Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

168433 February 10, 2009

UCPB GENERAL INSURANCE CO., INC., Petitioner, vs. ABOITIZ SHIPPING CORP. EAGLE EXPRESS LINES, DAMCO INTERMODAL SERVICES, INC., and PIMENTEL CUSTOMS BROKERAGE CO., Respondents. DECISION TINGA, J.: UCPB General Insurance Co., Inc. (UCPB) assails the Decision1 of the Court of Appeals dated October 29, 2004, which reversed the Decision2 dated November 29, 1999 of the Regional Trial Court of Makati City, Branch 146, and its Resolution3 dated June 14, 2005, which denied UCPBs motion for reconsideration. The undisputed facts, culled from the assailed Decision, are as follows: On June 18, 1991, three (3) units of waste water treatment plant with accessories were purchased by San Miguel Corporation (SMC for brevity) from Super Max Engineering Enterprises, Co., Ltd. of Taipei, Taiwan. The goods came from Charleston, U.S.A. and arrived at the port of Manila on board MV "SCANDUTCH STAR". The same were then transported to Cebu on board MV "ABOITIZ SUPERCON II". After its arrival at the port of Cebu and clearance from the Bureau of Customs, the goods were delivered to and received by SMC at its plant site on August 2, 1991. It was then discovered that one electrical motor of DBS Drive Unit Model DE-30-7 was damaged. Pursuant to an insurance agreement, plaintiff-appellee paid SMC the amount of P1,703,381.40 representing the value of the damaged unit. In turn, SMC executed a Subrogation Form dated March 31, 1992 in favor of plaintiff-appellee. Consequently, plaintiff-appellee filed a Complaint on July 21, 1992 as subrogee of SMC seeking to recover from defendants the amount it had paid SMC. On September 20, 1994, plaintiff-appellee moved to admit its Amended Complaint whereby it impleaded East Asiatic Co. Ltd. (EAST for brevity) as among the defendants for being the "general agent" of DAMCO. In its Order dated September 23, 1994, the lower court admitted the said amended complaint. Upon plaintiff-appellees motion, defendant DAMCO was declared in default by the lower court in its Order dated January 6, 1995. In the meantime, on January 25, 1995, defendant EAST filed a Motion for Preliminary Hearing on its affirmative defenses seeking the dismissal of the complaint against it on the ground of prescription, which motion was however denied by the court a quo in its Order dated September 1, 1995. Such denial was elevated by defendant EAST to this Court through a Petition for Certiorari on October 30, 1995 in CA G.R. SP No. 38840. Eventually, this Court issued its Decision dated February 14, 1996 setting aside the lower courts assailed order of denial and further ordering the dismissal of the complaint against defendant EAST. Plaintiff-appellee moved for reconsideration thereof but the same was denied by this Court in its Resolution dated November 8, 1996. As per Entry of Judgment, this Courts decision ordering the dismissal of the complaint against defendant EAST became final and executory on December 5, 1996.

Accordingly, the court a quo noted the dismissal of the complaint against defendant EAST in its Order dated December 5, 1997. Thus, trial ensued with respect to the remaining defendants. On November 29, 1999, the lower court rendered its assailed Decision, the dispositive portion of which reads: WHEREFORE, all the foregoing premises considered, judgment is hereby rendered declaring DAMCO Intermodal Systems, Inc., Eagle Express Lines, Inc. and defendant Aboitiz Shipping solidarily liable to plaintiff-subrogee for the damaged shipment and orders them to pay plaintiff jointly and severally the sum of P1,703,381.40. No costs. SO ORDERED. Not convinced, defendants-appellants EAGLE and ABOITIZ now come to this Court through their respective appeals x x x4 The appellate court, as previously mentioned, reversed the decision of the trial court and ruled that UCPBs right of action against respondents did not accrue because UCPB failed to file a formal notice of claim within 24 hours from (SMCs) receipt of the damaged merchandise as required under Art. 366 of the Code of Commerce. According to the Court of Appeals, the filing of a claim within the time limitation in Art. 366 is a condition precedent to the accrual of a right of action against the carrier for the damages caused to the merchandise. In its Memorandum5 dated February 8, 2007, UCPB asserts that the claim requirement under Art. 366 of the Code of Commerce does not apply to this case because the damage to the merchandise had already been known to the carrier. Interestingly, UCPB makes this revelation: "x x x damage to the cargo was found upon discharge from the foreign carrier onto the International Container Terminal Services, Inc. (ICTSI) in the presence of the carriers representative who signed the Request for Bad Order Survey6 and the Turn Over of Bad Order Cargoes.7 On transshipment, the cargo was already damaged when loaded on board the inter-island carrier."8 This knowledge, UCPB argues, dispenses with the need to give the carrier a formal notice of claim. Incidentally, the carriers representative mentioned by UCPB as present at the time the merchandise was unloaded was in fact a representative of respondent Eagle Express Lines (Eagle Express). UCPB claims that under the Carriage of Goods by Sea Act (COGSA), notice of loss need not be given if the condition of the cargo has been the subject of joint inspection such as, in this case, the inspection in the presence of the Eagle Express representative at the time the cargo was opened at the ICTSI. UCPB further claims that the issue of the applicability of Art. 366 of the Code of Commerce was never raised before the trial court and should, therefore, not have been considered by the Court of Appeals. Eagle Express, in its Memorandum9 dated February 7, 2007, asserts that it cannot be held liable for the damage to the merchandise as it acted merely as a freight forwarders agent in the transaction. It allegedly facilitated the transshipment of the cargo from Manila to Cebu but represented the interest of the cargo owner, and not the carriers. The only reason why the name of the Eagle Express representative appeared on the Permit to Deliver Imported Goods was that the form did not have a space for the freight forwarders agent, but only for the agent of the shipping line. Moreover, UCPB had previously judicially admitted that upon verification from the Bureau of Customs, it was East Asiatic Co., Ltd. (East Asiatic), regarding whom the original complaint was dismissed on the ground of prescription, which was the real agent of DAMCO Intermodal Services, Inc. (DAMCO), the ship owner. Eagle Express argues that the applicability of Art. 366 of the Code of Commerce was properly raised as an issue before the trial court as it mentioned this issue as a defense in its Answer to UCPBs Amended Complaint. Hence, UCPBs contention that the question was raised for the first time on appeal is incorrect. Aboitiz Shipping Corporation (Aboitiz), on the other hand, points out, in its Memorandum10 dated March 29, 2007, that it obviously cannot be held liable for the damage to the cargo which, by UCPBs admission, was incurred not during transshipment to Cebu on

board one of Aboitizs vessels, but was already existent at the time of unloading in Manila. Aboitiz also argues that Art. 366 of the Code of Commerce is applicable and serves as a condition precedent to the accrual of UCPBs cause of action against it.lawphil.net The Memorandum11 dated June 3, 2008, filed by Pimentel Customs Brokerage Co. (Pimentel Customs), is also a reiteration of the applicability of Art. 366 of the Code of Commerce. It should be stated at the outset that the issue of whether a claim should have been made by SMC, or UCPB as SMCs subrogee, within the 24-hour period prescribed by Art. 366 of the Code of Commerce was squarely raised before the trial court. In its Answer to Amended Complaint12 dated May 10, 1993, Eagle Express averred, thus: The amended complaint states no cause of action under the provisions of the Code of Commerce and the terms of the bill of lading; consignee made no claim against herein defendant within twenty four (24) hours following the receipt of the alleged cargo regarding the condition in which said cargo was delivered; however, assuming arguendo that the damage or loss, if any, could not be ascertained from the outside part of the shipment, consignee never made any claim against herein defendant at the time of receipt of said cargo; herein defendant learned of the alleged claim only upon receipt of the complaint.13 Likewise, in its Answer14 dated September 21, 1992, Aboitiz raised the defense that UCPB did not file a claim with it and that the complaint states no cause of action. UCPB obviously made a gross misrepresentation to the Court when it claimed that the issue regarding the applicability of the Code of Commerce, particularly the 24-hour formal claim rule, was not raised as an issue before the trial court. The appellate court, therefore, correctly looked into the validity of the arguments raised by Eagle Express, Aboitiz and Pimentel Customs on this point after the trial court had so ill-advisedly centered its decision merely on the matter of extraordinary diligence. Interestingly enough, UCPB itself has revealed that when the shipment was discharged and opened at the ICTSI in Manila in the presence of an Eagle Express representative, the cargo had already been found damaged. In fact, a request for bad order survey was then made and a turnover survey of bad order cargoes was issued, pursuant to the procedure in the discharge of bad order cargo. The shipment was then repacked and transshipped from Manila to Cebu on board MV Aboitiz Supercon II. When the cargo was finally received by SMC at its Mandaue City warehouse, it was found in bad order, thereby confirming the damage already uncovered in Manila.15 In charging Aboitiz with liability for the damaged cargo, the trial court condoned UCPBs wrongful suit against Aboitiz to whom the damage could not have been attributable since there was no evidence presented that the cargo was further damaged during its transshipment to Cebu. Even by the exercise of extraordinary diligence, Aboitiz could not have undone the damage to the cargo that had already been there when the same was shipped on board its vessel. That said, it is nonetheless necessary to ascertain whether any of the remaining parties may still be held liable by UCPB. The provisions of the Code of Commerce, which apply to overland, river and maritime transportation, come into play. Art. 366 of the Code of Commerce states: Art. 366. Within 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 such packages, in which case the claim shall be admitted only at the time of receipt. After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.1avvphi1

The law clearly requires that the claim for damage or average must be made within 24 hours from receipt of the merchandise if, as in this case, damage cannot be ascertained merely from the outside packaging of the cargo. In Philippine Charter Insurance Corporation v. Chemoil Lighterage Corporation,16 petitioner, as subrogee of Plastic Group Phil., Inc. (PGP), filed suit against respondent therein for the damage found on a shipment of chemicals loaded on board respondents barge. Respondent claimed that no timely notice in accordance with Art. 366 of the Code of Commerce was made by petitioner because an employee of PGP merely made a phone call to respondents Vice President, informing the latter of the contamination of the cargo. The Court ruled that the notice of claim was not timely made or relayed to respondent in accordance with Art. 366 of the Code of Commerce. The requirement to give notice of loss or damage to the goods 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 still fresh and easily investigated so as to safeguard itself from false and fraudulent claims.17 We have construed the 24-hour claim requirement as a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. Otherwise, no right of action against the carrier can accrue in favor of the former.18 The shipment in this case was received by SMC on August 2, 1991. However, as found by the Court of Appeals, the claims were dated October 30, 1991, more than three (3) months from receipt of the shipment and, at that, even after the extent of the loss had already been determined by SMCs surveyor. The claim was, therefore, clearly filed beyond the 24-hour time frame prescribed by Art. 366 of the Code of Commerce. But what of the damage already discovered in the presence of Eagle Expresss representative at the time the shipment was discharged in Manila? The Request for Bad Order Survey and Turn Over Survey of Bad Order Cargoes, respectively dated June 17, 1999 and June 28, 1991, evince the fact that the damage to the cargo was already made known to Eagle Express and, possibly, SMC, as of those dates. Sec. 3(6) of the COGSA provides a similar claim mechanism as the Code of Commerce but prescribes a period of three (3) days within which notice of claim must be given if the loss or damage is not apparent. It states: Sec. 3(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 descibed 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 of 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. UCPB seizes upon the last paragraph which dispenses with the written notice if the state of the goods has been the subject of a joint survey which, in this case, was the opening of the shipment in the presence of an Eagle Express representative. It should be noted at this point that the applicability of the above-quoted provision of the COGSA was not raised as an issue by UCPB before the trial court and was only cited by UCPB in its Memorandum in this case. UCPB, however, is ambivalent as to which party Eagle Express represented in the transaction. By its own manifestation, East Asiatic, and not Eagle Express, acted as the agent through which summons

and court notices may be served on DAMCO. It would be unjust to hold that Eagle Expresss knowledge of the damage to the cargo is such that it served to preclude or dispense with the 24-hour notice to the carrier required by Art. 366 of the Code of Commerce. Neither did the inspection of the cargo in which Eagle Expresss representative had participated lead to the waiver of the written notice under the Sec. 3(6) of the COGSA. Eagle Express, after all, had acted as the agent of the freight consolidator, not that of the carrier to whom the notice should have been made. At any rate, the notion that the request for bad order survey and turn over survey of bad cargoes signed by Eagle Expresss representative is construable as compliant with the notice requirement under Art. 366 of the Code of Commerce was foreclosed by the dismissal of the complaint against DAMCOs representative, East Asiatic. As regards respondent Pimentel Customs, it is sufficient to acknowledge that it had no participation in the physical handling, loading and delivery of the damaged cargo and should, therefore, be absolved of liability. Finally, UCPBs misrepresentation that the applicability of the Code of Commerce was not raised as an issue before the trial court warrants the assessment of double costs of suit against it. WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 68168, dated October 29, 2004 and its Resolution dated June 14, 2005 are AFFIRMED. Double costs against petitioner. SO ORDERED. DANTE O. TINGAM Associate Justice WE CONCUR: LEONARDO A. QUISUMBING Associate Justice Chairperson CONCHITA CARPIO MORALES Associate Justice ARTURO D. BRION Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. LEONARDO A. QUISUMBING Associate Justice Chairperson, Second Division PRESBITERO J. VELASCO, JR. Associate Justice

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 136888 June 29, 2005

PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, vs. CHEMOIL LIGHTERAGE CORPORATION, respondent. DECISION CHICO-NAZARIO, J.: Before Us is a petition for review on certiorari which assails the Decision of the Court of Appeals1 in CA-G.R. CV No. 56209, dated 18 December 1998. The Decision reversed and set aside the decision of the Regional Trial Court (RTC),2 Branch 16, City of Manila, which ordered herein respondent to pay the petitioners claim in the amount of P5,000,000.00 with legal interest from the date of the filing of the complaint. THE FACTS Petitioner Philippine Charter Insurance Corporation is a domestic corporation engaged in the business of non-life insurance. Respondent Chemoil Lighterage Corporation is also a domestic corporation engaged in the transport of goods. On 24 January 1991, Samkyung Chemical Company, Ltd., based in Ulsan, South Korea, shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP) on board MT "TACHIBANA" which was valued at US$90,201.57 under Bill of Lading No. ULS/MNL-13 and another 436.70 metric tons of DOP valued at US$634,724.89 under Bill of Lading No. ULS/MNL-24 to the Philippines. The consignee was Plastic Group Phils., Inc. (PGP) in Manila. PGP insured the cargo with herein petitioner Philippine Charter Insurance Corporation against all risks. The insurance was under Marine Policies No. MRN-307215 dated 06 February 1991 for P31,757,969.19 and No. MRN307226 for P4,514,881.00. Marine Endorsement No. 27867 dated 11 May 1991 was attached and formed part of MRN30721, amending the latters insured value to P24,667,422.03, and reduced the premium accordingly. The ocean tanker MT "TACHIBANA" unloaded the cargo to Tanker Barge LB-1011 of respondent Chemoil Lighterage Corporation, which shall transport the same to Del Pan Bridge in Pasig River. Tanker Barge LB-1011 would unload the cargo to tanker trucks, also owned by the respondent, and haul it by land to PGPs storage tanks in Calamba, Laguna. Upon inspection by PGP, the samples taken from the shipment showed discoloration from yellowish to amber, demonstrating that it was damaged, as DOP is colorless and water clear. PGP then sent a letter to the petitioner dated 18 February 19918 where it formally made an insurance claim for the loss it sustained due to the contamination. The petitioner requested an independent insurance adjuster, the GIT Insurance Adjusters, Inc. (GIT), to conduct a Quantity and Condition Survey of the shipment. On 22 February 1991, GIT issued a Report,9 part of which states: As unloading progressed, it was observed on February 14, 1991 that DOP samples taken were discolored from yellowish to amber. Inspection of cargo tanks showed manhole covers of ballast tanks ceilings loosely secured. Furthermore, it was noted that the rubber gaskets of the manhole covers of the ballast tanks re-acted to the chemical causing shrinkage thus, loosening the covers and cargo ingress to the rusty ballast tanks10

