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SECOND DIVISION REGIONAL CONTAINER LINES (RCL) OF SINGAPORE and EDSA SHIPPING AGENCY, Petitioners, G.R. No.

168151 Present: QUISUMBING, J., Chairperson, CARPIO-MORALES, BRION, DEL CASTILLO, and ABAD, JJ. Promulgated:

versus

THE NETHERLANDS INSURANCE CO. (PHILIPPINES), INC., Respondent.

September 4, 2009 x -------------------------------------------------------------------------------------- x DECISION

BRION, J.: For our resolution is the petition for review on certiorari filed by petitioners Regional Container Lines of Singapore (RCL) and EDSA Shipping Agency (EDSA Shipping) to annul and set aside the decision[1] and resolution[2] of the Court of Appeals (CA) dated May 26, 2004 and May 10, 2005, respectively, in CA-G.R. CV No. 76690. RCL is a foreign corporation based in Singapore. It does business in the Philippines through its agent, EDSA Shipping, a domestic corporation organized and existing under Philippine laws. Respondent Netherlands Insurance Company (Philippines), Inc. (Netherlands Insurance) is likewise a domestic corporation engaged in the marine underwriting business. FACTUAL ANTECEDENTS The pertinent facts, based on the records are summarized Seven months from delivery of the cargo or on June 4, 1996, Netherlands Insurance filed a complaint for subrogation of insurance settlement with the Regional Trial Court, Branch 5, Manila, against the unknown owner of M/V Piya Bhum and TMS Ship Agencies (TMS), the latter thought to be the local agent of M/V Piya Bhums unknown owner.[4] The complaint was docketed as Civil Case No. 9678612. Netherlands Insurance amended the complaint on January 17, 1997 to implead EDSA Shipping, RCL, Eagle Liner Shipping Agencies, U-Freight Singapore, and U-Ocean (Phils.), Inc. (U-Ocean), as additional defendants. A third amended complaint was later made, impleading Pacific Eagle in substitution of Eagle Liner Shipping Agencies. TMS filed its answer to the original complaint. RCL and EDSA Shipping filed their answers with cross-claim and compulsory counterclaim to the second amended complaint. U-Ocean likewise filed an answer with compulsory counterclaim and cross-claim. During the pendency of the case, U-Ocean, jointly with U-Freight Singapore, filed another answer with compulsory counterclaim. Only Pacific Eagle and TMS filed their answers to the third amended complaint. The defendants all disclaimed liability for the damage caused to the cargo, citing several reasons why Netherland Insurances claims must be rejected. Specifically, RCL and EDSA Shipping denied negligence in the transport of the cargo; they attributed any negligence that may have caused the loss of the shipment to their codefendants. They likewise asserted that no valid subrogation exists, as the payment made by Netherlands Insurance to the consignee was invalid. By way of affirmative defenses, RCL and EDSA Shipping averred that the Netherlands Insurance has no cause of action, and is not the real party-in-interest, and that the claim is barred by laches/prescription. After Netherlands Insurance had made its formal offer of evidence, the defendants including RCL and EDSA Shipping sought leave of court to file their respective motions to dismiss based on demurrer to evidence. RCL and EDSA Shipping, in their motion, insisted that Netherlands Insurance had (1) failed to prove any valid subrogation, and (2) failed to establish that any negligence on their part or that the loss was sustained while the cargo was in their custody. On May 22, 2002, the trial court handed down an Order dismissing Civil Case No. 96-78612 on demurrer to evidence. The trial court ruled that while there was valid subrogation, the defendants could not be held liable for the loss or damage, as their respective liabilities ended at the time of the discharge of the cargo from the ship at the Port ofManila. Netherlands Insurance seasonably appealed the order of dismissal to the CA. On May 26, 2004, the CA disposed of the appeal as follows:

below.

