was, in fact, conducted by respondent Razon's own inspector, in the presence of
representatives of both the Bureau of Customs and the consignee. The ensuing bad order examination report
what the trial court considered a "certificate of loss" confirmed that out of the 5,974 bags of soybean meal loaded
on board the M/S "Zamboanga" and shipped to Manila, 173 bags had been damaged in transitu while an additional
111 bags had been damaged after the entire shipment had been discharged from the vessel and placed in the
custody of respondent Razon. Hence, as early as 9 July 1974 (the date of last delivery to the consignee's
warehouse), respondent Razon had been able to verify and ascertain for itself not only the existence of its liability to
the consignee but, more significantly, the exact amount thereof - i.e., P5,746.61, representing the value of 111 bags
of soybean meal. We note further that such verification and ascertainment of liability on the part of respondent
Razon, had been accomplished "within thirty (30) days from the date of delivery of last package to the consignee,
broker or importer" as well as "within fifteen (15) days from the date of issuance by the Contractor [respondent
Razon] of a certificate of loss, damage or injury or certificate of non-delivery" the periods prescribed under Article
VI, Section 1 of the Management Contract here involved, within which a request for certificate of loss and a formal
claim, respectively, must be filed by the consignee or his agent. Evidently, therefore, the rule laid down by the Court
in Fireman's Fund finds appropriate application in the case at bar.31

In this case, the records show that the goods were deposited with the arrastre operator on November 21, 2002. The
goods were withdrawn from the arrastre operator on November 22, 23 and 29, 2002. Prior to the withdrawal on
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
November 29, 2002, the broker of the importer, Marzan, requested for a bad order survey in the presence of a
Customs representative and other parties concerned. The joint inspection of cargo was conducted and it was found
that an additional five (5) packages were found in bad order as evidenced by the document entitled Request for Bad
Order Survey32 dated November 29, 2002, which document also contained the examination report, signed by the
Customs representative, Supervisor/Superintendent, consignees representative, and the ATI Inspector.

Thus, as early as November 29, 2002, the date of the last withdrawal of the goods from the arrastre operator,
respondent ATI was able to verify that five (5) packages of the shipment were in bad order while in its custody. The
certificate of non-delivery referred to in the Contract is similar to or identical with the examination report on the
request for bad order survey.33 Like in the case of New Zealand Insurance Company Ltd. v. Navarro, the verification
and ascertainment of liability by respondent ATI had been accomplished within thirty (30) days from the date of
delivery of the package to the consignee and within fifteen (15) days from the date of issuance by the Contractor
(respondent ATI) of the examination report on the request for bad order survey. Although the formal claim was filed
beyond the 15-day period from the issuance of the examination report on the request for bad order survey, the
purpose of the time limitations for the filing of claims had already been fully satisfied by the request of the
consignees broker for a bad order survey and by the examination report of the arrastre operator on the result
thereof, as the arrastre operator had become aware of and had verified the facts giving rise to its liability.34 Hence,
the arrastre operator suffered no prejudice by the lack of strict compliance with the 15-day limitation to file the formal
complaint.35

The next factual issue is whether or not petitioner is entitled to actual damages in the amount of P431,592.14. The
payment of the said amount by petitioner to the assured/consignee was based on the Evaluation Report 36 of BA
McLarens Phils., Inc., thus:

xxxx

CIRCUMSTANCES OF LOSS

As reported, the shipment consisting of 185 packages (344.982 MT) Electrolytic Tin Free Steel, JISG 3315SPTFS,
MRT-4CA, Matte Finish arrived Manila via Ocean Vessel, M/V "DIMI P" V-075 on November 9, 2002 and
subsequently docked alongside Pier No. 9, South Harbor, Manila. The cargo of Electrolyic Tin Free Steel was
discharged ex-vessel complete with seven (7) skids noted in bad order condition by the vessel[s] representative.
These skids were identified as nos. 2HD804211, 2HD804460, SHD804251, SHD803784, 2HD803763, 2HD803765
and 2HD803783 and covered with Bad Order Tally Receipts No. 3709, 3707, 3703 and 3704. Thereafter, the same
were stored inside the warehouse of Pier No. 9, South Harbor, Manila, pending delivery to the consignees
warehouse.

On November 22, 23 and 29, 2002, the subject cargo was withdrawn from the Pier by the consignee authorized
broker, R. V. Marzan Brokerage Corp. and the same was delivered to the consignees final warehouse located at
Silangan, Canlubang, Laguna complete with twelve (12) skids in bad order condition.