On 13 May 1991, the petitioner paid PGP the amount of P5,000,000.0011 as full and final payment for the loss. PGP issued a Subrogation Receipt to the petitioner. Meanwhile, on 03 April 1991, PGP paid the respondent the amount of P301,909.50 as full payment for the latters services, as evidenced by Official Receipt No. 1274.12 On 15 July 1991, an action for damages was instituted by the petitioner-insurer against respondent-carrier before the RTC, Branch 16, City of Manila, docketed as Civil Case No. 91-57923.13 The petitioner prayed for actual damages in the amount of P5,000,000.00, attorneys fees in the amount of no less than P1,000,000.00, and costs of suit. An Answer with Compulsory Counterclaim14 was filed by the respondent on 05 September 1991. The respondent admitted it undertook to transport the consignees shipment from MT "TACHIBANA" to the Del Pan Bridge, Pasig River, where it was transferred to its tanker trucks for hauling to PGPs storage tanks in Calamba, Laguna. The respondent alleged that before the DOP was loaded into its barge (LB-1011), the surveyor/representative of PGP, Adjustment Standard Corporation, inspected it and found the same clean, dry, and fit for loading. The entire loading and unloading of the shipment were also done under the control and supervision of PGPs surveyor/representative. It was also mentioned by the respondent that the contract between it and PGP expressly stipulated that it shall be free from any and all claims arising from contamination, loss of cargo or part thereof; that the consignee accepted the cargo without any protest or notice; and that the cargo shall be insured by its ownersans recourse against all risks. As subrogee, the petitioner was bound by this stipulation. As carrier, no fault and negligence can be attributed against respondent as it exercised extraordinary diligence in handling the cargo.15 After due hearing, the trial court rendered a Decision on 06 January 1997, the dispositive portion of which reads: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff ordering defendant to pay plaintiffs claim of P5,000,000.00 with legal interest from the date of the filing of the complaint. The counterclaims are DISMISSED.16 Aggrieved by the trial courts decision, the respondent sought relief with the Court of Appeals where it alleged in the main that PGP failed to file any notice, claim or protest within the period required by Article 366 of the Code of Commerce, which is a condition precedent to the accrual of a right of action against the carrier.17 A telephone call which was supposedly made by a certain Alfred Chan, an employee of PGP, to one of the Vice Presidents of the respondent, informing the latter of the discoloration, is not the notice required by Article 366 of the Code of Commerce.18 On 18 December 1998, the Court of Appeals promulgated its Decision reversing the trial court, the dispositive portion of which reads: WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and a new one is entered dismissing the complaint.19 A petition for review on certiorari20 was filed by the petitioner with this Court, praying that the decision of the trial court be affirmed. After the respondent filed its Comment21 and the petitioner filed its Reply22 thereto, this Court issued a Resolution23 on 18 August 1999, giving due course to the petition. ASSIGNMENT OF ERRORS The petitioner assigns as errors the following: I

THE APPELLATE COURT GRAVELY ERRED IN FINDING THAT THE NOTICE OF CLAIM WAS NOT FILED WITHIN THE REQUIRED PERIOD. II THE APPELLATE COURT GRAVELY ERRED IN NOT HOLDING THAT DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF RESPONDENT CHEMOIL. III THE APPELLATE COURT GRAVELY ERRED IN SETTING ASIDE THE TRIAL COURTS DECISION AND IN DISMISSING THE COMPLAINT.24 ISSUES Synthesized, the issues that must be addressed by this Court are: I WHETHER OR NOT THE NOTICE OF CLAIM WAS FILED WITHIN THE REQUIRED PERIOD. If the answer is in the affirmative, II WHETHER OR NOT THE DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF THE RESPONDENT. THE COURTS RULINGS Article 366 of the Code of Commerce has profound application in the case at bar. This provision of law imparts: 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. As to the first issue, the petitioner contends that the notice of contamination was given by Alfredo Chan, an employee of PGP, to Ms. Encarnacion Abastillas, Vice President for Administration and Operations of the respondent, at the time of the delivery of the cargo, and therefore, within the required period.25 This was done by telephone. The respondent, however, claims that the supposed notice given by PGP over the telephone was denied by Ms. Abastillas. Between the testimonies of Alfredo Chan and Encarnacion Abastillas, the latters testimony is purportedly more credible because it would be quite unbelievable and contrary to business practice for Alfredo Chan to merely make a verbal notice of claim that involves millions of pesos.26 On this point, the Court of Appeals declared: . . . We are inclined to sustain the view that a telephone call made to defendant-company could constitute substantial compliance with the requirement of notice considering that the notice was given to a responsible official, the VicePresident, who promptly replied that she will look into the matter. However, it must be pointed out that compliance with the period for filing notice is an essential part of the requirement, i.e.. immediately if the damage is apparent, or

otherwise within twenty-four hours from receipt of the goods, the clear import being that prompt examination of the goods must be made to ascertain damage if this is not immediately apparent. We have examined the evidence, and We are unable to find any proof of compliance with the required period, which is fatal to the accrual of the right of action against the carrier.27 The petitioner is of the view that there was an incongruity in the findings of facts of the trial court and the Court of Appeals, the former allegedly holding that the period to file the notice had been complied with, while the latter held otherwise. We do not agree. On the matter concerning the giving of the notice of claim as required by Article 366 of the Code of Commerce, the finding of fact of the Court of Appeals does not actually contradict the finding of fact of the trial court. Both courts held that, indeed, a telephone call was made by Alfredo Chan to Encarnacion Abastillas, informing the latter of the contamination. However, nothing in the trial courts decision stated that the notice of claim was relayed or filed with the respondent-carrier immediately or within a period of twenty-four hours from the time the goods were received. The Court of Appeals made the same finding. Having examined the entire records of the case, we cannot find a shred of evidence that will precisely and ultimately point to the conclusion that the notice of claim was timely relayed or filed. The allegation of the petitioner that not only the Vice President of the respondent was informed, but also its drivers, as testified by Alfredo Chan, during the time that the delivery was actually being made, cannot be given great weight as no driver was presented to the witness stand to prove this. Part of the testimony of Alfredo Chan is revealing: Q: Mr. Witness, were you in your plant site at the time these various cargoes were delivered? A: No, sir. Q: So, do you have a first hand knowledge that your plant representative informed the driver of the alleged contamination? A: What do you mean by that? Q: Personal knowledge [that] you yourself heard or saw them [notify] the driver? A: No, sir.28 From the preceding testimony, it is quite palpable that the witness Alfredo Chan had no personal knowledge that the drivers of the respondent were informed of the contamination. The requirement that a notice of claim should be filed within the period stated by Article 366 of the Code of Commerce is not an empty or worthless proviso. In a case, we held: The object sought to be attained by the requirement of the submission of claims in pursuance of this article is to compel the consignee of goods entrusted to a carrier to make prompt demand for settlement of alleged damages suffered by the goods while in transport, so that the carrier will be enabled to verify all such claims at the time of delivery or within twenty-four hours thereafter, and if necessary fix responsibility and secure evidence as to the nature and extent of the alleged damages to the goods while the matter is still fresh in the minds of the parties.29 In another case, we ruled, thus:

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 carriers 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 therefore, 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.30 The filing of a claim with the carrier within the time limitation therefore actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action.31 The second paragraph of Article 366 of the Code of Commerce is also edifying. It is not only when the period to make a claim has elapsed that no claim whatsoever shall be admitted, as no claim may similarly be admitted after the transportation charges have been paid. In this case, there is no question that the transportation charges have been paid, as admitted by the petitioner, and the corresponding official receipt32 duly issued. But the petitioner is of the view that the payment for services does not invalidate its claim. It contends that under the second paragraph of Article 366 of the Code of Commerce, it is clear that if notice or protest has been made prior to payment of services, claim against the bad order condition of the cargo is allowed. We do not believe so. As discussed at length above, there is no evidence to confirm that the notice of claim was filed within the period provided for under Article 366 of the Code of Commerce. Petitioners contention proceeds from a false presupposition that the notice of claim was timely filed. Considering that we have resolved the first issue in the negative, it is therefore unnecessary to make a resolution on the second issue. WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals dated 18 December 1998, which reversed and set aside the decision of the trial court, is hereby AFFIRMED in toto. No pronouncement as to costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

Republic of the Philippines Supreme Court Manila THIRD DIVISION

ABOITIZ SHIPPING CORPORATION, Petitioner,

G.R. No. 168402 Present: YNARES-SANTIAGO, J., Chairperson,

- versus -

AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and REYES, JJ.

INSURANCE COMPANY OF Promulgated: NORTH AMERICA, Respondent.

August 6, 2008

x--------------------------------------------------x DECISION

REYES, R.T., J.:

THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As subrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the assured may have against the wrongdoer who caused the damage. Before Us is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) which reversed the Decision[2] of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus interest and attorneys fees in favor of respondent Insurance Company of North America (ICNA). The Facts Culled from the records, the facts are as follows: On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines.[3] ICNA issued an all-risk open marine policy,[4] stating:

This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the title holder: Loss, if any, payable to the Assured or order.[5] The cargo, packed inside one container van, was shipped freight prepaid from Hamburg, Germany on board M/S Katsuragi. A clean bill of lading[6] was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City. The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993, the ship arrived and docked at the Manila International Container Port where the container van was again offloaded. On July 26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz Transport System. The bill of lading[7] issued by Aboitiz contained the notation grounded outside warehouse. The container van was stripped and transferred to another crate/container van without any notation on the condition of the cargo on the Stuffing/Stripping Report.[8] OnAugust 1, 1993, the container van was loaded on board petitioners vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993. On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the Stripping Report[9] dated August 5, 1993, petitioners checker noted that the crates were slightly broken or cracked at the bottom. On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement Project (STIP) and delivered to Don Bosco TechnicalHigh School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig informing him that the cargo sustained water damage. Perez, upon receiving the call, immediately went to the bonded warehouse and checked the condition of the container and other cargoes stuffed in the same container. He found that the container van and other cargoes stuffed there were completely dry and showed no sign of wetness.[10] Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely dry and had no water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He further explained that the grounded outside warehouse notation in the bill of lading referred only to the container van bearing the cargo.[11] In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo.[12] The letter stated that the crate was broken at its bottom part such that the contents were exposed. The work tools and workbenches were found to have been completely soaked in water with most of the packing cartons already disintegrating. The crate was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized metal

bands were nailed onto all the edges. The letter concluded that apparently, the damage was caused by water entering through the broken parts of the crate. The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the goods sustained water damage, molds, and corrosion which were discovered upon delivery to consignee.[13] On September 21, 1993, the consignee filed a formal claim[14] with Aboitiz in the amount of P276,540.00 for the damaged condition of the following goods: ten (10) wooden workbenches three (3) carbide-tipped saw blades one (1) set of ball-bearing guides one (1) set of overarm router bits twenty (20) rolls of sandpaper for stroke sander In a Supplemental Report dated October 20, 1993,[15] CAC reported to ICNA that based on official weather report from the Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on July 28 and 29, 1993 caused water damage to the shipment. CAC noted that the shipment was placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notation grounded outside warehouse. It was only on July 31, 1993 when the shipment was stuffed inside another container van for shipment to Cebu. Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor. Despite follow-ups, however, no reply was received from Aboitiz. RTC Disposition ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus interest and attorneys fees.[16] ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about by the fault and negligence of Aboitiz when the shipment was left grounded outside its warehouse prior to delivery. Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the complaint stated no cause of action, plaintiff ICNA had no personality to institute the suit, the cause of action was barred, and the suit was premature there being no claim made upon Aboitiz. On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the decision[17] states:

WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in the complaint for being baseless and without merit. The complaint is hereby DISMISSED. The defendants counterclaims are, likewise, DISMISSED for lack of basis.[18] The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA. However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA UK assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils. claim that it had been subrogated to the rights of the consignee must fail because the subrogatio n receipt had no probative value for being hearsay evidence. The RTC reasoned: While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America (U.K.) Limited (ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced which would show that ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that ICNA UK assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies. Plaintiffs witness, Francisco B. Francisco, claims that the signature below the name MSAS Cargo International is an endorsement of the marine policy in favor of Science Teaching Improvement Project. Plaintiffs witness, however, failed to identify whose signature it was and plaintiff did not present on the witness stand or took (sic) the deposition of the person who made that signature. Hence, the claim that there was an endorsement of the marine policy has no probative value as it is hearsay. Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching Improvement Project as shown by the Subrogation Form (Exhibit K) allegedly signed by a representative of Science Teaching Improvement Project. Such representative, however, was not presented on the witness stand. Hence, the Subrogation Form is self-serving and has no probative value.[19] (Emphasis supplied) The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit: Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company duly authorized to do business in the Philippines. This allegation was, however, denied by the defendant. In fact, in the Pre-Trial Order of 12 March 1996, one of the issues defined by the court is whether or not the plaintiff has legal capacity to sue and be sued. Under Philippine law, the condition is that a foreign insurance company must obtain licenses/authority to do business in the Philippines. These licenses/authority are obtained from the Securities and Exchange Commission, the Board of Investments and the Insurance Commission. If it fails to obtain these licenses/authority, such foreign corporation doing business in the Philippinescannot sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied)

CA Disposition ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is anchored on the right of subrogation under Article 2207 of the Civil Code. ICNA said it is one and the same as the ICNA UK Limited as made known in the dorsal portion of the Open Policy.[20] On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was not filed within the period required under Article 366 of the Code of Commerce; that ICNA had no right of subrogation because the subrogation receipt should have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the representative of the consignee. On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows: WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of the Regional Trial Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby rendered ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of North America the sum ofP280,176.92 with interest thereon at the legal rate from the date of the institution of this case until fully paid, and attorneys fees in the sum of P50,000, plus the costs of suit.[21] The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the insurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign corporation. The CA ruled: At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even assuming arguendo that the plaintiff-insurer in this case is an unlicensed foreign corporation, such circumstance will not bar it from claiming reimbursement from the defendant carrier by virtue of subrogation under the contract of insurance and as recognized by Philippine courts. x x x xxxx Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the country, as subrogee of the claim of the insured under the subject marine policy, is therefore the real party in interest to bring this suit and recover the full amount of loss of the subject cargo shipped by it from Manila to the consignee in Cebu City. x x x[22] The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. Hence, the trial court erred in dismissing the complaint and in not finding that based on the evidence on record and relevant provisions of law, Aboitiz is liable for the loss or damage sustained by the subject cargo.

Issues The following issues are up for Our consideration: (1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) (ICNA UK). THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED (MSAS) IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE SAME. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF ABOITIZ.[23] (Underscoring supplied)

(2)

(3)

(4)

Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-ininterest that possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the notice of claim as required under Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on the claim for damages? Our Ruling We answer the triple questions in the affirmative. A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts. Only when that foreign corporation is transacting or doing business in the country will a license be necessary before it can institute suits.[24] It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law.[25] Thus, this Court has held that a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign corporation from access to our courts.[26]

In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy, the present suit was filed by the said companys authorized agent in Manila. It was the domestic corporation that brought the suit and not the foreign company. Its authority is expressly provided for in the open policy which includes the ICNA office in the Philippines as one of the foreign companys agents. As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School, the consignee. The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the company who issued the insurance, or against any of its listed agents worldwide.[27] MSAS accepted said provision when it signed and accepted the policy. The acceptance operated as an acceptance of the authority of the agents. Hence, a formal indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer. Likewise, the Open Policy expressly provides that: The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title holder: Loss, if any, payable to the Assured or Order. The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the assured. This is in keeping with Section 57 of the Insurance Code which states: A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may become the owner of the interest insured. (Emphasis added) Respondents cause of action is founded on it being subrogated to the rights of the consigne e of the damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states: Article 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of,the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. (Emphasis added)

As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,[28] payment by the insurer to the assured operates as an equitable assignment of all remedies the assured may have against the third party who caused the damage. Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.[29]

Upon payment to the consignee of indemnity for damage to the insured goods, ICNAs entitlement to subrogation equipped it with a cause of action against petitioner in case of a contractual breach or negligence.[30] This right of subrogation, however, has its limitations. First, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading.[31] Second, the insurer can be subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts after receiving payment from the insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer loses its claim against the latter.[32] The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to enforce the carriers liability. Circumstances peculiar to this case lead Us to conclude that the notice requirement was complied with. As held in the case of Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,[33] this notice requirement protects the carrier by affording it an opportunity to make an investigation of the claim while the matter is still fresh and easily investigated. It is meant to safeguard the carrier from false and fraudulent claims.

Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of the cargo if the damage is not apparent from the outside of the package. For damages that are visible from the outside of the package, the claim must be made immediately. The law provides: Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the carrier for damages or average which may be found therein upon opening the packages, may be made, provided that the indications of the damage or average which give rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be admitted only at the time of receipt. After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered. (Emphasis supplied) The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is the contract between the parties. Notably, neither of the parties in this case presented the terms for giving notices of claim under the bill of lading issued by petitioner for the goods. The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage was dated August 15, 1993, that letter, together with the notice of claim, was received by petitioner only on September 21, 1993. But petitioner admits that even before it received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the company, was informed by telephone sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse and to the delivery site to inspect the goods in behalf of petitioner.[34]

In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,[35] the notice was allegedly made by the consignee through telephone. The claim for damages was denied. This Court ruled that such a notice did not comply with the notice requirement under the law. There was no evidence presented that the notice was timely given. Neither was there evidence presented that the notice was relayed to the responsible authority of the carrier. As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule differently from the PCIC case, albeit this ruling is being made pro hac vice, not to be made a precedent for other cases. Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from a carrier must be given a reasonable and practical construction, adapted to the circumstances of the case under adjudication, and their application is limited to cases falling fairly within their object and purpose.[36] Bernhard Willig, the representative of consignee who received the shipment, relayed the information that the delivered goods were discovered to have sustained water damage to no less than the Claims Head of petitioner, Mayo B. Perez. Immediately, Perez was able to investigate the claims himself and he confirmed that the goods were, indeed, already corroded. Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and practical, rather than a strict construction.[37] We give due consideration to the fact that the final destination of the damaged cargo was a school institution where authorities are bound by rules and regulations governing their actions. Understandably, when the goods were delivered, the necessary clearance had to be made before the package was opened. Upon opening and discovery of the damaged condition of the goods, a report to this effect had to pass through the proper channels before it could be finalized and endorsed by the institution to the claims department of the shipping company. The call to petitioner was made two days from delivery, a reasonable period considering that the goods could not have corroded instantly overnight such that it could only have sustained the damage during transit. Moreover, petitioner was able to immediately inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed time period was fulfilled. Thus, there was substantial compliance with the notice requirement in this case. To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to institute the claim for damages against petitioner; and pro hac vice, that a valid notice of claim was made by respondent. We now discuss petitioners liability for the damages sustained by the shipment. The rule as stated in Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence required by law.[38] Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and circumspection use for securing and preserving their own property rights.[39] This standard is

intended to grant favor to the shipper who is at the mercy of the common carrier once the goods have been entrusted to the latter for shipment.[40] Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA that petitioner failed to overturn this presumption: x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a representative from Trabajo Arrastre, and the crates opened, it was discovered that the workbenches and work tools suffered damage due to wettage although by then they were already physically dry. Appellee carrier having failed to discharge the burden of proving that it exercised extraordinary diligence in the vigilance over such goods it contracted for carriage, the presumption of fault or negligence on its part from the time the goods were unconditionally placed in its possession (July 26, 1993) up to the time the same were delivered to the consignee (August 11, 1993), therefore stands. The presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. x x x[41] (Emphasis added) The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. On the same day, it was stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed inside another container van. On August 1, 1993, it was loaded onto another vessel bound for Cebu. During the period between July 26 to 31, 1993, the shipment was outside a container van and kept in storage by petitioner. The bill of lading issued by petitioner on July 31, 1993 contains the notation grounded outside warehouse, suggesting that from July 26 to 31, the goods were kept outside the warehouse. And since evidence showed that rain fell over Manila during the same period, We can conclude that this was when the shipment sustained water damage. To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some other party could be responsible for the damage. It must prove that it used all reasonable means to ascertain the nature and characteristic of the goods tendered for transport and that it exercised due care in handling them.[42] Extraordinary diligence must include safeguarding the shipment from damage coming from natural elements such as rainfall. Aside from denying that the grounded outside warehouse notation referred not to the crate for shipment but only to the carrier van, petitioner failed to mention where exactly the goods were stored during the period in question. It failed to show that the crate was properly stored indoors during the time when it exercised custody before shipment to Cebu. As amply explained by the CA: On the other hand, the supplemental report submitted by the surveyor has confirmed that it was rainwater that seeped into the cargo based on official data from the PAGASA that there was, indeed, rainfall in the Port Area of Manila from July 26 to 31, 1993. The Surveyor specifically noted that the subject cargo was under the custody of appellee carrier from the time it was delivered by the shipper onJuly 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993. No other inevitable conclusion can be deduced from the foregoing established facts that damage from wettage suffered by the subject cargo was caused by the negligence of appellee carrier in grounding the shipment outside causing rainwater to seep into the cargoes.

Appellees witness, Mr. Mayo tried to disavow any responsibility for causing wettage to the subject goods by claiming that the notation GROUNDED OUTSIDE WHSE. actually refers to the container and not the contents thereof or the cargoes. And yet it presented no evidence to explain where did they place or store the subject goods from the time it accepted the same for shipment on July 26, 1993 up to the time the goods were stripped or transferred from the container van to another container and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for Cebu City on August 2, 1993. x x x If the subject cargo was not grounded outside prior to shipment to Cebu City, appellee provided no explanation as to where said cargo was stored from July 26, 1993 to July 31, 1993. What the records showed is that the subject cargo was stripped from the container van of the shipper and transferred to the container on August 1, 1993 and finally loaded into the appellees vessel bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit D) at the Manila port did not indicate any such defect or damage, but when the container was stripped upon arrival in Cebu City port after being discharged from appellees vessel, it was noted that only one (1) slab was slightly broken at the bottom allegedly hit by a forklift blade (Exhibit F).[43] (Emphasis added)

Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove that it exercised the extraordinary diligence required of common carriers. WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED. SO ORDERED.

RUBEN T. REYES Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO Associate Justice Chairperson

MA. ALICIA AUSTRIA-MARTINEZ Associate Justice

MINITA V. CHICO-NAZARIO Associate Justice

ANTONIO EDUARDO B. NACHURA Associate Justice

SECOND DIVISION

[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. DECISION MENDOZA, J.: This is a petition for review on certiorari of the January 25, 1995 decision of the Court of Appeals[1] and its resolution of March 22, 1995 denying petitioners motion for reconsideration. The appellate court upheld orders of Branch 68 (Pasig) of the Regional Trial Court, National Capital Judicial Region, denying petitioners 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, petitioners vessel loaded private respondents 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 respondents 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 petitioners motion as well as its subsequent motion for reconsideration. On petition for certiorari, the Court of Appeals sustained the trial courts orders. Hence this petition containing one assignment of error: THE RESPONDENT COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN RULING THAT PRIVATE RESPONDENTS 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 respondents 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 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[5] that the 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 appellants 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 carriers 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 shippers goods as specifically covered by 3(6) of COGSA but petitioners 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. Regalado (Chairman), Melo, Puno and Martinez, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION 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. 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 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 rightsof 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.

SECOND DIVISION

[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. DECISION 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, MSPC1020, 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. 3. P100,000.00 as and for attorney's fees; and 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. vs. Alejandro.[6] Hence this petition with the following assignments of error: 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.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 143133 June 5, 2002

BELGIAN OVERSEAS CHARTERING AND SHIPPING N.V. and JARDINE DAVIES TRANSPORT SERVICES, INC., petitioners, vs. PHILIPPINE FIRST INSURANCE CO., INC., respondents. PANGANIBAN, J.: Proof of the delivery of goods in good order to a common carrier and of their arrival in bad order at their destination constitutes prima facie fault or negligence on the part of the carrier. If no adequate explanation is given as to how the loss, the destruction or the deterioration of the goods happened, the carrier shall be held liable therefor. Statement of the Case Before us is a Petition for Review under Rule 45 of the Rules of Court, assailing the July 15, 1998 Decision1 and the May 2, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 53571. The decretal portion of the Decision reads as follows: "WHEREFORE, in the light of the foregoing disquisition, the decision appealed from is hereby REVERSED and SET ASIDE. Defendants-appellees are ORDERED to jointly and severally pay plaintiffs-appellants the following: '1) FOUR Hundred Fifty One Thousand Twenty-Seven Pesos and 32/100 (P451,027.32) as actual damages, representing the value of the damaged cargo, plus interest at the legal rate from the time of filing of the complaint on July 25, 1991, until fully paid; '2) Attorney's fees amounting to 20% of the claim; and '3) Costs of suit.'"4 The assailed Resolution denied petitioner's Motion for Reconsideration. The CA reversed the Decision of the Regional Trial Court (RTC) of Makati City (Branch 134), which had disposed as follows: "WHEREFORE, in view of the foregoing, judgment is hereby rendered, dismissing the complaint, as well as defendant's counterclaim."5 The Facts The factual antecedents of the case are summarized by the Court of Appeals in this wise:

"On June 13, 1990, CMC Trading A.G. shipped on board the M/V 'Anangel Sky' at Hamburg, Germany 242 coils of various Prime Cold Rolled Steel sheets for transportation to Manila consigned to the Philippine Steel Trading Corporation. On July 28, 1990, M/V Anangel Sky arrived at the port of Manila and, within the subsequent days, discharged the subject cargo. Four (4) coils were found to be in bad order B.O. Tally sheet No. 154974. Finding the four (4) coils in their damaged state to be unfit for the intended purpose, the consignee Philippine Steel Trading Corporation declared the same as total loss.1wphi1.nt "Despite receipt of a formal demand, defendants-appellees refused to submit to the consignee's claim. Consequently, plaintiff-appellant paid the consignee five hundred six thousand eighty six & 50/100 pesos (P506,086.50), and was subrogated to the latter's rights and causes of action against defendants-appellees. Subsequently, plaintiff-appellant instituted this complaint for recovery of the amount paid by them, to the consignee as insured. "Impugning the propriety of the suit against them, defendants-appellees imputed that the damage and/or loss was due to pre-shipment damage, to the inherent nature, vice or defect of the goods, or to perils, danger and accidents of the sea, or to insufficiency of packing thereof, or to the act or omission of the shipper of the goods or their representatives. In addition thereto, defendants-appellees argued that their liability, if there be any, should not exceed the limitations of liability provided for in the bill of lading and other pertinent laws. Finally, defendants-appellees averred that, in any event, they exercised due diligence and foresight required by law to prevent any damage/loss to said shipment."6 Ruling of the Trial Court The RTC dismissed the Complaint because respondent had failed to prove its claims with the quantum of proof required by law.7 It likewise debunked petitioners' counterclaim, because respondent's suit was not manifestly frivolous or primarily intended to harass them.8 Ruling of the Court of Appeals In reversing the trial court, the CA ruled that petitioners were liable for the loss or the damage of the goods shipped, because they had failed to overcome the presumption of negligence imposed on common carriers. The CA further held as inadequately proven petitioners' claim that the loss or the deterioration of the goods was due to pre-shipment damage.9 It likewise opined that the notation "metal envelopes rust stained and slightly dented" placed on the Bill of Lading had not been the proximate cause of the damage to the four (4) coils.10 As to the extent of petitioners' liability, the CA held that the package limitation under COGSA was not applicable, because the words "L/C No. 90/02447" indicated that a higher valuation of the cargo had been declared by the shipper. The CA, however, affirmed the award of attorney's fees. Hence, this Petition.11 Issues In their Memorandum, petitioners raise the following issues for the Court's consideration: I "Whether or not plaintiff by presenting only one witness who has never seen the subject shipment and whose testimony is purely hearsay is sufficient to pave the way for the applicability of Article 1735 of the Civil Code;

II "Whether or not the consignee/plaintiff filed the required notice of loss within the time required by law; III "Whether or not a notation in the bill of lading at the time of loading is sufficient to show pre-shipment damage and to exempt herein defendants from liability; IV "Whether or not the "PACKAGE LIMITATION" of liability under Section 4 (5) of COGSA is applicable to the case at bar."12 In sum, the issues boil down to three: 1. Whether petitioners have overcome the presumption of negligence of a common carrier 2. Whether the notice of loss was timely filed 3. Whether the package limitation of liability is applicable This Court's Ruling The Petition is partly meritorious. First Issue: Proof of Negligence Petitioners contend that the presumption of fault imposed on common carriers should not be applied on the basis of the lone testimony offered by private respondent. The contention is untenable. Well-settled is the rule that common carriers, from the nature of their business and for reasons of public policy, are bound to observe extraordinary diligence and vigilance with respect to the safety of the goods and the passengers they transport.13 Thus, common carriers are required to render service with the greatest skill and foresight and "to use all reason[a]ble means to ascertain the nature and characteristics of the goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires."14 The extraordinary responsibility lasts from the time the goods are unconditionally placed in the possession of and received for transportation by the carrier until they are delivered, actually or constructively, to the consignee or to the person who has a right to receive them.15 This strict requirement is justified by the fact that, without a hand or a voice in the preparation of such contract, the riding public enters into a contract of transportation with common carriers.16 Even if it wants to, it cannot submit its own stipulations for their approval.17 Hence, it merely adheres to the agreement prepared by them. Owing to this high degree of diligence required of them, common carriers, as a general rule, are presumed to have been at fault or negligent if the goods they transported deteriorated or got lost or destroyed.18 That is, unless they prove that they exercised extraordinary diligence in transporting the goods.19 In order to avoid responsibility for any loss or damage, therefore, they have the burden of proving that they observed such diligence.20

However, the presumption of fault or negligence will not arise21 if the loss is due to any of the following causes: (1) flood, storm, earthquake, lightning, or other natural disaster or calamity; (2) an act of the public enemy in war, whether international or civil; (3) an act or omission of the shipper or owner of the goods; (4) the character of the goods or defects in the packing or the container; or (5) an order or act of competent public authority.22 This is a closed list. If the cause of destruction, loss or deterioration is other than the enumerated circumstances, then the carrier is liable therefor.23 Corollary to the foregoing, mere proof of delivery of the goods in good order to a common carrier and of their arrival in bad order at their destination constitutes a prima facie case of fault or negligence against the carrier. If no adequate explanation is given as to how the deterioration, the loss or the destruction of the goods happened, the transporter shall be held responsible.24 That petitioners failed to rebut the prima facie presumption of negligence is revealed in the case at bar by a review of the records and more so by the evidence adduced by respondent.25 First, as stated in the Bill of Lading, petitioners received the subject shipment in good order and condition in Hamburg, Germany.26 Second, prior to the unloading of the cargo, an Inspection Report27 prepared and signed by representatives of both parties showed the steel bands broken, the metal envelopes rust-stained and heavily buckled, and the contents thereof exposed and rusty. Third, Bad Order Tally Sheet No. 15497928 issued by Jardine Davies Transport Services, Inc., stated that the four coils were in bad order and condition. Normally, a request for a bad order survey is made in case there is an apparent or a presumed loss or damage.29 Fourth, the Certificate of Analysis30 stated that, based on the sample submitted and tested, the steel sheets found in bad order were wet with fresh water. Fifth, petitioners -- in a letter31 addressed to the Philippine Steel Coating Corporation and dated October 12, 1990 -admitted that they were aware of the condition of the four coils found in bad order and condition. These facts were confirmed by Ruperto Esmerio, head checker of BM Santos Checkers Agency. Pertinent portions of his testimony are reproduce hereunder: "Q. Mr. Esmerio, you mentioned that you are a Head Checker. Will you inform the Honorable Court with what company you are connected? A. BM Santos Checkers Agency, sir.

Q. How is BM Santos checkers Agency related or connected with defendant Jardine Davies Transport Services? A. It is the company who contracts the checkers, sir.

Q. You mentioned that you are a Head Checker, will you inform this Honorable Court your duties and responsibilities? A. I am the representative of BM Santos on board the vessel, sir, to supervise the discharge of cargoes. xxx xxx xxx

Q. A.

On or about August 1, 1990, were you still connected or employed with BM Santos as a Head Checker? Yes, sir.

Q. And, on or about that date, do you recall having attended the discharging and inspection of cold steel sheets in coil on board the MV/AN ANGEL SKY? A. Yes, sir, I was there. xxx xxx xxx

Q. Based on your inspection since you were also present at that time, will you inform this Honorable Court the condition or the appearance of the bad order cargoes that were unloaded from the MV/ANANGEL SKY? ATTY. MACAMAY: Objection, Your Honor, I think the document itself reflects the condition of the cold steel sheets and the best evidence is the document itself, Your Honor that shows the condition of the steel sheets. COURT: Let the witness answer. A. The scrap of the cargoes is broken already and the rope is loosen and the cargoes are dent on the sides."32

All these conclusively prove the fact of shipment in good order and condition and the consequent damage to the four coils while in the possession of petitioner,33 who notably failed to explain why.34 Further, petitioners failed to prove that they observed the extraordinary diligence and precaution which the law requires a common carrier to know and to follow to avoid damage to or destruction of the goods entrusted to it for safe carriage and delivery.35 True, the words "metal envelopes rust stained and slightly dented" were noted on the Bill of Lading; however, there is no showing that petitioners exercised due diligence to forestall or lessen the loss.36 Having been in the service for several years, the master of the vessel should have known at the outset that metal envelopes in the said state would eventually deteriorate when not properly stored while in transit.37 Equipped with the proper knowledge of the nature of steel sheets in coils and of the proper way of transporting them, the master of the vessel and his crew should have undertaken precautionary measures to avoid possible deterioration of the cargo. But none of these measures was taken.38 Having failed to discharge the burden of proving that they have exercised the extraordinary diligence required by law, petitioners cannot escape liability for the damage to the four coils.39 In their attempt to escape liability, petitioners further contend that they are exempted from liability under Article 1734(4) of the Civil Code. They cite the notation "metal envelopes rust stained and slightly dented" printed on the Bill of Lading as evidence that the character of the goods or defect in the packing or the containers was the proximate cause of the damage. We are not convinced. From the evidence on record, it cannot be reasonably concluded that the damage to the four coils was due to the condition noted on the Bill of Lading.40 The aforecited exception refers to cases when goods are lost or damaged while in transit as a result of the natural decay of perishable goods or the fermentation or evaporation of substances liable therefor, the necessary and natural wear of goods in transport, defects in packages in which they are shipped, or the natural propensities of animals.41 None of these is present in the instant case.