On October 20, 1995, 405 cartons of Epoxy Molding Compound were consigned to be shipped from Singapore to Manila for Temic Telefunken MicroelectronicsPhilippines (Temic). U-Freight Singapore PTE Ltd.[3] (U-Freight Singapore), a forwarding agent based in Singapore, contracted the services of Pacific Eagle Lines PTE. Ltd. (Pacific Eagle) to transport the subject cargo. The cargo was packed, stored, and sealed by Pacific Eagle in its Refrigerated Container No. 6105660 with Seal No. 13223. As the cargo was highly perishable, the inside of the container had to be kept at a temperature of 0 Celsius. Pacific Eagle then loaded the refrigerated container on board the M/V Piya Bhum, a vessel owned by RCL, with which Pacific Eagle had a slot charter agreement. RCL duly issued its own Bill of Lading in favor of Pacific Eagle. To insure the cargo against loss and damage, Netherlands Insurance issued a Marine Open Policy in favor of Temic, as shown by MPO-21-05081-94 and Marine Risk Note MRN-21 14022, to cover all losses/damages to the shipment. On October 25, 1995, the M/V Piya Bhum docked in Manila. After unloading the refrigerated container, it was plugged to the power terminal of the pier to keep its temperature constant. Fidel Rocha (Rocha), Vice-President for Operations of Marines Adjustment Corporation, accompanied by two surveyors, conducted a protective survey of the cargo. They found that based on the temperature chart, the temperature reading was constant from October 18, 1995 to October 25, 1995 at 0 Celsius. However, at midnightof October 25, 1995 when the cargo had already been unloaded from the ship the temperature fluctuated with a reading of 33 Celsius. Rocha believed the fluctuation was caused by the burnt condenser fan motor of the refrigerated container. On November 9, 1995, Temic received the shipment. It found the cargo completely damaged. Temic filed a claim for cargo loss against Netherlands Insurance, with supporting claims documents. The Netherlands Insurance paid Temic the sum of P1,036,497.00 under the terms of the Marine Open Policy. Temic then executed a loss and subrogation receipt in favor of Netherlands Insurance.

WHEREFORE, in view of the foregoing, the dismissal of the complaint against defendants Regional Container Lines and Its local agent, EDSA Shipping Agency, is REVERSED and SET ASIDE. The dismissal of the complaint against the other defendants is AFFIRMED. Pursuant to Section 1, Rule 33 of the 1997 Rules of Civil Procedure, defendants Regional Container Lines and EDSA Shipping Agency are deemed to have waived the right to present evidence. As such, defendants Regional Container Lines and EDSA Shipping Agency are ordered to reimburse plaintiff in the sum of P1,036,497.00 with interest from date hereof until fully paid. No costs. SO ORDERED. [Emphasis supplied.] The CA dismissed Netherland Insurances complaint against the other defendants after finding that the claim had already been barred by prescription.[5] Having been found liable for the damage to the cargo, RCL and EDSA Shipping filed a motion for reconsideration, but the CA maintained its original conclusions. The sole issue for our resolution is whether the CA correctly held RCL and EDSA Shipping liable as common carriers under the theory of presumption of negligence.

ART. 1736. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the sane are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them, without prejudice to the provisions of articles 1738. ART. 1738. The extraordinary liability of the common carrier continues to be operative even during the time the goods are stored in a warehouse of the carrier at the place of destination, until the consignee has been advised of the arrival of the goods and has had reasonable opportunity thereafter to remove them or otherwise dispose of them. ART. 1742. Even if the loss, destruction, or deterioration of the goods should be caused by the character of the goods, or the faulty nature of the packing or of the containers, the common carrier must exercise due diligence to forestall or lessen the loss. In Central Shipping Company, Inc. v. Insurance Company of North America,[6] we reiterated the rules for the liability of a common carrier for lost or damaged cargo as follows: (1) Common carriers are bound to observe extraordinary diligence over the goods they transport, according to all the circumstances of each case; In the event of loss, destruction, or deterioration of the insured goods, common carriers are responsible, unless they can prove that such loss, destruction, or deterioration was brought about by, among others, flood, storm, earthquake, lightning, or other natural disaster or calamity; and In all other cases not specified under Article 1734 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently, unless they observed extraordinary diligence.[7]

(2) THE COURTS RULING The present case is governed by the following provisions of the Civil Code: ART. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them according to all the circumstances of each case. Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and 1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in articles1755 and 1756. ART. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to any of the following causes only: 1) 2) 3) 4) 5) Flood, storm, earthquake, lightning, or other natural disaster or calamity; Act of the public enemy in war, whether international or civil; Act of omission of the shipper or owner of the goods; The character of the goods or defects in the packing or in the containers; Order or act of competent public authority.