VISUAL INSPECTION

We conducted an ocular inspection on the reported damaged Electrolytic Tin Free Steel, Matte Finish at the
consignees warehouse located at Brgy. Silangan, Canlubang, Laguna and noted that out of the reported twelve(12)
damaged skids, nine (9) of them were rejected and three (3) skids were accepted by the consignees representative
as complete and without exceptions.

xxxx

EVALUATION OF INDEMNITY

We evaluated the loss/damage sustained by the subject shipments and arrived as follows:

NET WT. PER


PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETS
PACKING LIST
Electrolytic Tin Free
2HD803763 1,200 1,908
Steel JISG3315
2HD803783 -do- 1,200 1,908
2HD803784 -do- 1,200 1,908
2HD804460 -do- 1,400 1,698
2HD803765 -do- 1,200 1,908
2HD804522 -do- 1,200 1,987
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law

2HD804461 -do- 1,400 1,698


2HD804540 -do- 1,200 1,987
2HD804549 -do- 1,200 1,987

9 SKIDS TOTAL 11,200 16,989 kgs.


P9,878,547.58
------------------- = 42.7643 x 11,200 P478,959.88
231,000
Less: Deductible 0.50% based on sum insured 49,392.74
Total P429,567.14
Add: Surveyors Fee 2,025.00
Sub-Total P431,592.14
Note: Above evaluation is Assureds tentative liability as the salvage proceeds on the damaged stocks has yet to be
determined.

RECOVERY ASPECT

Prospect of recovery would be feasible against the shipping company and the Arrastre operator considering the
copies of Bad Order Tally Receipts and Bad Order Certificate issued by the subject parties. 37

To clarify, based on the Evaluation Report, seven (7) skids were damaged upon arrival of the vessel per the Bad
Order Cargo Receipts38 issued by the shipping company, and an additional five (5) skids were damaged in the
custody of the arrastre operator per the Bad Order Certificate/Examination Report 39 issued by the arrastre
contractor. The Evaluation Report states that out of the reported twelve damaged skids, only nine were rejected, and
three were accepted as good order by the consignees representative. Out of the nine skids that were rejected, five
skids were damaged upon arrival of the vessel as shown by the product numbers in the Evaluation Report, which
product numbers matched those in the Bad Order Cargo Receipts 40 issued by the shipping company. It can then be
safely inferred that the four remaining rejected skids were damaged in the custody of the arrastre operator, as the
Bad Order Certificate/Examination Report did not indicate the product numbers thereof.

Hence, it should be pointed out that the Evaluation Report shows that the claim for actual damages in the amount
of P431,592.14 covers five (5)41 out of the seven (7) skids that were found to be damaged upon arrival of the vessel
and covered by Bad Order Cargo Receipt Nos. 3704, 3706, 3707 and 3709, 42 which claim should have been filed
with the shipping company. Petitioner must have realized that the claim for the said five (5) skids was already barred
under COGSA; hence, petitioner filed the claim for actual damages only against respondent arrastre operator.

As regards the four (4) skids that were damaged in the custody of the arrastre operator, petitioner is still entitled to
recover from respondent. The Court has ruled that the Request for Bad Order Survey and the examination report
1awp++i1

on the said request satisfied the purpose of a formal claim, as respondent was made aware of and was able to
verify that five (5) skids were damaged or in bad order while in its custody before the last withdrawal of the shipment
on November 29, 2002. Hence, even if the formal claim was filed beyond the 15-day period stipulated in the
Contract, respondent was not prejudiced thereby, since it already knew of the number of skids damaged in its
possession per the examination report on the request for bad order survey.

Remand of the case to the trial court for the determination of the liability of respondent to petitioner is not necessary
as the Court can resolve the same based on the records before it. 43 The Court notes that petitioner, who filed this
action for damages for the five (5) skids that were damaged while in the custody of respondent, was not forthright in
its claim, as it knew that the damages it sought in the amount of P431,592.14, which was based on the Evaluation
Report of its adjuster/surveyor, BA McLarens Phils., Inc., covered nine (9) skids. Based on the same Evaluation
Report, only four of the nine skids were damaged in the custody of respondent. Petitioner should have been
straightforward about its exact claim, which is borne out by the evidence on record, as petitioner can be granted
only the amount of damages that is due to it.