Further, even if the fact of improper packing was known to the carrier or its crew or was apparent upon ordinary observation, it is not relieved of liability for loss or injury resulting therefrom, once it accepts the goods notwithstanding such condition.42 Thus, petitioners have not successfully proven the application of any of the aforecited exceptions in the present case.43 Second Issue: Notice of Loss Petitioners claim that pursuant to Section 3, paragraph 6 of the Carriage of Goods by Sea Act44 (COGSA), respondent should have filed its Notice of Loss within three days from delivery. They assert that the cargo was discharged on July 31, 1990, but that respondent filed its Notice of Claim only on September 18, 1990.45 We are not persuaded. First, the above-cited provision of COGSA provides that the notice of claim need not be given if the state of the goods, at the time of their receipt, has been the subject of a joint inspection or survey. As stated earlier, prior to unloading the cargo, an Inspection Report46 as to the condition of the goods was prepared and signed by representatives of both parties.47 Second, as stated in the same provision, a failure to file a notice of claim within three days will not bar recovery if it is nonetheless filed within one year.48 This one-year prescriptive period also applies to the shipper, the consignee, the insurer of the goods or any legal holder of the bill of lading.49 In Loadstar Shipping Co., Inc, v. Court of Appeals,50 we ruled that a claim is not barred by prescription as long as the oneyear period has not lapsed. Thus, in the words of the ponente, Chief Justice Hilario G. Davide Jr.: "Inasmuch as the neither the Civil Code nor the Code of Commerce states a specific prescriptive period on the matter, the Carriage of Goods by Sea Act (COGSA)--which provides for a one-year period of limitation on claims for loss of, or damage to, cargoes sustained during transit--may be applied suppletorily to the case at bar." In the present case, the cargo was discharged on July 31, 1990, while the Complaint51 was filed by respondent on July 25, 1991, within the one-year prescriptive period. Third Issue: Package Limitation Assuming arguendo they are liable for respondent's claims, petitioners contend that their liability should be limited to US$500 per package as provided in the Bill of Lading and by Section 4(5)52 of COGSA.53 On the other hand, respondent argues that Section 4(5) of COGSA is inapplicable, because the value of the subject shipment was declared by petitioners beforehand, as evidenced by the reference to and the insertion of the Letter of Credit or "L/C No. 90/02447" in the said Bill of Lading.54 A bill of lading serves two functions. First, it is a receipt for the goods shipped.53 Second, it is a contract by which three parties -- namely, the shipper, the carrier, and the consignee -- undertake specific responsibilities and assume stipulated obligations.56 In a nutshell, the acceptance of the bill of lading by the shipper and the consignee, with full knowledge of its contents, gives rise to the presumption that it constituted a perfected and binding contract.57 Further, a stipulation in the bill of lading limiting to a certain sum the common carrier's liability for loss or destruction of a cargo -- unless the shipper or owner declares a greater value58 -- is sanctioned by law.59 There are, however, two conditions to be satisfied: (1) the contract is reasonable and just under the circumstances, and (2) it has been fairly and freely agreed upon by the parties.60 The rationale for this rule is to bind the shippers by their agreement to the value (maximum valuation) of their goods.61

It is to be noted, however, that the Civil Code does not limit the liability of the common carrier to a fixed amount per package.62 In all matters not regulated by the Civil Code, the right and the obligations of common carriers shall be governed by the Code of Commerce and special laws.63 Thus, the COGSA, which is suppletory to the provisions of the Civil Code, supplements the latter by establishing a statutory provision limiting the carrier's liability in the absence of a shipper's declaration of a higher value in the bill of lading.64 The provisions on limited liability are as much a part of the bill of lading as though physically in it and as though placed there by agreement of the parties.65 In the case before us, there was no stipulation in the Bill of Lading66 limiting the carrier's liability. Neither did the shipper declare a higher valuation of the goods to be shipped. This fact notwithstanding, the insertion of the words "L/C No. 90/02447 cannot be the basis for petitioners' liability. First, a notation in the Bill of Lading which indicated the amount of the Letter of Credit obtained by the shipper for the importation of steel sheets did not effect a declaration of the value of the goods as required by the bill.67 That notation was made only for the convenience of the shipper and the bank processing the Letter of Credit.68 Second, in Keng Hua Paper Products v. Court of Appeals,69 we held that a bill of lading was separate from the Other Letter of Credit arrangements. We ruled thus: "(T)he 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 of issuance of a letter of credit between the amount of goods described in the 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, neither can the carrier be expected to go beyond the representations of the shipper in the bill of lading and to verify their accuracy vis--vis the commercial invoice and the letter of 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."70 In the light of the foregoing, petitioners' liability should be computed based on US$500 per package and not on the per metric ton price declared in the Letter of Credit.71 In Eastern Shipping Lines, Inc. v. Intermediate Appellate Court,72 we explained the meaning of packages: "When what would ordinarily be considered packages are shipped in a container supplied by the carrier and the number of such units is disclosed in the shipping documents, each of those units and not the container constitutes the 'package' referred to in the liability limitation provision of Carriage of Goods by Sea Act." Considering, therefore, the ruling in Eastern Shipping Lines and the fact that the Bill of Lading clearly disclosed the contents of the containers, the number of units, as well as the nature of the steel sheets, the four damaged coils should be considered as the shipping unit subject to the US$500 limitation.1wphi1.nt WHEREFORE, the Petition is partly granted and the assailed Decision MODIFIED. Petitioners' liability is reduced to US$2,000 plus interest at the legal rate of six percent from the time of the filing of the Complaint on July 25, 1991 until the finality of this Decision, and 12 percent thereafter until fully paid. No pronouncement as to costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 171092 March 15, 2010

EDNA DIAGO LHUILLIER, Petitioner, vs. BRITISH AIRWAYS, Respondent. DECISION DEL CASTILLO, J.: Jurisdictio est potestas de publico introducta cum necessitate juris dicendi. Jurisdiction is a power introduced for the public good, on account of the necessity of dispensing justice.1 Factual Antecedents On April 28, 2005, petitioner Edna Diago Lhuillier filed a Complaint2 for damages against respondent British Airways before the Regional Trial Court (RTC) of Makati City. She alleged that on February 28, 2005, she took respondents flight 548 from London, United Kingdom to Rome, Italy. Once on board, she allegedly requested Julian Halliday (Halliday), one of the respondents flight attendants, to assist her in placing her hand-carried luggage in the overhead bin. However, Halliday allegedly refused to help and assist her, and even sarcastically remarked that "If I were to help all 300 passengers in this flight, I would have a broken back!" Petitioner further alleged that when the plane was about to land in Rome, Italy, another flight attendant, Nickolas Kerrigan (Kerrigan), singled her out from among all the passengers in the business class section to lecture on plane safety. Allegedly, Kerrigan made her appear to the other passengers to be ignorant, uneducated, stupid, and in need of lecturing on the safety rules and regulations of the plane. Affronted, petitioner assured Kerrigan that she knew the planes safety regulations being a frequent traveler. Thereupon, Kerrigan allegedly thrust his face a mere few centimeters away from that of the petitioner and menacingly told her that "We dont like your attitude." Upon arrival in Rome, petitioner complained to respondents ground manager and demanded an apology. However, the latter declared that the flight stewards were "only doing their job." Thus, petitioner filed the complaint for damages, praying that respondent be ordered to pay P5 million as moral damages, P2 million as nominal damages, P1 million as exemplary damages, P300,000.00 as attorneys fees,P200,000.00 as litigation expenses, and cost of the suit. On May 16, 2005, summons, together with a copy of the complaint, was served on the respondent through Violeta Echevarria, General Manager of Euro-Philippine Airline Services, Inc.3 On May 30, 2005, respondent, by way of special appearance through counsel, filed a Motion to Dismiss4 on grounds of lack of jurisdiction over the case and over the person of the respondent. Respondent alleged that only the courts of London, United Kingdom or Rome, Italy, have jurisdiction over the complaint for damages pursuant to the Warsaw Convention,5 Article 28(1) of which provides:

An action for damages must be brought at the option of the plaintiff, either before the court of domicile of the carrier or his principal place of business, or where he has a place of business through which the contract has been made, or before the court of the place of destination. Thus, since a) respondent is domiciled in London; b) respondents principal place of business is in London; c) petitioner bought her ticket in Italy (through Jeepney Travel S.A.S, in Rome);6 and d) Rome, Italy is petitioners place of destination, then it follows that the complaint should only be filed in the proper courts of London, United Kingdom or Rome, Italy. Likewise, it was alleged that the case must be dismissed for lack of jurisdiction over the person of the respondent because the summons was erroneously served on Euro-Philippine Airline Services, Inc. which is not its resident agent in the Philippines. On June 3, 2005, the trial court issued an Order requiring herein petitioner to file her Comment/Opposition on the Motion to Dismiss within 10 days from notice thereof, and for respondent to file a Reply thereon.7 Instead of filing a Comment/Opposition, petitioner filed on June 27, 2005, an Urgent Ex-Parte Motion to Admit Formal Amendment to the Complaint and Issuance of Alias Summons.8 Petitioner alleged that upon verification with the Securities and Exchange Commission, she found out that the resident agent of respondent in the Philippines is Alonzo Q. Ancheta. Subsequently, on September 9, 2005, petitioner filed a Motion to Resolve Pending Incident and Opposition to Motion to Dismiss.9 Ruling of the Regional Trial Court On October 14, 2005, the RTC of Makati City, Branch 132, issued an Order10 granting respondents Motion to Dismiss. It ruled that: The Court sympathizes with the alleged ill-treatment suffered by the plaintiff. However, our Courts have to apply the principles of international law, and are bound by treaty stipulations entered into by the Philippines which form part of the law of the land. One of this is the Warsaw Convention. Being a signatory thereto, the Philippines adheres to its stipulations and is bound by its provisions including the place where actions involving damages to plaintiff is to be instituted, as provided for under Article 28(1) thereof. The Court finds no justifiable reason to deviate from the indicated limitations as it will only run counter to the provisions of the Warsaw Convention. Said adherence is in consonance with the comity of nations and deviation from it can only be effected through proper denunciation as enunciated in the Santos case (ibid). Since the Philippines is not the place of domicile of the defendant nor is it the principal place of business, our courts are thus divested of jurisdiction over cases for damages. Neither was plaintiffs ticket issued in this country nor was her destination Manila but Rome in Italy. It bears stressing however, that referral to the court of proper jurisdiction does not constitute constructive denial of plaintiffs right to have access to our courts since the Warsaw Convention itself provided for jurisdiction over cases arising from international transportation. Said treaty stipulations must be complied with in good faith following the time honored principle of pacta sunt servanda. The resolution of the propriety of service of summons is rendered moot by the Courts want of jurisdiction over the instant case. WHEREFORE, premises considered, the present Motion to Dismiss is hereby GRANTED and this case is hereby ordered DISMISSED. Petitioner filed a Motion for Reconsideration but the motion was denied in an Order11 dated January 4, 2006. Petitioner now comes directly before us on a Petition for Review on Certiorari on pure questions of law, raising the following issues: Issues

I. WHETHER X X X PHILIPPINE COURTs HAVE JURISDICTION OVER A TORTIOUS CONDUCT COMMITTED AGAINST A FILIPINO CITIZEN AND RESIDENT BY AIRLINE PERSONNEL OF A FOREIGN CARRIER TRAVELLING BEYOND THE TERRITORIAL LIMIT OF ANY FOREIGN COUNTRY; AND THUS IS OUTSIDE THE AMBIT OF THE WARSAW CONVENTION. II. WHETHER x x x RESPONDENT AIR CARRIER OF PASSENGERS, IN FILING ITS MOTION TO DISMISS BASED ON LACK OF JURISDICTION OVER THE SUBJECT MATTER OF THE CASE AND OVER ITS PERSON MAY BE DEEMED AS HAVING IN FACT AND IN LAW SUBMITTED ITSELF TO THE JURISDICTION OF THE LOWER COURT, ESPECIALLY SO, WHEN THE VERY LAWYER ARGUING FOR IT IS HIMSELF THE RESIDENT AGENT OF THE CARRIER. Petitioners Arguments Petitioner argues that her cause of action arose not from the contract of carriage, but from the tortious conduct committed by airline personnel of respondent in violation of the provisions of the Civil Code on Human Relations. Since her cause of action was not predicated on the contract of carriage, petitioner asserts that she has the option to pursue this case in this jurisdiction pursuant to Philippine laws. Respondents Arguments In contrast, respondent maintains that petitioners claim for damages fell within the ambit of Article 28(1) of the Warsaw Convention. As such, the same can only be filed before the courts of London, United Kingdom or Rome, Italy. Our Ruling The petition is without merit. The Warsaw Convention has the force and effect of law in this country. It is settled that the Warsaw Convention has the force and effect of law in this country. In Santos III v. Northwest Orient Airlines,12 we held that: 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." 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.13 The Warsaw Convention applies because the air travel, where the alleged tortious conduct occurred, was between the United Kingdom and Italy, which are both signatories to the Warsaw Convention. Article 1 of the Warsaw Convention provides: 1. This Convention applies to all international carriage of persons, luggage or goods performed by aircraft for reward. It applies equally to gratuitous carriage by aircraft performed by an air transport undertaking. 2. For the purposes of this Convention the expression "international carriage" means any carriage 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 carriage or a transhipment, are situated either within the territories of two High Contracting Parties, or within the territory of a single High Contracting Party, if there is an agreed stopping place within a territory subject to the sovereignty, suzerainty, mandate or authority of another Power, even though that Power is not a party to this Convention. A carriage without such an agreed stopping place between territories subject to the sovereignty, suzerainty, mandate or authority of the same High Contracting Party is not deemed to be international for the purposes of this Convention. (Emphasis supplied) Thus, when the place of departure and the place of destination in a contract of carriage are situated within the territories of two High Contracting Parties, said carriage is deemed an "international carriage". The High Contracting Parties referred to herein were the signatories to the Warsaw Convention and those which subsequently adhered to it.14 In the case at bench, petitioners place of departure was London, United Kingdom while her place of destination was Rome, Italy.15 Both the United Kingdom16 and Italy17 signed and ratified the Warsaw Convention. As such, the transport of the petitioner is deemed to be an "international carriage" within the contemplation of the Warsaw Convention. Since the Warsaw Convention applies in the instant case, then the jurisdiction over the subject matter of the action is governed by the provisions of the Warsaw Convention. Under Article 28(1) of the Warsaw Convention, the plaintiff may bring the action for damages before 1. the court where the carrier is domiciled; 2. the court where the carrier has its principal place of business; 3. the court where the carrier has an establishment by which the contract has been made; or 4. the court of the place of destination. In this case, it is not disputed that respondent is a British corporation domiciled in London, United Kingdom with London as its principal place of business. Hence, under the first and second jurisdictional rules, the petitioner may bring her case before the courts of London in the United Kingdom. In the passenger ticket and baggage check presented by both the petitioner and respondent, it appears that the ticket was issued in Rome, Italy. Consequently, under the third jurisdictional rule, the petitioner has the option to bring her case before the courts of Rome in Italy. Finally, both the petitioner and respondent aver that the place of destination is Rome, Italy, which is properly designated given the routing presented in the said passenger ticket and baggage check. Accordingly, petitioner may bring her action before the courts of Rome, Italy. We thus find that the RTC of Makati correctly ruled that it does not have jurisdiction over the case filed by the petitioner. Santos III v. Northwest Orient Airlines18 applies in this case. Petitioner contends that Santos III v. Northwest Orient Airlines19 cited by the trial court is inapplicable to the present controversy since the facts thereof are not similar with the instant case. We are not persuaded. In Santos III v. Northwest Orient Airlines,20 Augusto Santos III, a resident of the Philippines, purchased a ticket from Northwest Orient Airlines in San Francisco, for transport between San Francisco and Manila via Tokyo and back to San Francisco. He was wait-listed in the Tokyo to Manila segment of his ticket, despite his prior reservation. Contending that Northwest Orient Airlines acted in bad faith and discriminated against him when it canceled his confirmed reservation and gave his seat to someone who had no better right to it, Augusto Santos III sued the carrier for damages before the RTC. Northwest Orient Airlines moved to dismiss the complaint on ground of lack of jurisdiction citing Article 28(1) of the Warsaw Convention. The trial court granted the motion which ruling was affirmed by the Court of Appeals. When the case was brought before us, we denied the petition holding that under Article 28(1) of the Warsaw Convention, Augusto