(3)

In the present case, RCL and EDSA Shipping disclaim any responsibility for the loss or damage to the goods in question. They contend that the cause of the damage to the cargo was the fluctuation of the temperature in the reefer van, which fluctuation occurred after the cargo had already been discharged from the vessel; no fluctuation, they point out, arose when the cargo was still on board M/V Piya Bhum. As the cause of the damage to the cargo occurred after the same was already discharged from the vessel and was under the custody of the arrastre operator (International Container Terminal Services, Inc. or ICTSI), RCL and EDSA Shipping posit that the presumption of negligence provided in Article 1735 of the Civil Code should not apply. What applies in this case is Article 1734, particularly paragraphs 3 and 4 thereof, which exempts the carrier from liability for loss or damage to the cargo when it is caused either by an act or omission of the shipper or by the character of the goods or defects in the packing or in the containers. Thus, RCL and EDSA Shipping seek to lay the blame at the feet of other parties. We do not find the arguments of RCL and EDSA Shipping meritorious. A common carrier is presumed to have been negligent if it fails to prove that it exercised extraordinary vigilance over the goods it transported.[8] When the goods shipped are either lost or arrived in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable.[9] To overcome the presumption of negligence, the common carrier must establish by adequate proof that it exercised extraordinary diligence over the goods. It must do more than merely show that some other party could be responsible for the damage.[10] In the present case, RCL and EDSA Shipping failed to prove that they did exercise that degree of diligence required by law over the

ART. 1735. In all cases other that those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding article, if the goods are lost, destroyed, or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence as required by article 1733.

goods they transported. Indeed, there is sufficient evidence showing that the fluctuation of the temperature in the refrigerated container van, as recorded in the temperature chart, occurred after the cargo had been discharged from the vessel and was already under the custody of the arrastre operator, ICTSI. This evidence, however, does not disprove that the condenser fan which caused the fluctuation of the temperature in the refrigerated container was not damaged while the cargo was being unloaded from the ship. It is settled in maritime law jurisprudence thatcargoes while being unloaded generally remain under the custody of the carrier;[11] RCL and EDSA Shipping failed to dispute this. RCL and EDSA Shipping could have offered evidence before the trial court to show that the damage to the condenser fan did not occur: (1) while the cargo was in transit; (2) while they were in the act of discharging it from the vessel; or (3) while they were delivering it actually or constructively to the consignee. They could have presented proof to show that they exercised extraordinary care and diligence in the handling of the goods, but they opted to file a demurrer to evidence. As the order granting their demurrer was reversed on appeal, the CA correctly ruled that they are deemed to have waived their right to present evidence, [12] and the presumption of negligence must stand. It is for this reason as well that we find RCL and EDSA Shippings claim that the loss or damage to the cargo was caused by a defect in the packing or in the containers. To exculpate itself from liability for the loss/damage to the cargo under any of the causes, the common carrier is burdened to prove any of the causes in Article 1734 of the Civil Code claimed by it by a preponderance of evidence. If the carrier succeeds, the burden of evidence is shifted to the shipper to prove that the carrier is negligent.[13] RCL and EDSA Shipping, however, failed to satisfy this standard of evidence and in fact offered no evidence at all on this point; a reversal of a dismissal based on a demurrer to evidence bars the defendant from presenting evidence supporting its allegations. WHEREFORE, we DENY the petition for review on certiorari filed by the Regional Container Lines of Singapore and EDSA Shipping Agency. The decision of the Court of Appeals dated May 26, 2004 in CA-G.R. CV No. 76690 is AFFIRMED IN TOTO. Costs against the petitioners. SO ORDERED.