Based on the Evaluation Report44 of BA McLarens Phils., Inc., dated May 5, 2003, the four (4) skids damaged while
in the custody of the arrastre operator and the amount of actual damages therefore are as follows:

NET WT. PER


PRODUCT NOS. PRODUCTS NAMED NO. OF SHEETS
PACKING LIST
Electrolytic Tin Free
2HD804522 1,200 1,987
Steel JISG3315
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law

2HD804461 -do- 1,400 1,698


2HD804540 -do- 1,200 1,987
2HD804549 -do- 1,200 1,987

4 SKIDS TOTAL 5,000


P9,878,547.58 (Insured value)45
---------------------------------------------- = 42.7643 x 5,000 P213,821.50
231,000 (Total number of sheets)
Less: Deductible 0.50% based on sum insured46 49,392.74
Total P164,428.76
In view of the foregoing, petitioner is entitled to actual damages in the amount of P164,428.76 for the four (4) skids
damaged while in the custody of respondent. 1wphi1

WHEREFORE, the petition is GRANTED. The Decision of the Regional Trial Court of Makati City, Branch 138, dated
October 17, 2006, in Civil Case No. 05-809, and its Order dated December 4, 2007, are hereby REVERSED and
SET ASIDE. Respondent Asian Terminals, Inc. is ORDERED to pay petitioner Insurance Company of North America
actual damages in the amount of One Hundred Sixty-Four Thousand Four Hundred Twenty-Eight Pesos and
Seventy-Six Centavos (P164,428.76). Twelve percent (12%) interest per annum shall be imposed on the amount of
actual damages from the date the award becomes final and executory until its full satisfaction.

Costs against petitioner.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

G.R. No. 171337 July 11, 2012

BENJAMIN CUA (CUA UlAN TEK), Petitioner,


vs.
WALLEM PHILIPPINES SHIPPING, INC. and ADVANCE SHIPPING CORPORATION, Respondents.

DECISION

BRION, J.:

Petitioner Benjamin Cua invokes the Court's power of review, through a petition for review on certiorari,1 to set aside
the decision dated May 16, 20052 and the resolution dated January 31, 20063 of the Court of Appeals (CA)in CA-
G.R. CV No. 53538. The CA rulings reversed the decision dated December 28, 1995 4 of the Regional Trial
Court (RTC), Branch 31, Manila, in Civil Case No. 90-55098, where the RTC ordered the respondents, Wallem
Philippines Shipping, Inc. (Wallem) and Advance Shipping Corporation (Advance Shipping), jointly and severally
liable to pay damages in favor of Cua.

THE FACTS

On November 12, 1990, Cua filed a civil action for damages against Wallem and Advance Shipping before the RTC
of Manila.5 Cua sought the payment of P2,030,303.52 for damage to 218 tons and for a shortage of 50 tons of
shipment of Brazilian Soyabean consigned to him, as evidenced by Bill of Lading No. 10. He claimed that the loss
was due to the respondents failure to observe extraordinary diligence in carrying the cargo. Advance Shipping (a
foreign corporation) was the owner and manager of M/V Argo Trader that carried the cargo, while Wallem was its
local agent.

Advance Shipping filed a motion to dismiss the complaint,6 assailing the RTCs jurisdiction over Cuas claim; it
argued that Cuas claim should have first been brought to arbitration. Cua opposed Advance Shippings argument;
he contended that he, as a consignee, was not bound by the Charter Party Agreement, which was a contract
between the ship owner (Advance Shipping) and the charterers.7 The RTC initially deferred resolving the question of
jurisdiction until after trial on the merits,8 but upon motion by Advance Shipping,9 the RTC ruled that Cua was not
bound by the arbitration clause in the Charter Party Agreement. 10
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
In the meantime, Wallem filed its own motion to dismiss, 11 raising the sole ground of prescription. Section 3(6) of the
Carriage of Goods by Sea Act (COGSA) provides that "the carrier and the ship shall be discharged from all liability
in respect of loss or damage unless suit is brought within one year after delivery of the goods." Wallem alleged that
the goods were delivered to Cua on August 16, 1989, but the damages suit was instituted only on November 12,
1990 more than one year than the period allotted under the COGSA. Since the action was filed beyond the one
year prescriptive period, Wallem argued that Cuas action has been barred.

Cua filed an opposition to Wallems motion to dismiss, denying the latters claim of prescription. 12 Cua referred to the
August 10, 1990 telex message sent by Mr. A.R. Filder of Thomas Miller,13 manager of the UK P&I Club,14which
stated that Advance Shipping agreed to extend the commencement of suit for 90 days, from August 14, 1990 to
November 12, 1990; the extension was made with the concurrence of the insurer of the vessel, the UK P&I Club. A
copy of the August 10, 1990 telex was supposedly attached to Cuas opposition.