Santos III must prosecute his claim in the United States, that place being the (1) domicile of the Northwest Orient Airlines; (2) principal office of the carrier; (3) place where contract had been made (San Francisco); and (4) place of destination (San Francisco).21 We further held that Article 28(1) of the Warsaw Convention is jurisdictional in character. Thus: 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. xxxx 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.22 Contrary to the contention of petitioner, Santos III v. Northwest Orient Airlines23 is analogous to the instant case because (1) the domicile of respondent is London, United Kingdom;24 (2) the principal office of respondent airline is likewise in London, United Kingdom;25 (3) the ticket was purchased in Rome, Italy;26 and (4) the place of destination is Rome, Italy.27 In addition, petitioner based her complaint on Article 217628 of the Civil Code onquasi-delict and Articles 1929 and 2130 of the Civil Code on Human Relations. In Santos III v. Northwest Orient Airlines,31 Augusto Santos III similarly posited that Article 28 (1) of the Warsaw Convention did not apply if the action is based on tort. Hence, contrary to the contention of the petitioner, the factual setting of Santos III v. Northwest Orient Airlines32 and the instant case are parallel on the material points. Tortious conduct as ground for the petitioners complaint is within the purview of the Warsaw Convention. Petitioner contends that in Santos III v. Northwest Orient Airlines,33 the cause of action was based on a breach of contract while her cause of action arose from the tortious conduct of the airline personnel and violation of the Civil Code provisions on Human Relations.34 In addition, she claims that our pronouncement in Santos III v. Northwest Orient Airlines35 that "the allegation of willful misconduct resulting in a tort is insufficient to exclude the case from the comprehension of the Warsaw Convention," is more of an obiter dictum rather than the ratio decidendi.36 She maintains that the fact that said acts occurred aboard a plane is merely incidental, if not irrelevant.37 We disagree with the position taken by the petitioner. Black defines obiter dictum as "an opinion entirely unnecessary for the decision of the case" and thus "are not binding as precedent."38 In Santos III v. Northwest Orient Airlines,39 Augusto Santos III categorically put in issue the applicability of Article 28(1) of the Warsaw Convention if the action is based on tort. In the said case, we held that the allegation of willful misconduct resulting in a tort is insufficient to exclude the case from the realm of the Warsaw Convention. In fact, our ruling that a cause of action based on tort did not bring the case outside the sphere of the Warsaw Convention was our ratio decidendi in disposing of the specific issue presented by Augusto Santos III. Clearly, the contention of the herein petitioner that the said ruling is an obiter dictum is without basis.

Relevant to this particular issue is the case of Carey v. United Airlines,40 where the passenger filed an action against the airline arising from an incident involving the former and the airlines flight attendant during an international flight resulting to a heated exchange which included insults and profanity. The United States Court of Appeals (9th Circuit) held that the "passenger's action against the airline carrier arising from alleged confrontational incident between passenger and flight attendant on international flight was governed exclusively by the Warsaw Convention, even though the incident allegedly involved intentional misconduct by the flight attendant."41 In Bloom v. Alaska Airlines,42 the passenger brought nine causes of action against the airline in the state court, arising from a confrontation with the flight attendant during an international flight to Mexico. The United States Court of Appeals (9th Circuit) held that the "Warsaw Convention governs actions arising from international air travel and provides the exclusive remedy for conduct which falls within its provisions." It further held that the said Convention "created no exception for an injury suffered as a result of intentional conduct" 43 which in that case involved a claim for intentional infliction of emotional distress. It is thus settled that allegations of tortious conduct committed against an airline passenger during the course of the international carriage do not bring the case outside the ambit of the Warsaw Convention. Respondent, in seeking remedies from the trial court through special appearance of counsel, is not deemed to have voluntarily submitted itself to the jurisdiction of the trial court. Petitioner argues that respondent has effectively submitted itself to the jurisdiction of the trial court when the latter stated in its Comment/Opposition to the Motion for Reconsideration that "Defendant [is at a loss] x x x how the plaintiff arrived at her erroneous impression that it is/was Euro-Philippines Airlines Services, Inc. that has been making a special appearance since x x x British Airways x x x has been clearly specifying in all the pleadings that it has filed with this Honorable Court that it is the one making a special appearance."44 In refuting the contention of petitioner, respondent cited La Naval Drug Corporation v. Court of Appeals45 where we held that even if a party "challenges the jurisdiction of the court over his person, as by reason of absence or defective service of summons, and he also invokes other grounds for the dismissal of the action under Rule 16, he is not deemed to be in estoppel or to have waived his objection to the jurisdiction over his person."46 This issue has been squarely passed upon in the recent case of Garcia v. Sandiganbayan,47 where we reiterated our ruling in La Naval Drug Corporation v. Court of Appeals48 and elucidated thus: Special Appearance to Question a Courts Jurisdiction Is Not Voluntary Appearance The second sentence of Sec. 20, Rule 14 of the Revised Rules of Civil Procedure clearly provides: Sec. 20. Voluntary appearance. The defendants voluntary appearance in the action shall be equivalent to service of summons. The inclusion in a motion to dismiss of other grounds aside from lack of jurisdiction over the person of the defendant shall not be deemed a voluntary appearance. Thus, a defendant who files a motion to dismiss, assailing the jurisdiction of the court over his person, together with other grounds raised therein, is not deemed to have appeared voluntarily before the court. What the rule on voluntary appearance the first sentence of the above-quoted rule means is that the voluntary appearance of the defendant in court is without qualification, in which case he is deemed to have waived his defense of lack of jurisdiction over his person due to improper service of summons. The pleadings filed by petitioner in the subject forfeiture cases, however, do not show that she voluntarily appeared without qualification. Petitioner filed the following pleadings in Forfeiture I: (a) motion to dismiss; (b) motion for reconsideration and/or to admit answer; (c) second motion for reconsideration; (d) motion to consolidate forfeiture

case with plunder case; and (e) motion to dismiss and/or to quash Forfeiture I. And in Forfeiture II: (a) motion to dismiss and/or to quash Forfeiture II; and (b) motion for partial reconsideration. The foregoing pleadings, particularly the motions to dismiss, were filed by petitioner solely for special appearance with the purpose of challenging the jurisdiction of the SB over her person and that of her three children. Petitioner asserts therein that SB did not acquire jurisdiction over her person and of her three children for lack of valid service of summons through improvident substituted service of summons in both Forfeiture I and Forfeiture II. This stance the petitioner never abandoned when she filed her motions for reconsideration, even with a prayer to admit their attached Answer Ex Abundante Ad Cautelam dated January 22, 2005 setting forth affirmative defenses with a claim for damages. And the other subsequent pleadings, likewise, did not abandon her stance and defense of lack of jurisdiction due to improper substituted services of summons in the forfeiture cases. Evidently, from the foregoing Sec. 20, Rule 14 of the 1997 Revised Rules on Civil Procedure, petitioner and her sons did not voluntarily appear before the SB constitutive of or equivalent to service of summons. Moreover, the leading La Naval Drug Corp. v. Court of Appeals applies to the instant case. Said case elucidates the current view in our jurisdiction that a special appearance before the courtchallenging its jurisdiction over the person through a motion to dismiss even if the movant invokes other groundsis not tantamount to estoppel or a waiver by the movant of his objection to jurisdiction over his person; and such is not constitutive of a voluntary submission to the jurisdiction of the court.1avvphi1 Thus, it cannot be said that petitioner and her three children voluntarily appeared before the SB to cure the defective substituted services of summons. They are, therefore, not estopped from questioning the jurisdiction of the SB over their persons nor are they deemed to have waived such defense of lack of jurisdiction. Consequently, there being no valid substituted services of summons made, the SB did not acquire jurisdiction over the persons of petitioner and her children. And perforce, the proceedings in the subject forfeiture cases, insofar as petitioner and her three children are concerned, are null and void for lack of jurisdiction. (Emphasis supplied) In this case, the special appearance of the counsel of respondent in filing the Motion to Dismiss and other pleadings before the trial court cannot be deemed to be voluntary submission to the jurisdiction of the said trial court. We hence disagree with the contention of the petitioner and rule that there was no voluntary appearance before the trial court that could constitute estoppel or a waiver of respondents objection to jurisdiction over its person. WHEREFORE, the petition is DENIED. The October 14, 2005 Order of the Regional Trial Court of Makati City, Branch 132, dismissing the complaint for lack of jurisdiction, is AFFIRMED. SO ORDERED. MARIANO C. DEL CASTILLO Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice Chairperson ARTURO D. BRION Associate Justice JOSE PORTUGAL PEREZ Associate Justice ROBERTO A. ABAD Associate Justice

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION 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: "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-TaipeiHongkong-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. "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.

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 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. 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 ticketissuing 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. 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,35 we 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 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 A Did you say were not notified? 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 Q A [Are you] now asking me whether he used this ticket with this sticker? No, no, no. That was the ticket he used. 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 Q A

May I x x x look at them. Yes, it says O.K. x x x, but [there is] no validation. O.K. Miss Chan what do you understand by these entries here R bar M N 6 V?41 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. 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 Q A Q Yes. That is what he told you. He insisted on that flight? Yes. 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 Q A Yes. And also to confirm spaces for and on behalf of Philippine Airlines. 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 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 exemplary50 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,52 the 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.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 150094 August 18, 2004

FEDERAL EXPRESS CORPORATION, petitioner, vs. AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC., respondents.

DECISION PANGANIBAN, J.: Basic is the requirement that before suing to recover loss of or damage to transported goods, the plaintiff must give the carrier notice of the loss or damage, within the period prescribed by the Warsaw Convention and/or the airway bill. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the June 4, 2001 Decision2and the September 21, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 58208. The assailed Decision disposed as follows: "WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of merit. The appealed Decision of Branch 149 of the Regional Trial Court of Makati City in Civil Case No. 95-1219,entitled 'American Home Assurance Co. and PHILAM Insurance Co., Inc. v. FEDERAL EXPRESS CORPORATION and/or CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.),' is hereby AFFIRMED andREITERATED. "Costs against the [petitioner and Cargohaus, Inc.]."4 The assailed Resolution denied petitioner's Motion for Reconsideration. The Facts The antecedent facts are summarized by the appellate court as follows: "On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA delivered to Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas Company in Makati City, Metro Manila. The shipment was covered by Burlington Airway Bill No. 11263825 with the words, 'REFRIGERATE WHEN NOT IN TRANSIT' and 'PERISHABLE' stamp marked on its face. That same day, Burlington insured the cargoes in the amount of $39,339.00 with American Home Assurance Company (AHAC). The following day, Burlington turned over the custody of said cargoes to Federal Express which transported the same to Manila. The first shipment, consisting of 92 cartons arrived in Manila on January 29, 1994 in Flight No. 0071-28NRT and was immediately stored at [Cargohaus Inc.'s] warehouse. While the second, consisting of 17 cartons, came in two (2) days later, or on January 31, 1994, in Flight No. 0071-30NRT which was likewise immediately stored at Cargohaus' warehouse. Prior to the arrival of the cargoes, Federal Express informed GETC Cargo International Corporation, the customs broker hired by the consignee to facilitate the release of its cargoes from the Bureau of Customs, of the impending arrival of its client's cargoes.

"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve (12) days after the cargoes arrived in Manila, a non-licensed custom's broker who was assigned by GETC to facilitate the release of the subject cargoes, found out, while he was about to cause the release of the said cargoes, that the same [were] stored only in a room with two (2) air conditioners running, to cool the place instead of a refrigerator. When he asked an employee of Cargohaus why the cargoes were stored in the 'cool room' only, the latter told him that the cartons where the vaccines were contained specifically indicated therein that it should not be subjected to hot or cold temperature. Thereafter, DIONEDA, upon instructions from GETC, did not proceed with the withdrawal of the vaccines and instead, samples of the same were taken and brought to the Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for examination wherein it was discovered that the 'ELISA reading of vaccinates sera are below the positive reference serum.' "As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment and, declaring 'total loss' for the unusable shipment, filed a claim with AHAC through its representative in the Philippines, the Philam Insurance Co., Inc. ('PHILAM') which recompensed SMITHKLINE for the whole insured amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an action for damages against the [petitioner] imputing negligence on either or both of them in the handling of the cargo. "Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held solidarily liable for the loss as follows: 'WHEREFORE, judgment is hereby rendered in favor of [respondents] and [petitioner and its CoDefendant Cargohaus] are directed to pay [respondents], jointly and severally, the following: 1. Actual damages in the amount of the peso equivalent of US$39,339.00 with interest from the time of the filing of the complaint to the time the same is fully paid. 2. Attorney's fees in the amount of P50,000.00 and 3. Costs of suit. 'SO ORDERED.' "Aggrieved, [petitioner] appealed to [the CA]."5 Ruling of the Court of Appeals The Test Report issued by the United States Department of Agriculture (Animal and Plant Health Inspection Service) was found by the CA to be inadmissible in evidence. Despite this ruling, the appellate court held that the shipping Receipts were a prima facie proof that the goods had indeed been delivered to the carrier in good condition. We quote from the ruling as follows: "Where the plaintiff introduces evidence which shows prima facie that the goods were delivered to the carrier in good condition [i.e., the shipping receipts], and that the carrier delivered the goods in a damaged condition, a presumption is raised that the damage occurred through the fault or negligence of the carrier,and this casts upon the carrier the burden of showing that the goods were not in good condition when delivered to the carrier, or that the damage was occasioned by some cause excepting the carrier from absolute liability. This the [petitioner] failed to discharge. x x x."6 Found devoid of merit was petitioner's claim that respondents had no personality to sue. This argument was supposedly not raised in the Answer or during trial. Hence, this Petition.7

The Issues In its Memorandum, petitioner raises the following issues for our consideration: "I. Are the decision and resolution of the Honorable Court of Appeals proper subject for review by the Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure? "II. Is the conclusion of the Honorable Court of Appeals petitioner's claim that respondents have no personality to sue because the payment was made by the respondents to Smithkline when the insured under the policy is Burlington Air Express is devoid of merit correct or not? "III. Is the conclusion of the Honorable Court of Appeals that the goods were received in good condition, correct or not? "IV. Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not admissible? "V. Is the Honorable Court of Appeals correct in ignoring and disregarding respondents' own admission that petitioner is not liable? and "VI. Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?"8 Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme Court? (2) Is Federal Express liable for damage to or loss of the insured goods? This Court's Ruling The Petition has merit. Preliminary Issue: Propriety of Review The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is a question of law cognizable by the Supreme Court.9 In the present case, the facts are undisputed. As will be shown shortly, petitioner is questioning the conclusions drawn from such facts. Hence, this case is a proper subject for review by this Court. Main Issue: Liability for Damages