SECOND DIVISION 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) (2) (3) (4) (5) P50,000.00 as actual and compensatory damages; P50,000.00 as moral damages; P10,000.00 as attorney's fees; and P1,000.00 as expenses of litigation; and to pay the costs. SO ORDERED.

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 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, quasidelict, 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

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

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. 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 19891990 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.

FIRST DIVISION

G.R. No. 159636

November 25, 2004

On appeal by petitioner, the Court of Appeals affirmed the decision of the trial court with modification as follows: [T]he Decision dated 06 November 1998 is hereby MODIFIED to reflect that the following are hereby adjudged in favor of plaintiffsappellees: 1. Actual Damages in the amount of P88,270.00; 2. Compensatory Damages in the amount of P1,135,536,10; 3. Moral and Exemplary Damages in the amount of P400,000.00; and 4. Attorneys fees equivalent to 10% of the sum of the actual, compensatory, moral, and exemplary damages herein adjudged. The court a quos judgment of the cost of the suit against defendant-appellant is hereby AFFIRMED. SO ORDERED.20 Represented by a new counsel, petitioner on May 21, 2003 filed a motion for reconsideration praying that the case be remanded to the trial court for cross- examination of respondents witness and for the presentation of its evidence; or in the alternative, dismiss the respondents complaint.21 Invoking APEX Mining, Inc. v. Court of Appeals,22 petitioner argues, inter alia, that the decision of the trial court should be set aside because the negligence of its former counsel, Atty. Antonio B. Paguirigan, in failing to appear at the scheduled hearings and move for reconsideration of the orders declaring petitioner to have waived the right to cross-examine respondents witness and right to present evidence, deprived petitioner of its day in court. On August 21, 2003, the Court of Appeals denied petitioners motion for reconsideration.23 Hence, this petition for review principally based on the fact that the mistake or gross negligence of its counsel deprived petitioner of due process of law. Petitioner also argues that the trial courts award of damages were without basis and should be deleted. The issues for resolution are: (1) whether petitioners counsel was guilty of gross negligence; (2) whether petitioner should be held liable for breach of contract of carriage; and (3) whether the award of damages was proper. It is settled that the negligence of counsel binds the client. This is based on the rule that any act performed by a counsel within the scope of his general or implied authority is regarded as an act of his client. Consequently, the mistake or negligence of counsel may result in the rendition of an unfavorable judgment against the client. However, the application of the general rule to a given case should be looked into and adopted according to the surrounding circumstances obtaining. Thus, exceptions to the foregoing have been recognized by the court in cases where reckless or gross negligence of counsel deprives the client of due process of law, or when its application will result in outright deprivation of the clients liberty or property or where the interests of justice so require, and accord relief to the client who suffered by reason of the lawyers gross or palpable mistake or negligence.24 The exceptions, however, are not present in this case. The record shows that Atty. Paguirigan filed an Answer and Pre-trial Brief for petitioner. Although initially declared as in default, Atty. Paguirigan successfully moved for the setting aside of the order of default. In fact, petitioner was represented by Atty. Paguirigan at the pre-trial who proposed settlement for P50,000.00. Although Atty. Paguirigan failed to file motions for reconsideration of the orders declaring petitioner to have waived the right to cross-examine respondents witness and to present evidence, he nevertheless, filed a timely appeal with the Court of Appeals assailing the decision of the trial court. Hence, petitioners claim that it was denied due process lacks basis. Petitioner too is not entirely blameless. Prior to the issuance of the order declaring it as in default for not appearing at the pre-trial, three notices (dated October 23, 1996,25 January 30, 1997,26 and March 26, 1997,27) requiring attendance at the pre-trial were sent and duly