On February 11, 1992, Wallem filed an omnibus motion,15 withdrawing its motion to dismiss and adopting instead the
arguments in Advance Shippings motion to dismiss. It made an express reservation, however, that it was not
waiving "the defense of prescription and will allege as one of its defenses, such defense of prescription and/or
laches in its Answer should this be required by the circumstances."16 Accordingly, in an order dated June 5,
1992,17 the RTC resolved that "the Court need not act on the Motion to Dismiss filed by the defendant Wallem
Philippines Shipping, Inc.,"18 and required the defendants therein to file their Answer.

After trial on the merits, the RTC issued its decision on December 28, 1995, 19 ordering the respondents jointly and
severally liable to pay as damages to Cua:

1. the amount of P2,030,000.00, plus interests until the same is fully paid;

2. the sum of P100,00.00 as attorneys fees; and

3. the costs of [the] suit, and dismissing the counterclaims of the respondents.

The respondents filed an appeal with the CA, insisting that Cuas claim is arbitrable and has been barred by
prescription and/or laches.20 The CA found the respondents claim of prescription meritorious after finding that the
August 10, 1990 telex message, extending the period to file an action, was neither attached to Cuas opposition to
Wallems motion to dismiss, nor presented during trial. The CA ruled that there was no basis for the RTC to
conclude that the prescriptive period was extended by the parties agreement. Hence, it set aside the RTC decision
and dismissed Cuas complaint.21

Cua filed a motion for reconsideration22 of the CA decision, which was denied by the CA in a resolution dated
January 31, 2006.23 Cua thus filed the present petition to assail the CA rulings.

THE PARTIES ARGUMENTS

Cua contends that the extension of the period to file a complaint for damages was a fact that was already admitted
by the respondents who may no longer assert the contrary, unless they sufficiently show that it was made through
palpable mistake or that no admission was made. Cua points out that Wallems motion to dismiss raised solely the
issue of prescription, which he refuted by referring to the August 10, 1990 telex message extending the prescriptive
period. Immediately after, Wallem withdrew its motion to dismiss. Cua thus attributes the withdrawal to an admission
by Wallem of the existence of the August 10, 1990 telex message. Cua adds that Wallems withdrawal of its motion
to dismiss dispensed with the need for him to present as evidence the telex message, since the RTC ruled that
there is no more need to act on the motion to dismiss. Cua, therefore, prays for the setting aside of the CA rulings
and the reinstatement of the RTC decision.

The respondents, on the other hand, deny that an admission was made with respect to the existence of the August
10, 1990 telex message. The telex message was never attached to Cuas opposition to Wallems motion to dismiss,
hence, there was no need for the respondents to deny its existence. They contend that Wallems withdrawal of its
motion to dismiss does not amount to an admission of the existence of the telex message, nor does it amount to a
waiver of the defense for prescription. As stated in the June 5, 1992 Order of the RTC, the "defendant [referring to
Wallem] moved for the withdrawal of the Motion to Dismiss without waiving the defense of prescription."24 They thus
pray for the denial of the petition.

THE COURTS RULING

The basic issue presented by the case is whether Cuas claim for payment of damages against the respondents has
prescribed. After considering the facts and the applicable law, the Court finds that Cua timely filed his claim before
1wphi1

the trial court.

Prescription may be considered by the courts motu proprio if the facts supporting the ground are apparent from the
pleadings or the evidence on record
TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
Section 1, Rule 16 of the Rules of Court25 enumerates the grounds on which a motion to dismiss a complaint may be
based, and the prescription of an action is included as one of the grounds under paragraph (f). The defendant may
either raise the grounds in a motion to dismiss or plead them as an affirmative defense in his answer.26 The failure to
raise or plead the grounds generally amounts to a waiver, except if the ground pertains to (1) lack of jurisdiction over
the subject matter, (2) litis pendentia, (3) res judicata, or (4) prescription.27 If the facts supporting any of these four
listed grounds are apparent from the pleadings or the evidence on record, the courts may consider these
grounds motu proprio and accordingly dismiss the complaint. Accordingly, no reversible error may be attributed to
the CA in considering prescription as a ground to dismiss Cuas action despite Wallems supposed waiver of the
defense. The Court, therefore, need not resolve the question of whether Wallem actually waived the defense of
prescription; an inquiry into this question is useless, as courts are empowered to dismiss actions on the basis of
prescription even if it is not raised by the defendant so long as the facts supporting this ground are evident from the
records. In the present case, what is decisive is whether the pleadings and the evidence support a finding that Cuas
claim has prescribed, and it is on this point that we disagree with the CAs findings. We find that the CA failed to
appreciate the admissions made by the respondents in their pleadings that negate a finding of prescription of Cuas
claim.