Petitioner contends that respondents have no personality to sue -- thus, no cause of action against it -- because the payment made to Smithkline was erroneous. Pertinent to this issue is the Certificate of Insurance10 ("Certificate") that both opposing parties cite in support of their respective positions. They differ only in their interpretation of what their rights are under its terms. The determination of those rights involves a question of law, not a question of fact. "As distinguished from a question of law which exists 'when the doubt or difference arises as to what the law is on a certain state of facts' -- 'there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts'; or when the 'query necessarily invites calibration of the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstance, their relation to each other and to the whole and the probabilities of the situation.'"11 Proper Payee The Certificate specifies that loss of or damage to the insured cargo is "payable to order x x x upon surrender of this Certificate." Such wording conveys the right of collecting on any such damage or loss, as fully as if the property were covered by a special policy in the name of the holder itself. At the back of the Certificate appears the signature of the representative of Burlington. This document has thus been duly indorsed in blank and is deemed a bearer instrument. Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being indemnified for loss of or damage to the insured shipment, as fully as if the property were covered by a special policy in the name of the holder. Hence, being the holder of the Certificate and having an insurable interest in the goods, Smithkline was the proper payee of the insurance proceeds. Subrogation Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt12 in favor of respondents. The latter were thus authorized "to file claims and begin suit against any such carrier, vessel, person, corporation or government." Undeniably, the consignee had a legal right to receive the goods in the same condition it was delivered for transport to petitioner. If that right was violated, the consignee would have a cause of action against the person responsible therefor. Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the insurer's entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of action in case of a contractual breach or negligence.13 "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."14 In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all intents and purposes, it stands in the place and in substitution of the consignee. A fortiori, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading.15 Prescription of Claim From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed out that respondents' claim and right of action are already barred. The latter, and even the consignee, never filed with the carrier any written notice or complaint regarding its claim for damage of or loss to the subject cargo within the period required by the Warsaw Convention and/or in the airway bill. Indeed, this fact has never been denied by respondents and is plainly evident from the records. Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states: "6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a written notice, sufficiently describing the goods concerned, the approximate date of the damage or loss, and the details of the claim, is presented by shipper or consignee to an office of Burlington within (14) days from the date the

goods are placed at the disposal of the person entitled to delivery, or in the case of total loss (including nondelivery) unless presented within (120) days from the date of issue of the [Airway Bill]."16 Relevantly, petitioner's airway bill states: "12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the case: 12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the latest within fourteen (14) days from receipt of the goods; 12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of the goods; 12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal; and 12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the date of the issue of the air waybill. 12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air waybill was used, or to the first carrier or to the last carrier or to the carrier who performed the transportation during which the loss, damage or delay took place."17 Article 26 of the Warsaw Convention, on the other hand, provides: "ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without complaint shall be prima facie evidence that the same have been delivered in good condition and in accordance with the document of transportation. (2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of baggage and 7 days from the date of receipt in the case of goods. In case of delay the complaint must be made at the latest within 14 days from the date on which the baggage or goods have been placed at his disposal. (3) Every complaint must be made in writing upon the document of transportation or by separate notice in writing dispatched within the times aforesaid. (4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his part."18 Condition Precedent In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of or damage to the goods.19 The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action.20 The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has been damaged, and that it is being charged with liability therefor; and (2) 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."21

When an airway bill -- or any contract of carriage for that matter -- has a stipulation that requires a notice of claim for loss of or damage to goods shipped and the stipulation is not complied with, its enforcement can be prevented and the liability cannot be imposed on the carrier. To stress, notice is a condition precedent, and the carrier is not liable if notice is not given in accordance with the stipulation.22 Failure to comply with such a stipulation bars recovery for the loss or damage suffered.23 Being a condition precedent, the notice must precede a suit for enforcement.24 In the present case, there is neither an allegation nor a showing of respondents' compliance with this requirement within the prescribed period. While respondents may have had a cause of action then, they cannot now enforce it for their failure to comply with the aforesaid condition precedent. In view of the foregoing, we find no more necessity to pass upon the other issues raised by petitioner. We note that respondents are not without recourse. Cargohaus, Inc. -- petitioner's co-defendant in respondents' Complaint below -- has been adjudged by the trial court as liable for, inter alia, "actual damages in the amount of the peso equivalent of US $39,339."25 This judgment was affirmed by the Court of Appeals and is already final and executory.26 WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it pertains to Petitioner Federal Express Corporation. No pronouncement as to costs. SO ORDERED. Corona, and Carpio-Morales, JJ., concur. Sandoval-Gutierrez, J., on leave.

THIRD DIVISION

PHILIPPINE AIRLINES, INC., Petitioner,

G.R. No. 149547 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and REYES, JJ. Promulgated:

- versus -

HON. ADRIANO SAVILLO, Presiding Judge of RTC Branch 30 , Iloilo City, and SIMPLICIO GRIO, Respo ndents.

July 4, 2008 x---------------------------- ---------------------x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision[1] dated 17 August 2001, rendered by the Court of Appeals in CA-G.R. SP No. 48664, affirming in toto the Order[2] dated 9 June 1998, of Branch 30 of the Regional Trial Court (RTC) of Iloilo City, dismissing the Motion to Dismiss filed by petitioner Philippine Airlines Inc. (PAL) in the case entitled, Simplicio Grio v. Philippine Airlines, Inc. and Singapore Airlines, docketed as Civil Case No. 23773. PAL is a corporation duly organized under Philippine law, engaged in the business of providing air carriage for passengers, baggage and cargo.[3] Public respondent Hon. Adriano Savillo is the presiding judge of Branch 30 of the Iloilo RTC, where Civil Case No. 23773 was filed; while private respondent SimplicioGrio is the plaintiff in the aforementioned case. The facts are undisputed. Private respondent was invited to participate in the 1993 ASEAN Seniors Annual Golf Tournament held in Jakarta, Indonesia. He and several companions decided to purchase their respective passenger tickets from PAL with the following points of passage: MANILA-SINGAPORE-JAKARTA-SINGAPORE-MANILA. Private respondent and his companions were made to understand by PAL that its plane would take them from Manila to Singapore, while Singapore Airlines would take them from Singapore to Jakarta.[4]

On 3 October 1993, private respondent and his companions took the PAL flight to Singapore and arrived at about 6:00 oclock in the evening. Upon their arrival, they proceeded to the Singapore Airlines office to check-in for their flight to Jakarta scheduled at 8:00 oclock in the same evening. Singapore Airlines rejected the tickets of private respondent and his group because they were not endorsed by PAL. It was explained to private respondent and his group that if Singapore Airlines honored the tickets withoutPALs endorsement, PAL would not pay Singapore Airlines for their passage. Private respondent tried to contact PALs office at the airport, only to find out that it was closed.[5] Stranded at the airport in Singapore and left with no recourse, private respondent was in panic and at a loss where to go; and was subjected to humiliation, embarrassment, mental anguish, serious anxiety, fear and distress. Eventually, private respondent and his companions were forced to purchase tickets from Garuda Airlines and board its last flight bound for Jakarta. When they arrived in Jakarta at about 12:00 oclock midnight, the party who was supposed to fetch them from the airport had already left and they had to arrange for their transportation to the hotel at a very late hour. After the series of nerve-wracking experiences, private respondent became ill and was unable to participate in the tournament. [6] Upon his return to the Philippines, private respondent brought the matter to the attention of PAL. He sent a demand letter to PAL on 20 December 1993 and another to Singapore Airlines on 21 March 1994. However, both airlines disowned liability and blamed each other for the fiasco. On 15 August 1997, private respondent filed a Complaint for Damages before the RTC docketed as Civil Case No. 23773, seeking compensation for moral damages in the amount of P1,000,000.00 and attorneys fees.[7] Instead of filing an answer to private respondents Complaint, PAL filed a Motion to Dismiss[8] dated 18 September 1998 on the ground that the said complaint was barred on the ground of prescription under Section 1(f) of Rule 16 of the Rules of Court.[9] PAL argued that the Warsaw Convention,[10] particularly Article 29 thereof,[11] governed this case, as it provides that any claim for damages in connection with the international transportation of persons is subject to the prescription period of two years. Since the Complaint was filed on 15 August 1997, more than three years after PAL received the demand letter on 25 January 1994, it was already barred by prescription. On 9 June 1998, the RTC issued an Order[12] denying the Motion to Dismiss. It maintained that the provisions of the Civil Code and other pertinent laws of the Philippines, not the Warsaw Convention, were applicable to the present case. The Court of Appeals, in its assailed Decision dated 17 August 2001, likewise dismissed the Petition for Certiorari filed by PAL and affirmed the 9 June 1998 Order of the RTC. It pronounced that the application of the Warsaw Convention must not be construed to preclude the application of the Civil Code and other pertinent laws. By applying Article 1144 of the Civil Code,[13] which allowed for a ten-year prescription period, the appellate court declared that the Complaint filed by private respondent should not be dismissed.[14] Hence, the present Petition, in which petitioner raises the following issues:

I THE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE TO THE PETITION AS RESPONDENT JUDGE COMMITED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURSIDICTION IN DENYING PALS MOTION TO DISMISS. II THE COURT OF APPEALS ERRED IN NOT APPLYING THE PROVISIONS OF THE WARSAW CONVENTION DESPITE THE FACT THAT GRIOS CAUSE OF ACTION AROSE FROM A BREACH OF CONTRACT FOR INTERNATIONAL AIR TRANSPORT. III THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE COMPLAINT FILED BY GRIO BEYOND THE TWO (2)-YEAR PERIOD PROVIDED UNDER THE WARSAWCONVENTION IS ALREADY BARRED BY PRESCRIPTION.[15]

The petition is without merit. In determining whether PALs Motion to Dismiss should have been granted by the trial court, it must be ascertained if all the claims made by the private respondent in his Complaint are covered by the Warsaw Convention, which effectively bars all claims made outside the two-year prescription period provided under Article 29 thereof. If the Warsaw Convention covers all of private respondents claims, then Civil Case No. 23773 has already prescribed and should therefore be dismissed. On the other hand, if some, if not all, of respondents claims are outside the coverage of the Warsaw Convention, the RTC may still proceed to hear the case. The Warsaw Convention applies to all international transportation of persons, baggage or goods performed by any aircraft for hire. It seeks to accommodate or balance the interests of passengers seeking recovery for personal injuries and the interests of air carriers seeking to limit potential liability. It employs a scheme of strict liability favoring passengers and imposing damage caps to benefit air carriers.[16] The cardinal purpose of the Warsaw Convention is to provide uniformity of rules governing claims arising from international air travel; thus, it precludes a passenger from maintaining an action for personal injury damages under local law when his or her claim does not satisfy the conditions of liability under the Convention.[17] Article 19 of the Warsaw Convention provides for liability on the part of a carrier for damages occasioned by delay in the transportation by air of passengers, baggage or goods. Article 24 excludes other remedies by further providing that (1) in the cases covered by articles 18 and 19, any action for damages, however founded, can only be brought subject to the conditions and limits set out in this convention. Therefore, a claim covered by the Warsaw Convention can no longer be recovered under local law, if the statute of limitations of two years has already lapsed. Nevertheless, this Court notes that jurisprudence in the Philippines and the United States also recognizes that the Warsaw Convention does not exclusively regulate the relationship between passenger and carrier on an

international flight. This Court finds that the present case is substantially similar to cases in which the damages sought were considered to be outside the coverage of the Warsaw Convention. In United Airlines v. Uy,[18] this Court distinguished between the (1) damage to the passengers baggage and (2) humiliation he suffered at the hands of the airlines employees. The first cause of action was covered by the Warsaw Convention which prescribes in two years, while the second was covered by the provisions of the Civil Code on torts, which prescribes in four years. Similar distinctions were made in American jurisprudence. In Mahaney v. Air France,[19] a passenger was denied access to an airline flight between New York and Mexico, despite the fact that she held a confirmed reservation. The court therein ruled that if the plaintiff were to claim damages based solely on the delay she experienced for instance, the costs of renting a van, which she had to arrange on her own as a consequence of the delay the complaint would be barred by the two-year statute of limitations. However, where the plaintiff alleged that the airlines subjected her to unjust discrimination or undue or unreasonable preference or disadvantage, an act punishable under the United Stateslaws, then the plaintiff may claim purely nominal compensatory damages for humiliation and hurt feelings, which are not provided for by the Warsaw Convention. In another case,Wolgel v. Mexicana Airlines,[20] the court pronounced that actions for damages for the bumping off itself, rather than the incidental damages due to the delay, fall outside the Warsaw Convention and do not prescribe in two years. In the Petition at bar, private respondents Complaint alleged that both PAL and Singapore Airlines were guilty of gross negligence, which resulted in his being subjected to humiliation, embarrassment, mental anguish, serious anxiety, fear and distress.[21] The emotional harm suffered by the private respondent as a result of having been unreasonably and unjustly prevented from boarding the plane should be distinguished from the actual damages which resulted from the same incident. Under the Civil Code provisions on tort,[22] such emotional harm gives rise to compensation where gross negligence or malice is proven. The instant case is comparable to the case of Lathigra v. British Airways.[23] In Lathigra, it was held that the airlines negligent act of reconfirming the passengers reservation days before departure and failing to inform the latter that the flight had already been discontinued is not among the acts covered by the Warsaw Convention, since the alleged negligence did not occur during the performance of the contract of carriage but, rather, days before the scheduled flight. In the case at hand, Singapore Airlines barred private respondent from boarding the Singapore Airlines flight because PAL allegedly failed to endorse the tickets of private respondent and his companions, despite PALs assurances to respondent that Singapore Airlines had already confirmed their passage. While this fact still needs to be heard and established by adequate proof before the RTC, an action based on these allegations will not fall under the Warsaw Convention, since the purported negligence on the part of PAL did not occur during the performance of the contract of carriage but days before the scheduled flight. Thus, the present action cannot be dismissed based on the statute of limitations provided under Article 29 of the Warsaw Convention.

Had the present case merely consisted of claims incidental to the airlines delay in transporting their passengers, the private respondents Complaint would have been time-barred under Article 29 of the Warsaw Convention. However, the present case involves a special species of injury resulting from the failure of PAL and/or Singapore Airlines to transport private respondent from Singapore to Jakarta the profound distress, fear, anxiety and humiliation that private respondent experienced when, despite PALs earlier assurance that Singapore Airlines confirmed his passage, he was prevented from boarding the plane and he faced the daunting possibility that he would be stranded in Singapore Airport because the PAL office was already closed. These claims are covered by the Civil Code provisions on tort, and not within the purview of the Warsaw Convention. Hence, the applicable prescription period is that provided under Article 1146 of the Civil Code: Art. 1146. The following actions must be instituted within four years: (1) Upon an injury to the rights of the plaintiff; (2) Upon a quasi-delict. Private respondents Complaint was filed with the RTC on 15 August 1997, which was less than four years since PAL received his extrajudicial demand on 25 January 1994. Thus, private respondents claims have not yet prescribed and PALs Motion to Dismiss must be denied. Moreover, should there be any doubt as to the prescription of private respondents Complaint, the more prudent action is for the RTC to continue hearing the same and deny the Motion to Dismiss. Where it cannot be determined with certainty whether the action has already prescribed or not, the defense of prescription cannot be sustained on a mere motion to dismiss based on what appears to be on the face of the complaint.[24] And where the ground on which prescription is based does not appear to be indubitable, the court may do well to defer action on the motion to dismiss until after trial on the merits.[25] IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The assailed Decision of the Court of Appeals in CA-G.R. SP No. 48664, promulgated on 17 August 2001 is AFFIRMED. Costs against the petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 83612 November 24, 1994 LUFTHANSA GERMAN AIRLINES, petitioner, vs. COURT OF APPEALS and TIRSO V. ANTIPORDA, SR., respondents. Quisumbing, Torres & Evangelista for petitioner. Quirante and Associates Law Office for private respondent. ROMERO, J.: In this petition for review on certiorari, the Court is confronted with the issue of whether or not petitioner Lufthansa German Airlines which issued a confirmed Lufthansa ticket to private respondent Antiporda covering a five-leg trip abroad different airlines should be held liable for damages occasioned by the "bumping-off" of said private respondent Antiporda by Air Kenya, one of the airlines contracted to carry him to a particular destination of the five-leg trip. Tirso V. Antiporda, Sr. was an associate director of the Central Bank of the Philippines and a registered consultant of the Asian Development Bank, the World Bank and the UNDP. He was, contracted by Sycip, Gorres, Velayo & Co. (SGV) to be the institutional financial specialist for the agricultural credit institution project of the Investment and Development Bank of Malawi in Africa. According to the letter of August 30, 1984 addressed to Antiporda from J.F. Singson of SGV, he would render his services to the Malawi bank as an independent contractor for which he would be paid US$9,167 for a 50-day period commencing sometime in September 1984. For the engagement, Antiporda would be provided one round-trip economy ticket from Manila to Blantyre and back with a maximum travel time of four days per round-trip and, in addition, a travel allowance of $50 per day, a travel insurance coverage of P100,000 and major hospitalization with AFIA and an accident insurance coverage of P150,000. 1 On September 17, 1984, Lufthansa, through SGV, issued ticket No. 3477712678 for Antiporda's confirmed flights to Malawi, Africa. The ticket particularized his itinerary as follows: Carrier Flight Date Time Status Manila to SQ 081 25-9-84 1530 OK Singapore Singapore to LH 695 25-9-84 2200 OK Bombay Bombay to KQ 203 26-9-84 0215 OK Nairobi Nairobi to QM 335 26-9-84 1395 OK Lilongwe Lilongwe to QM 031 26-9-84 1600 OK Blantyre