VICTORY LINER, INC., petitioner, vs. ROSALITO GAMMAD, APRIL ROSSAN P. GAMMAD, ROI ROZANO P. GAMMAD and DIANA FRANCES P. GAMMAD, respondents. DECISION YNARES-SANTIAGO, J.: Assailed in this petition for review on certiorari is the April 11, 2003 decision1 of the Court of Appeals in CA-G.R. CV No. 63290 which affirmed with modification the November 6, 1998 decision2 of the Regional Trial Court of Tuguegarao, Cagayan, Branch 5 finding petitioner Victory Liner, Inc. liable for breach of contract of carriage in Civil Case No. 5023. The facts as testified by respondent Rosalito Gammad show that on March 14, 1996, his wife Marie Grace Pagulayan-Gammad,3 was on board an air-conditioned Victory Liner bus bound for Tuguegarao, Cagayan from Manila. At about 3:00 a.m., the bus while running at a high speed fell on a ravine somewhere in Barangay Baliling, Sta. Fe, Nueva Vizcaya, which resulted in the death of Marie Grace and physical injuries to other passengers.4 On May 14, 1996, respondent heirs of the deceased filed a complaint5 for damages arising from culpa contractual against petitioner. In its answer,6 the petitioner claimed that the incident was purely accidental and that it has always exercised extraordinary diligence in its 50 years of operation. After several re-settings,7 pre-trial was set on April 10, 1997.8 For failure to appear on the said date, petitioner was declared as in default.9 However, on petitioners motion10 to lift the order of default, the same was granted by the trial court.11 At the pre-trial on May 6, 1997, petitioner did not want to admit the proposed stipulation that the deceased was a passenger of the Victory Liner Bus which fell on the ravine and that she was issued Passenger Ticket No. 977785. Respondents, for their part, did not accept petitioners proposal to pay P50,000.00.12 After respondent Rosalito Gammad completed his direct testimony, cross-examination was scheduled for November 17, 199713 but moved to December 8, 1997,14 because the parties and the counsel failed to appear. On December 8, 1997, counsel of petitioner was absent despite due notice and was deemed to have waived right to crossexamine respondent Rosalito.15 Petitioners motion to reset the presentation of its evidence to March 25, 199816 was granted. However, on March 24, 1998, the counsel of petitioner sent the court a telegram17 requesting postponement but the telegram was received by the trial court on March 25, 1998, after it had issued an order considering the case submitted for decision for failure of petitioner and counsel to appear.18 On November 6, 1998, the trial court rendered its decision in favor of respondents, the dispositive portion of which reads: WHEREFORE, premises considered and in the interest of justice, judgment is hereby rendered in favor of the plaintiffs and against the defendant Victory Liner, Incorporated, ordering the latter to pay the following: 1. 2. 3. 4. 5. Actual Damages -------------------- P 122,000.00 Death Indemnity --------------------- 50,000.00 Exemplary and Moral Damages----- 400,000.00 Compensatory Damages ---------- 1,500,000.00 Attorneys Fees --------------------- 10% of the total amount
19