Respondents admitted the agreement extending the period to file the claim

The COGSA is the applicable law for all contracts for carriage of goods by sea to and from Philippine ports in foreign
trade;28 it is thus the law that the Court shall consider in the present case since the cargo was transported from
Brazil to the Philippines.Under Section 3(6) of the COGSA, the carrier is discharged from liability for loss or
damage to the cargo "unless the suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered."29 Jurisprudence, however, recognized the validity of an agreement between the
carrier and the shipper/consignee extending the one-year period to file a claim. 30

The vessel MV Argo Trader arrived in Manila on July 8, 1989; Cuas complaint for damages was filed before the
RTC of Manila on November 12, 1990. Although the complaint was clearly filed beyond the one-year period, Cua
additionally alleged in his complaint (under paragraph 11) that

"the defendants x x x agreed to extend the time for filing of the action up to November 12, 1990." 31

The allegation of an agreement extending the period to file an action in Cuas complaint is a material averment that,
under Section 11, Rule 8 of the Rules of Court, must be specifically denied by the respondents; otherwise, the
allegation is deemed admitted.32

A specific denial is made by specifying each material allegation of fact, the truth of which the defendant does not
admit and, whenever practicable, setting forth the substance of the matters upon which he relies to support his
denial.33 The purpose of requiring the defendant to make a specific denial is to make him disclose the matters
alleged in the complaint which he succinctly intends to disprove at the trial, together with the matter which he relied
upon to support the denial.34

A review of the pleadings submitted by the respondents discloses that they failed to specifically deny Cuas
allegation of an agreement extending the period to file an action to November 12, 1990. Wallems motion to
dismiss simply referred to the fact that Cuas complaint was filed more than one year from the arrival of the vessel,
but it did not contain a denial of the extension.35 Advance Shippings motion to dismiss, on the other hand, focused
solely on its contention that the action was premature for failure to first undergo arbitration. 36 While the joint answer
submitted by the respondents denied Cuas allegation of an extension, 37 they made no further statement other than
a bare and unsupported contention that Cuas "complaint is barred by prescription and/or laches[.]" 38 The
respondents did not provide in their joint answer any factual basis for their belief that the complaint had prescribed.

We cannot consider the respondents discussion on prescription in their Memorandum filed with the RTC, 39 since
their arguments were based on Cuas supposed failure to comply with Article 366 of the Code of Commerce, not
Section 3(6) of the COGSA the relevant and material provision in this case. Article 366 of the Code of Commerce
requires that a claim be made with the carrier within 24 hours from the delivery of the cargo; the respondents
alleged that they were informed of the damage and shortage only on September 13, 1989, months after the vessels
arrival in Manila.

Since the COGSA is the applicable law, the respondents discussion to support their claim of prescription under
Article 366 of the Code of Commerce would, therefore, not constitute a refutation of Cuas allegation of extension.
Given the respondents failure to specifically deny the agreement on the extension of the period to file an action, the
Court considers the extension of the period as an admitted fact.

This presumed admission is further bolstered by the express admission made by the respondents themselves in
their Memorandum:

STATEMENT OF THE CASE


TRANSPORTATION LAW REVIEWER Compiled by: Paul Balbin
Arellano University School of Law
1. This case was filed by [the] plaintiff on 11 November 1990 within the extended period agreed upon by the
parties to file suit. 40 (emphasis ours)

The above statement is a clear admission by the respondents that there was indeed an agreement to extend the
period to file the claim. In light of this admission, it would be unnecessary for Cua to present a copy of the August
10, 1990 telex message to prove the existence of the agreement. Thus, Cua timely filed a claim for the damage to
and shortage of the cargo.

WHEREFORE, the decision dated May 16, 2005 and the resolution dated January 31, 2006 of the Court of Appeals
in CA-G.R. CV No. 53538 are SET ASIDE. The decision dated December 28, 1995 of the Regional Trial Court of
Manila, Branch 31, in Civil Case No. 90-55098 is REINSTATED. Costs against the respondents.

SO ORDERED.

ARTURO D. BRION
Associate Justice