Thus, on September 25, 1984, Antiporda took the Lufthansa flight to Singapore from where he proceeded to Bombay on board the same airline. He arrived in Bombay as scheduled and waited at the transit area of the airport for his connecting flight to Nairobi which was, per schedule given him by Lufthansa, to leave Bombay in the morning of September 26, 1984. Finding no representative of Lufthansa waiting for him at the gate, Antiporda asked the duty officer of Air India how he could get in touch with Lufthansa. He was told to call up Lufthansa which informed him that somebody would attend to him shortly. Ten minutes later, Gerard Matias, Lufthansa's traffic officer, arrived, asked for Antiporda's ticket and told him to just sit down and wait. Matias returned with one Leslie Benent, duty officer of Lufthansa, who informed Antiporda that his seat in Air Kenya Flight 203 to Nairobi had been given to a very important person of Bombay who was attending a religious function in Nairobi. Antiporda protested, stressing that he had an important professional engagement in Blantyre, Malawi in the afternoon of September 26, 1984. He requested that the situation be remedied but Air Kenya Flight 203 left for Nairobi without him on board. Stranded in Bombay, Antiporda was booked for Nairobi via Addis Ababa only on September 27, 1984. He finally arrived in Blantyre at 9:00 o'clock in the evening of September 28, 1984, more than a couple of days late for his appointment with people from the institution he was to work with in Malawi. Consequently, on January 8, 1985, Antiporda's counsel wrote the general manager of Lufthansa in Manila demanding P1,000,000 in damages for the airline's "malicious, wanton, disregard of the contract of carriage." 2 In reply, Lufthansa general manager Hagen Keilich assured Antiporda that the matter would be investigated. Apparently getting no positive action from Lufthansa, on January 21, 1985, Antiporda filed with the Regional Trial Court of Quezon City a complaint against Lufthansa which was docketed as Civil Case No. Q-43810. The lower court, 3 guided by the Supreme Court ruling in KLM Dutch Airlines v. Court of Appeals, et al., 4 found that Lufthansa breached the contract to transport Antiporda from Manila to Blantyre on a trip of five legs. It said: The threshold issue that confronts this Court is: Was there a breach of obligation by the defendant in failing to transport the plaintiff from Manila to Blantyre, Malawi, Africa? The defendant admits the issuance and validity of Ticket No. 3477712678 (Exh. B). However, it denies its obligation to transport the plaintiff to his point of destination at Blantyre, Malawi, Africa. Defendant claims that it was obligated to transport the plaintiff only up to Bombay. This case is one of a contract of carriage. And the ticket issued by the defendant to the plaintiff is the written agreement between the parties herein. Ticket No. 3477712678 particularizes the itinerary of the plaintiff . . . xxx xxx xxx From the ticket, therefore, it is indubitably clear that it was the duty and responsibility of the defendant Lufthansa to transport the plaintiff from Manila to Blantyre, on a trip of five legs. The posture taken by the defendant that it was Air Kenya's, not Lufthansa's, liability to transport plaintiff from Bombay to Malawi, is inacceptable. The plaintiff dealt exclusively with the defendant Lufthansa which issued to him the ticket for his entire trip and which in effect guaranteed to the plaintiff that he would have sure space in Air Kenya's flight to Nairobi. Plaintiff, under that assurance of the defendant, naturally, had the right to expect that his ticket would be honored by Air Kenya, to which, in the legal sense, Lufthansa had endorsed and in effect guaranteed the performance of its principal engagement to carry out plaintiff's scheduled itinerary previously and mutually agreed upon by the parties. Defendant itself admitted that the flight from Manila, Singapore, Bombay, Nairobi, Lilongwe, Blantyre, Malawi, were all confirmed with the stamped letters "OK" thereon. In short, after issuing a confirmed ticket from

Manila to Malawi and receiv(ing) payment from the plaintiff for such one whole trip, how can the defendant now deny its contractual obligation by alleging that its responsibility ceased at the Bombay Airport? The contract of air transportation was exclusively between the plaintiff Antiporda and the defendant Lufthansa, the latter merely endorsing its performance to Air Kenya, as its subcontractor or agent. The fourth paragraph of the "Conditions of Contracts" of the ticket (Exh. B) issued by Lufthansa to plaintiff indubitably shows that the contract was one of continuous air transportation from Manila to Blantyre, Malawi. 4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single operation. This condition embodied in the ticket issued to plaintiff is diametrically opposed to the defense theory that Lufthansa's liability is only limited up to Bombay. Pursuant to the above reasoning, the lower court held that Lufthansa cannot limit its liability as a mere ticket issuing agent for other airlines and only to untoward occurrences on its own line. The lower court added that under the pool arrangement of the International Air Transport Association (IATA), of which Lufthansa and Air Kenya are members, member airlines are agents of each other in the issuance of tickets and, therefore, in accordance with Ortigas v. Lufthansa, 5 an airline company is considered bound by the mistakes committed by another member of IATA which, in behalf of the former, had confirmed a passenger's reservation for accommodation. In justifying its award of moral and exemplary damages, the lower court emphasized that the breach of contract was "aggravated by the discourteous and highly arbitrary conduct of Gerard Matias, an official of petitioner Lufthansa in Bombay." Its factual findings on the matter are the following: . . . . Bumped off from his connecting flight to Nairobi and stranded in the Bombay Airport for 32 hours, when plaintiff insisted on taking his scheduled flight to Nairobi, Gerard Matias got angry and threw the ticket and passport on plaintiff's lap and was ordered to go to the basement with his heavy luggages for no reason at all. It was a difficult task for the plaintiff to carry three luggages and yet Gerard Matias did not even offer to help him. Plaintiff requested accommodation but Matias ignored it and just left. Not even Lufthansa office in Bombay, after learning plaintiff's being stranded in Bombay and his accommodation problem, provided any relief to plaintiff's sordid situation. Plaintiff had to stay in the transit area and could not sleep for fear that his luggages might be lost. Everytime he went to the toilet, he had to drag with him his luggages. He tried to eat the high-seasoned food available at the airport but developed stomach trouble. It was indeed a pathetic sight that the plaintiff, an official of the Central Bank, a multi-awarded institutional expert, tasked to perform consultancy work in a World Bank funded agricultural bank project in Malawi instead found himself stranded in a foreign land where nobody was expected to help him in his predicament except the defendant, who displayed utter lack of concern of its obligation to the plaintiff and left plaintiff alone in his misery at the Bombay airport. Citing Air France v. Carrascoso, 6 the lower court ruled that passengers have a right to be treated with kindness, respect, courtesy and consideration by the carrier's employees apart from their right to be protected against personal misconduct, injurious language, indignities and abuses from such employees. Consequently, the trial court ordered Lufthansa to pay Antiporda the following: (a) the amount of P300,000.00 as moral damages; (b) the amount of P200,000.00 as exemplary damages; and

(c) the amount of P50,000.00 as reasonable attorney's fees. With costs against the defendant. Lufthansa elevated the case to the Court of Appeals arguing that it cannot be held liable for the acts committed by Air Kenya on the basis of the following: (a) it merely acted as a ticket-issuing agent in behalf of Air Kenya; consequently the contract of carriage entered into is between respondent Antiporda and Air Kenya, to the exclusion of petitioner Lufthansa; (b) under sections (1) and (2) Article 30 of the Warsaw Convention, an airline carrier is liable only to untoward occurrences on its own line; (c) the award of moral and exemplary damages in addition to attorney's fees by the trial court is without basis in fact and in law. The Court of Appeals not convinced with Lufthansa's appeal, affirmed the decision on the trial court sought to be reviewed. Explained the Court of Appeals: although the contract of carriage was to be performed by several air carriers, the same is to be treated as a single operation conducted by Lufthansa because Antiporda dealt exclusively with it which issued him a Lufthansa ticket for the entire trip. By issuing a confirmed ticket, Lufthansa in effect guaranteed Antiporda a sure seat with Air Kenya. Private respondent Antiporda, maintained the Court of Appeals, had the right to expect that his ticket would be honored by Air Kenya which, in the legal sense, Lufthansa had endorsed and, in effect, guaranteed the performance of its principal engagement to carry out his five-leg trip. The appellate court also ruled that Lufthansa cannot rely on Sections (1) and (2), Article 30 of the Warsaw Convention 7 because the provisions thereof are not applicable under the circumstances of the case. Sections (1) and (2), Article 30 of the Warsaw Convention provide: Art. 30 (1). In the case of transportation to be performed by various successive carriers and falling within the definition set out in the third paragraph of Article I, each carrier who accepts passengers, baggage, or goods shall be subject to the rules set out in the convention, and shall be deemed to be one of the contracting parties to the contract of transportation insofar as the contract deals with that part of the transportation which is performed under his supervision. (2) In the case of transportation of this nature, the passenger or his representative can take action only against the carrier who performed the transportation during which the accident or the delay occurred, save in the case where, by express agreement, the first carrier has assumed liability for the whole journey. (Emphasis supplied). According to the Court of Appeals, Antiporda's cause of action is not premised on the occurrence of an accident or delay as contemplated under Section 2 of said Article but on Air Kenya's refusal to transport him in order to accommodate another. To support this ruling, the Court of Appeals cited the Supreme Court ruling in KLM Royal Dutch Airlines v. Court of Appeals, 8 which held, inter alia, that: 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.

The Court of Appeals concluded that Lufthansa cannot, thus, invoke Sections (1) and (2), Article 30 of the Warsaw Convention to evade liability. Failing to obtain a favorable decision, Lufthansa filed this petition for review on certiorari anchored on the following arguments: 1. The respondent court erred as a matter of law in refusing to apply the Warsaw Convention to the instant case. 2. Respondent court's ruling that Lufthansa had deceived private respondent has no factual or legal basis. 3. The respondent court erred as a matter of law in affirming the trial court's award of moral damages in the face of this Court's rulings concerning moral damages in cases of breach of contract. 4. The respondent court erred as a matter of law in affirming the trial court's award of exemplary damages for lack of legal or factual basis therefor. The arguments propounded by petitioner Lufthansa cannot suffice to reverse the appellate court's decision as prayed for. Lufthansa raised four assignments of error but the focal point at issue has been defined by us at the inception of this ponencia. Lufthansa maintains that its liability to any passenger is limited to occurrences in its own line, and, thus, in the case at bench, its liability to Antiporda is limited to the extent that it had transported him from Manila to Singapore and from Singapore to Bombay; that therefrom, responsibility for the performance of the contract of carriage is assumed by the succeeding carriers tasked to transport him for the remaining leg of his trip because at that stage, its contract of carriage with Antiporda ceases, with Lufthansa acting, no longer as the principal in the contract of carriage, but merely as a ticket-issuing agent for the other carriers. In further advancing this line of defense, Lufthansa invoked Section 2, Article 30 of the Warsaw Convention 9 which expressly stipulates that in cases where the transportation of passengers or goods is performed by various successive carriers, the passenger can take action only against the carrier which performed the transportation, during which the accidentor delay occurred. Lufthansa further advanced the theory that this provision of the Warsaw Convention is applicable to the present case, contrary to the decision of the Court of Appeals which relied on the Supreme Court ruling in KLM Royal Dutch Lines. 10 For Lufthansa, "bumping-off" is considered delay since delay would inevitably result therefrom. It implored this Court to re-examine our ruling in KLM and take heed of jurisprudence 11 in the U.S. where "delay," unlike in our ruling in KLM, contemplates the instance of "bumping-off." In KLM, we held that the term "delay" does not encompass the instance of "bumping-off," the latter having been defined as refusal to carry or transport a passenger. On his part, private respondent Antiporda insists that he entered with Lufthansa an exclusive contract of carriage, the nature of which is a continuous carriage by air from Manila to Blantyre Malawi; that it did not enter into a series of independent contracts with the carriers that transported him for the remaining leg of his trip. The basis for such claim is well-founded. As ruled by the trial court, with the Court of Appeals concurring favorably, Antiporda was issued a confirmed Lufthansa ticket all throughout the five-leg trip. The fourth paragraph of the "Conditions of Contract" stipulated in the ticket indubitably showed that the contract of carriage was considered as one of continuous air transportation from Manila to Blantyre, Malawi, thus: 4. . . . carriage to be performed hereunder by several successive carriers is regarded as a single operation.

In light of the stipulations expressly specified in the ticket defining the true nature of its contract of carriage with Antiporda, Lufthansa cannot claim that its liability thereon ceased at Bombay Airport and thence, shifted to the various carriers that assumed the actual task of transporting said private respondent. We, therefore, reject Lufthansa's theory that from the time another carrier was engaged to transport Antiporda on another segment of his trip, it merely acted as a ticket-issuing agent in behalf of said carrier. In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with Antiporda and remains to be so, regardless of those instances when actual carriage was to be performed by various carriers. The issuance of a confirmed Lufthansa ticket in favor of Antiporda covering his entire five-leg trip abroad successive carriers concretely attests to this. This also serves as proof that Lufthansa, in effect guaranteed that the successive carriers, such as Air Kenya would honor his ticket; assure him of a space therein and transport him on a particular segment of his trip. This ruling finds corroboration in the Supreme Court decision in KLM , 12 where the same issues were confronted, thus: xxx xxx xxx 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. On the issue of whether the Warsaw Convention, particularly Section 2, Article 30 thereof is applicable herein, we agree with the Court of Appeals in ruling in the negative. We reiterate what has been settled in KLM: 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. . . . Lufthansa prays this court to take heed of jurisprudence in the United States where the term "delay" was interpreted to include "bumping-off" or failure to carry a passenger with a confirmed reservation. These decisions in the United States are not controlling in this jurisdiction. We are not prepared, absent reasons of compelling nature, to entertain an extended meaning of the term "delay," which in KLM was given its ordinary signification. "Construction and interpretation come only after it has been demonstrated that application is impossible or inadequate without them. The ordinary language of a statute must be given its ordinary meaning and limited to a reasonable interpretation." 13 In its ordinary sense, "delay" means to prolong the time of or before; to stop, detain or hinder for a time, or cause someone or something to be behind in schedule or usual rate of movement in progress. 14"Bumping-off," which is the refusal to transport passengers with confirmed reservation to their planned and contracted destinations, totally forecloses said passengers' right to be transported, whereas delay merely postpones for a time being the enforcement of such right. Consequently, Section 2, Article 30 of the Warsaw Convention which does not contemplate the instance of "bumpingoff" but merely of simple delay, cannot provide a handy excuse for Lufthansa as to exculpate it from any liability to Antiporda. The payment of damages is, thus, deemed warranted by this Court. We find no reversible error in the lower court's award of moral and exemplary damages, including attorney's fees in favor of Antiporda. Article 2220 of the Civil Code provides:

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. According to the findings of the appellate court which affirmed that of the lower court, the reasons given by the witnesses for Lufthansa for private respondent's being "bumped off" at Bombay airport were conflicting. Observed the Court of Appeals: If there was really no seat available because of over-booking, why did Lufthansa confirm the ticket of the plaintiff-appellee? It has to be pointed out that the confirmed ticket is up to Blantyre, Malawi, not only to Bombay. If the plaintiff-appellee was not in the list of passengers of Kenya Airways (the connecting flight) then Lufthansa must have deceived him in Manila because according to Gerard Matias, the passengers booked by Kenya Airways for Boeing 707 were 190 passengers when the plane could accommodate only 144 passengers considering that the name of plaintiff-appellee was not in the list. If that was the situation, Lufthansa by the issuance of its ticket should have not assured the plaintiff-appellee that he could get the connecting flights as scheduled. Surely, Lufthansa before confirming the ticket of the plaintiff-appellee must have confirmed the flight with Kenya Airways. If it was impossible to get a seat upon its own investigation in Bombay, then it should have not confirmed the ticket of the plaintiffappellee. It is the defendant-appellant who was negligent in the performance of its duties, and plaintiffappellee was just plainly deceived. Since the ticket was marked O.K., meaning confirmed, therefore plaintiff-appellee must have a definite seat with Kenya Airways but it was lost or given to another person. It is not true therefore, that plaintiffappellee's name was not in the list of Kenya Airways. Besides, why should Lufthansa allow a passenger to depart from the Philippines with a confirmed ticket, without instructing its Bombay office to reserve a seat with Kenya Airways for its connecting flight? In spite of the confirmation, Nelda Aquino testified that plaintiff-appellee was stranded in Bombay because he did not get a seat with Kenya Airways, and his name did not appear in the list of passengers. Then contrary to the testimonies of Berndt Loewe and Gerard Matias that the obligation of the defendant-appellant is only up to Bombay and the reason why plaintiff-appellee was not in the list of passengers is because of overbooking. Nelda Aquino contrary to the testimonies of the two, testified that the reason for the bumping-off is that the seat was given to another passenger, to wit: Q Did you know or eventually learned later that the name of Antiporda was not in the list of confirmed passengers? A I only learned from the office at Bombay that it was given to other passenger which I only learned from the office at Bombay. Q Who informed you that the seat of Mr. Antiporda was given to other passenger? A From our international officer. Q Who is he? A Our Sales Manager. Q Is he your Sales Manager in Bombay? A Yes, our Manager.