granted

6. Cost of the Suit. SO ORDERED.

received by petitioner. However, it was only on April 27, 1997, after the issuance of the April 10, 1997 order of default for failure to appear at the pre-trial when petitioner, through its finance and administrative manager, executed a special power of attorney28 authorizing Atty. Paguirigan or any member of his law firm to represent petitioner at the pre-trial. Petitioner is guilty, at the least, of contributory negligence and fault cannot be imputed solely on previous counsel. The case of APEX Mining, Inc., invoked by petitioner is not on all fours with the case at bar. In APEX, the negligent counsel not only allowed the adverse decision against his client to become final and executory, but deliberately misrepresented in the progress report that the case was still pending with the Court of Appeals when the same was dismissed 16 months ago.29 These circumstances are absent in this case because Atty. Paguirigan timely filed an appeal from the decision of the trial court with the Court of Appeals. In Gold Line Transit, Inc. v. Ramos,30 the Court was similarly confronted with the issue of whether or not the client should bear the adverse consequences of its counsels negligence. In that case, Gold Line Transit, Inc. (Gold Line) and its lawyer failed to appear at the pretrial despite notice and was declared as in default. After the plaintiffs presentation of evidence ex parte, the trial court rendered decision ordering Gold Line to pay damages to the heirs of its deceased passenger. The decision became final and executory because counsel of Gold Line did not file any appeal. Finding that Goldline was not denied due process of law and is thus bound by the negligence of its lawyer, the Court held as follows This leads us to the question of whether the negligence of counsel was so gross and reckless that petitioner was deprived of its right to due process of law. We do not believe so. It cannot be denied that the requirements of due process were observed in the instant case. Petitioner was never deprived of its day in court, as in fact it was afforded every opportunity to be heard. Thus, it is of record that notices were sent to petitioner and that its counsel was able to file a motion to dismiss the complaint, an answer to the complaint, and even a pre-trial brief. What was irretrievably lost by petitioner was its opportunity to participate in the trial of the case and to adduce evidence in its behalf because of negligence. In the application of the principle of due process, what is sought to be safeguarded against is not the lack of previous notice but the denial of the opportunity to be heard. The question is not whether petitioner succeeded in defending its rights and interests, but simply, whether it had the opportunity to present its side of the controversy. Verily, as petitioner retained the services of counsel of its choice, it should, as far as this suit is concerned, bear the consequences of its choice of a faulty option. Its plea that it was deprived of due process echoes on hollow ground and certainly cannot elicit approval nor sympathy. To cater to petitioners arguments and reinstate its petition for relief from judgment would put a premium on the negligence of its former counsel and encourage the non-termination of this case by reason thereof. This is one case where petitioner has to bear the adverse consequences of its counsels act, for a client is bound by the action of his counsel in the conduct of a case and he cannot thereafter be heard to complain that the result might have been different had his counsel proceeded differently. The rationale for the rule is easily discernible. If the negligence of counsel be admitted as a reason for opening cases, there would never be an end to a suit so long as a new counsel could be hired every time it is shown that the prior counsel had not been sufficiently diligent, experienced or learned.31 Similarly, in Macalalag v. Ombudsman,32 a Philippine Postal Corporation employee charged with dishonesty was not able to file an answer and position paper. He was found guilty solely on the basis of complainants evidence and was dismissed with forfeiture of all benefits and disqualification from government service. Challenging the decision of the Ombudsman, the employee contended that the gross negligence of his counsel deprived him of due process of law. In debunking his contention, the Court said Neither can he claim that he is not bound by his lawyers actions; it is only in case of gross or palpable negligence of counsel when the courts can step in and accord relief to a client who would have suffered thereby. If every perceived mistake, failure of diligence,

lack of experience or insufficient legal knowledge of the lawyer would be admitted as a reason for the reopening of a case, there would be no end to controversy. Fundamental to our judicial system is the principle that every litigation must come to an end. It would be a clear mockery if it were otherwise. Access to the courts is guaranteed, but there must be a limit to it. Viewed vis--vis the foregoing jurisprudence, to sustain petitioners argument that it was denied due process of law due to negligence of its counsel would set a dangerous precedent. It would enable every party to render inutile any adverse order or decision through the simple expedient of alleging gross negligence on the part of its counsel. The Court will not countenance such a farce which contradicts long-settled doctrines of trial and procedure.33 Anent the second issue, petitioner was correctly found liable for breach of contract of carriage. A common carrier is bound to carry its passengers safely as far as human care and foresight can provide, using the utmost diligence of very cautious persons, with due regard to all the circumstances. In a contract of carriage, it is presumed that the common carrier was at fault or was negligent when a passenger dies or is injured. Unless the presumption is rebutted, the court need not even make an express finding of fault or negligence on the part of the common carrier. This statutory presumption may only be overcome by evidence that the carrier exercised extraordinary diligence.34 In the instant case, there is no evidence to rebut the statutory presumption that the proximate cause of Marie Graces death was the negligence of petitioner. Hence, the courts below correctly ruled that petitioner was guilty of breach of contract of carriage. Nevertheless, the award of damages should be modified. Article 176435 in relation to Article 220636 of the Civil Code, holds the common carrier in breach of its contract of carriage that results in the death of a passenger liable to pay the following: (1) indemnity for death, (2) indemnity for loss of earning capacity, and (3) moral damages. In the present case, respondent heirs of the deceased are entitled to indemnity for the death of Marie Grace which under current jurisprudence is fixed at P50,000.00.37 The award of compensatory damages for the loss of the deceaseds earning capacity should be deleted for lack of basis. As a rule, documentary evidence should be presented to substantiate the claim for damages for loss of earning capacity. By way of exception, damages for loss of earning capacity may be awarded despite the absence of documentary evidence when (1) the deceased is selfemployed earning less than the minimum wage under current labor laws, and judicial notice may be taken of the fact that in the deceaseds line of work no documentary evidence is available; or (2) the deceased is employed as a daily wage worker earning less than the minimum wage under current labor laws.38 In People v. Oco,39 the evidence presented by the prosecution to recover damages for loss of earning capacity was the bare testimony of the deceaseds wife that her husband was earning P8,000.00 monthly as a legal researcher of a private corporation. Finding that the deceased was neither self-employed nor employed as a dailywage worker earning less than the minimum wage under the labor laws existing at the time of his death, the Court held that testimonial evidence alone is insufficient to justify an award for loss of earning capacity. Likewise, in People v. Caraig,40 damages for loss of earning capacity was not awarded because the circumstances of the 3 deceased did not fall within the recognized exceptions, and except for the testimony of their wives, no documentary proof about their income was presented by the prosecution. Thus The testimonial evidence shows that Placido Agustin, Roberto Raagas, and Melencio Castro Jr. were not self-employed or employed as daily-wage workers earning less than the minimum wage under the labor laws existing at the time of their death. Placido Agustin was a Social Security System employee who received a monthly salary of

P5,000. Roberto Raagas was the President of Sinclair Security and Allied Services, a family owned corporation, with a monthly compensation of P30,000. Melencio Castro Jr. was a taxi driver of New Rocalex with an average daily earning of P500 or a monthly earning of P7,500. Clearly, these cases do not fall under the exceptions where indemnity for loss of earning capacity can be given despite lack of documentary evidence. Therefore, for lack of documentary proof, no indemnity for loss of earning capacity can be given in these cases. (Emphasis supplied) Here, the trial court and the Court of Appeals computed the award of compensatory damages for loss of earning capacity only on the basis of the testimony of respondent Rosalito that the deceased was 39 years of age and a Section Chief of the Bureau of Internal Revenue, Tuguergarao District Office with a salary of P83,088.00 per annum when she died.41 No other evidence was presented. The award is clearly erroneous because the deceaseds earnings does not fall within the exceptions. However, the fact of loss having been established, temperate damages in the amount of P500,000.00 should be awarded to respondents. Under Article 2224 of the Civil Code, temperate or moderate damages, which are more than nominal but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount can not, from the nature of the case, be proved with certainty. In Pleno v. Court of Appeals,42 the Court sustained the trial courts award of P200,000.00 as temperate damages in lieu of actual damages for loss of earning capacity because the income of the victim was not sufficiently proven, thus The trial court based the amounts of damages awarded to the petitioner on the following circumstances: ... "As to the loss or impairment of earning capacity, there is no doubt that Pleno is an ent[re]preneur and the founder of his own corporation, the Mayon Ceramics Corporation. It appears also that he is an industrious and resourceful person with several projects in line, and were it not for the incident, might have pushed them through. On the day of the incident, Pleno was driving homeward with geologist Longley after an ocular inspection of the site of the Mayon Ceramics Corporation. His actual income however has not been sufficiently established so that this Court cannot award actual damages, but, an award of temperate or moderate damages may still be made on loss or impairment of earning capacity. That Pleno sustained a permanent deformity due to a shortened left leg and that he also suffers from double vision in his left eye is also established. Because of this, he suffers from some inferiority complex and is no longer active in business as well as in social life. In similar cases as in Borromeo v. Manila Electric Railroad Co., 44 Phil 165; Coriage, et al. v. LTB Co., et al., L-11037, Dec. 29, 1960, and in Araneta, et al. v. Arreglado, et al., L-11394, Sept. 9, 1958, the proper award of damages were given." ... We rule that the lower courts awards of damages are more consonant with the factual circumstances of the instant case. The trial courts findings of facts are clear and well-developed. Each item of damages is adequately supported by evidence on record. Article 2224 of the Civil Code was likewise applied in the recent cases of People v. Singh43 and People v. Almedilla,44 to justify the award of temperate damages in lieu of damages for loss of earning capacity which was not substantiated by the required documentary proof. Anent the award of moral damages, the same cannot be lumped with exemplary damages because they are based on different jural foundations.45 These damages are different in nature and require separate determination.46 In culpa contractual or breach of contract, moral damages may be recovered when the defendant acted in bad faith or was guilty of gross negligence (amounting to bad faith) or in wanton disregard of contractual obligations and, as in this case, when the act of breach of contract itself constitutes the tort that results in physical injuries. By special rule in Article 1764 in relation to Article 2206 of the Civil Code, moral damages may also be awarded in case the death of a passenger results from a breach of carriage.47 On the other hand, exemplary damages, which are awarded by way of example or correction for the public good may be recovered in

contractual obligations if the defendant acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.48 Respondents in the instant case should be awarded moral damages to compensate for the grief caused by the death of the deceased resulting from the petitioners breach of contract of carriage. Furthermore, the petitioner failed to prove that it exercised the extraordinary diligence required for common carriers, it is presumed to have acted recklessly.49 Thus, the award of exemplary damages is proper. Under the circumstances, we find it reasonable to award respondents the amount of P100,000.00 as moral damages and P100,000.00 as exemplary damages. These amounts are not excessive.50 The actual damages awarded by the trial court reduced by the Court of Appeals should be further reduced. In People v. Duban,51 it was held that only substantiated and proven expenses or those that appear to have been genuinely incurred in connection with the death, wake or burial of the victim will be recognized. A list of expenses (Exhibit "J"),52 and the contract/receipt for the construction of the tomb (Exhibit "F")53 in this case, cannot be considered competent proof and cannot replace the official receipts necessary to justify the award. Hence, actual damages should be further reduced to P78,160.00,54 which was the amount supported by official receipts. Pursuant to Article 220855 of the Civil Code, attorneys fees may also be recovered in the case at bar where exemplary damages are awarded. The Court finds the award of attorneys fees equivalent to 10% of the total amount adjudged against petitioner reasonable. Finally, in Eastern Shipping Lines, Inc. v. Court of Appeals,56 it was held that when an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for payment of interest in the concept of actual and compensatory damages, subject to the following rules, to wit 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (Emphasis supplied). In the instant case, petitioner should be held liable for payment of interest as damages for breach of contract of carriage. Considering that the amounts payable by petitioner has been determined with certainty only in the instant petition, the interest due shall be computed upon the finality of this decision at the rate of 12% per annum until satisfaction, per paragraph 3 of the aforecited rule.57

WHEREFORE, in view of all the foregoing, the petition is partially granted. The April 11, 2003 decision of the Court of Appeals in CA-G.R. CV No. 63290, which modified the decision of the Regional Trial Court of Tuguegarao, Cagayan in Civil Case No. 5023, is AFFIRMED with MODIFICATION. As modified, petitioner Victory Liner, Inc., is ordered to pay respondents the following: (1) P50,000.00 as indemnity for the death of Marie Grace Pagulayan-Gammad; (2) P100,000.00 as moral damages; (3) P100,000.00 as exemplary damages; (4) P78,160.00 as actual damages; (5) P500,000.00 as temperate damages; (6) 10% of the total amount as attorneys fees; and the costs of suit. Furthermore, the total amount adjudged against petitioner shall earn interest at the rate of 12% per annum computed from the finality of this decision until fully paid. SO ORDERED.