If Nelda Aquino knew that the reason for the bumping-off is that the seat was given to another, how come Berndt Loewe, passenger Sales Manager of defendant, Gerard Matias, an employee of defendantappellant in Bombay did not know the said reason why the name of plaintiff-appellee did not appear in the list of passengers? It is either they knew the truth but because they wanted to escape liability they pretended not to know the truth. Clearly, bad faith attended the performance of the contract of carriage, for even while Antiporda was in Bombay, representatives of Lufthansa already tried to evade liability first, by claiming that the contract of carriage between Lufthansa and Antiporda ceased at Bombay airport, in disregard of the fact that Antiporda was holding a Lufthansa ticket for the entire five-leg trip; second, despite Berndt Loewe's knowledge that Antiporda's seat was allowed to be given to another passenger, the same suppressed the information and feigned ignorance of the matter, presenting altogether another reason why Antiporda was not listed in the manifest, i.e. that Air Kenya Boeing 707 was overbooked, notwithstanding clear proof that Lufthansa in Manila confirmed his reservation for said flight. Antiporda is likewise entitled to the award of exemplary damages on the basis of Article 2232 of the Civil Code which provides: Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner. There is every indication that Lufthansa, through its representatives in Bombay, acted in a reckless and malevolent manner in dealing with Antiporda. As found by the trial court: The breach of the guarantee was aggravated by the discourteous and highly arbitrary conduct of Gerard Matias, an official of Lufthansa in Bombay. Bumped off from his connecting flight to Nairobi and stranded in the Bombay Airport for 32 hours, when plaintiff insisted on taking his scheduled flight to Nairobi, Gerard Matias got angry and threw the ticket and passport on plaintiff's lap and was ordered to go to the basement with his heavy luggages for no reason at all. It was a difficult task for the plaintiff to carry three luggages and yet Gerard Matias did not even offer to help him. Plaintiff requested accommodation but Matias ignored it and just left. Not even Lufthansa office in Bombay, after learning plaintiff's being stranded in Bombay and his accommodation problem, provided any relief to plaintiff's sordid situation. Plaintiff has to stay in the transit area and could not sleep for fear that his luggages might be lost. Everytime he went to the toilet, he had to drag with him his luggages. He tried to eat the high-seasoned food available at the airport but developed stomach trouble. It was indeed a pathetic sight that the plaintiff, an official of the Central Bank, a multi-awarded institutional expert, tasked to perform consultancy work in a World Bank funded agricultural bank project in Malawi instead found himself stranded in a foreign land where nobody was expected to help him in his predicament except the defendant, who displayed utter lack of concern of its obligation to the plaintiff and left plaintiff alone in his misery at the Bombay airport. These findings of the trial court were affirmed by the Court of Appeals on the ground that there are no cogent reasons to justify a contrary finding. The same holds true with this Court. The findings of fact of lower courts are binding on us and will not be generally disturbed on appeal. 15 In affirming the lower court's award of damages to Antiporda, we take into account his high position in the government, coupled with the fact that he failed to meet his professional commitment in Blantyre, Malawi due to the "bumping-off" incident accompanied by rude and discourteous behavior on the part of airline officials who should have been the first to attend to his travel needs. WHEREFORE, the petition for review is hereby DENIED and the decision of the Court of Appeals AFFIRMED. Costs against petitioner.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 60501. March 5, 1993. CATHAY PACIFIC AIRWAYS, LTD, petitioner, vs. COURT OF APPEALS and TOMAS L. ALCANTARA, respondents. Siguion-Reyna, Montecillo & Ongsiako and Tomacruz, Manguiat & Associates for petitioner. Tanjuatco, Oreta, Tanjuatco, Berenger & Corpus for private respondent. SYLLABUS 1. CIVIL LAW; CONTRACT OF CARRIAGE; BREACH THEREOF; PETITIONER BREACHED ITS CONTRACT OF CARRIAGE WITH PRIVATE RESPONDENT WHEN IT FAILED TO DELIVER HIS LUGGAGE AT THE DESIGNATED PLACE AND TIME. Petitioner breached its contract of carriage with private respondent when it failed to deliver his luggage at the designated place and time, it being the obligation of a common carrier to carry its passengers and their luggage safely to their destination, which includes the duty not to delay their transportation, and the evidence shows that petitioner acted fraudulently or in bad faith. 2. DAMAGES; MORAL AND EXEMPLARY DAMAGES PREDICATED UPON A BREACH OF CONTRACT OF CARRIAGE; RECOVERABLE ONLY IN INSTANCES WHERE THE MISHAP RESULTS IN DEATH OF A PASSENGER, OR WHERE THE CARRIER IS GUILTY OF FRAUD OR BAD FAITH; THE CONDUCT OF PETITIONER'S REPRESENTATIVE TOWARDS RESPONDENT JUSTIFIES THE GRANT OF MORAL AND EXEMPLARY DAMAGES IN CASE AT BAR. Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the mishap results in death of a passenger, or where the carrier is guilty of fraud or bad faith. The language and conduct of petitioner's representative towards respondent Alcantara was discourteous or arbitrary to justify the grant of moral damages. The CATHAY representative was not only indifferent and impatient; he was also rude and insulting. He simply advised Alcantara to buy anything he wanted. But even that was not sincere because the representative knew that the passenger was limited only to $20.00 which, certainly, was not enough to purchase comfortable clothings appropriate for an executive conference. Considering that Alcantara was not only a revenue passenger but even paid for a first class airline accommodation and accompanied at the time by the Commercial Attache of the Philippine Embassy who was assisting him in his problem, petitioner or its agents should have been more courteous and accommodating to private respondent, instead of giving him a curt reply, "What can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can buy anything you need, charged to Cathay Pacific." Where in breaching the contract of carriage the defendant airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of obligation which the parties had foreseen or could have reasonably foreseen. In that case, such liability does not include moral and exemplary damages. Conversely, if the defendant airline is shown to have acted fraudulently or in bad faith, the award of moral and exemplary damages is proper. 3. TEMPERATE DAMAGES; RECOVERABLE ONLY UPON PROOF THAT THE CLAIMANT SUSTAINED SOME PECUNIARY LOSS. However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of the court a quo, in the absence of any showing that he sustained some pecuniary loss. It cannot be gainsaid that respondent's luggage was ultimately delivered to him without serious or appreciable damage. 4. WARSAW CONVENTION; DOES NOT OPERATE AS AN EXCLUSIVE ENUMERATION OF THE INSTANCES FOR DECLARING A CARRIER LIABLE FOR BREACH OF CONTRACT OF CARRIAGE OR AS AN ABSOLUTE LIMIT OF THE EXTENT OF THAT LIABILITY; DOES NOT PRECLUDE THE OPERATION OF THE CIVIL CODE AND OTHER PERTINENT LAWS. As We have repeatedly held, although the Warsaw Convention has the force and effect of law in this country, being a treaty

commitment assumed by the Philippine government, said convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability. The Warsaw Convention declares the carrier liable for damages in the enumerated cases and under certain limitations. However, it must not be construed to preclude the operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from liability for damages for violating the rights of its passengers under the contract of carriage, especially if wilfull misconduct on the part of the carrier's employees is found or established, which is clearly the case before Us. DECISION BELLOSILLO, J p: This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed with modification that of the trial court by increasing the award of damages in favor of private respondent Tomas L. Alcantara. The facts are undisputed: On 19 October 1975, respondent Tomas L. Alcantara was a first class passenger of petitioner Cathay Pacific Airways, Ltd. (CATHAY for brevity) on its Flight No. CX-900 from Manila to Hongkong and onward from Hongkong to Jakarta on Flight No. CX-711. The purpose of his trip was to attend the following day, 20 October 1975, a conference with the Director General of Trade of Indonesia, Alcantara being the Executive Vice-President and General Manager of Iligan Cement Corporation, Chairman of the Export Committee of the Philippine Cement Corporation, and representative of the Cement Industry Authority and the Philippine Cement Corporation. He checked in his luggage which contained not only his clothing and articles for personal use but also papers and documents he needed for the conference. Upon his arrival in Jakarta, respondent discovered that his luggage was missing. When he inquired about his luggage from CATHAY's representative in Jakarta, private respondent was told that his luggage was left behind in Hongkong. For this, respondent Alcantara was offered $20.00 as "inconvenience money" to buy his immediate personal needs until the luggage could be delivered to him. His luggage finally reached Jakarta more than twenty four (24) hours after his arrival. However, it was not delivered to him at his hotel but was required by petitioner to be picked up by an official of the Philippine Embassy. On 1 March 1976, respondent filed his complaint against petitioner with the Court of First Instance (now Regional Trial Court) of Lanao del Norte praying for temperate, moral and exemplary damages, plus attorney's fees. On 18 April 1976, the trial court rendered its decision ordering CATHAY to pay Plaintiff P20,000.00 for moral damages, P5,000.00 for temperate damages, P10,000.00 for exemplary damages, and P25,000.00 for attorney's fees, and the costs. 1 Both parties appealed to the Court of Appeals. CATHAY assailed the conclusion of the trial court that it was accountable for breach of contract and questioned the non-application by the court of the Warsaw Convention as well as the excessive damages awarded on the basis of its finding that respondent Alcantara was rudely treated by petitioner's employees during the time that his luggage could not be found. For his part, respondent Alcantara assigned as error the failure of the trial court to grant the full amount of damages sought in his complaint. On 11 November 1981, respondent Court of Appeals rendered its decision affirming the findings of fact of the trial court but modifying its award by increasing the moral damages to P80,000.00, exemplary damages to P20,000.00 and temperate or moderate damages to P10,000.00. The award of P25,000.00 for attorney's fees was maintained. The same grounds raised by petitioner in the Court of Appeals are reiterated before Us. CATHAY contends that: (1) the Court of Appeals erred in holding petitioner liable to respondent Alcantara for moral, exemplary and temperate damages as well as attorney's fees; and, (2) the Court of Appeals erred in failing to apply the Warsaw Convention on the liability of a carrier to its passengers.

On its first assigned error, CATHAY argues that although it failed to transport respondent Alcantara's luggage on time, the one-day delay was not made in bad faith so as to justify moral, exemplary and temperate damages. It submits that the conclusion of respondent appellate court that private respondent was treated rudely and arrogantly when he sought assistance from CATHAY's employees has no factual basis, hence, the award of moral damages has no leg to stand on. Petitioner's first assigned error involves findings of fact which are not reviewable by this Court. 2 At any rate, it is not impressed with merit. Petitioner breached its contract of carriage with private respondent when it failed to deliver his luggage at the designated place and time, it being the obligation of a common carrier to carry its passengers and their luggage safely to their destination, which includes the duty not to delay their transportation, 3 and the evidence shows that petitioner acted fraudulently or in bad faith. Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the mishap results in death of a passenger, 4 or where the carrier is guilty of fraud or bad faith. 5 In the case at bar, both the trial court and the appellate court found that CATHAY was grossly negligent and reckless when it failed to deliver the luggage of petitioner at the appointed place and time. We agree. CATHAY alleges that as a result of mechanical trouble, all pieces of luggage on board the first aircraft bound for Jakarta were unloaded and transferred to the second aircraft which departed an hour and a half later. Yet, as the Court of Appeals noted, petitioner was not even aware that it left behind private respondent's luggage until its attention was called by the Hongkong Customs authorities. More, bad faith or otherwise improper conduct may be attributed to the employees of petitioner. While the mere failure of CATHAY to deliver respondent's luggage at the agreed place and time did not ipso facto amount to willful misconduct since the luggage was eventually delivered to private respondent, albeit belatedly, 6 We are persuaded that the employees of CATHAY acted in bad faith. We refer to the deposition of Romulo Palma, Commercial Attache of the Philippine Embassy at Jakarta, who was with respondent Alcantara when the latter sought assistance from the employees of CATHAY. This deposition was the basis of the findings of the lower courts when both awarded moral damages to private respondent. Hereunder is part of Palma's testimony "Q: What did Mr. Alcantara say, if any? A. Mr. Alcantara was of course . . . . I could understand his position. He was furious for the experience because probably he was thinking he was going to meet the Director-General the following day and, well, he was with no change of proper clothes and so, I would say, he was not happy about the situation. Q: What did Mr. Alcantara say? A: He was trying to press the fellow to make the report and if possible make the delivery of his baggage as soon as possible. Q: And what did the agent or duty officer say, if any? A: The duty officer, of course, answered back saying 'What can we do, the baggage is missing. I cannot do anything.' something like it. 'Anyhow you can buy anything you need, charged to Cathay Pacific.' Q: What was the demeanor or comportment of the duty officer of Cathay Pacific when he said to Mr. Alcantara 'You can buy anything chargeable to Cathay Pacific'? A: If I had to look at it objectively, the duty officer would like to dismiss the affair as soon as possible by saying indifferently 'Don't worry. It can be found.'" 7 Indeed, the aforequoted testimony shows that the language and conduct of petitioner's representative towards respondent Alcantara was discourteous or arbitrary to justify the grant of moral damages. The CATHAY representative was not only indifferent and impatient; he was also rude and insulting. He simply advised Alcantara to buy anything he wanted. But even that was not sincere because the representative knew that the passenger was limited only to $20.00

which, certainly, was not enough to purchase comfortable clothings appropriate for an executive conference. Considering that Alcantara was not only a revenue passenger but even paid for a first class airline accommodation and accompanied at the time by the Commercial Attache of the Philippine Embassy who was assisting him in his problem, petitioner or its agents should have been more courteous and accommodating to private respondent, instead of giving him a curt reply, "What can we do, the baggage is missing. I cannot do anything . . . Anyhow, you can buy anything you need, charged to Cathay Pacific." CATHAY's employees should have been more solicitous to a passenger in distress and assuaged his anxieties and apprehensions. To compound matters, CATHAY refused to have the luggage of Alcantara delivered to him at his hotel; instead, he was required to pick it up himself and an official of the Philippine Embassy. Under the circumstances, it is evident that petitioner was remiss in its duty to provide proper and adequate assistance to a paying passenger, more so one with first class accommodation. Where in breaching the contract of carriage the defendant airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to the natural and probable consequences of the breach of obligation which the parties had foreseen or could have reasonably foreseen. In that case, such liability does not include moral and exemplary damages. 8 Conversely, if the defendant airline is shown to have acted fraudulently or in bad faith, the award of moral and exemplary damages is proper. However, respondent Alcantara is not entitled to temperate damages, contrary to the ruling of the court a quo, in the absence of any showing that he sustained some pecuniary loss. 9 It cannot be gainsaid that respondent's luggage was ultimately delivered to him without serious or appreciable damage. As regards its second assigned error, petitioner airline contends that the extent of its liability for breach of contract should be limited absolutely to that set forth in the Warsaw Convention. We do not agree. As We have repeatedly held, although the Warsaw Convention has the force and effect of law in this country, being a treaty commitment assumed by the Philippine government, said convention does not operate as an exclusive enumeration of the instances for declaring a carrier liable for breach of contract of carriage or as an absolute limit of the extent of that liability. 10 The Warsaw Convention declares the carrier liable for damages in the enumerated cases and under certain limitations. 11 However, it must not be construed to preclude the operation of the Civil Code and other pertinent laws. It does not regulate, much less exempt, the carrier from liability for damages for violating the rights of its passengers under the contract of carriage, 12 especially if wilfull misconduct on the part of the carrier's employees is found or established, which is clearly the case before Us. For, the Warsaw Convention itself provides in Art. 25 that "(1) The carrier shall not be entitled to avail himself of the provisions of this convention which exclude or limit his liability, if the damage is caused by his wilfull misconduct or by such default on his part as, in accordance with the law of the court to which the case is submitted, is considered to be equivalent to wilfull misconduct." (2) Similarly the carrier shall not be entitled to avail himself of the said provisions, if the damage is caused under the same circumstances by any agent of the carrier acting within the scope of his employment." When petitioner airline misplaced respondent's luggage and failed to deliver it to its passenger at the appointed place and time, some special species of injury must have been caused to him. For sure, the latter underwent profound distress and anxiety, and the fear of losing the opportunity to fulfill the purpose of his trip. In fact, for want of appropriate clothings for the occasion brought about by the delay of the arrival of his luggage, to his embarrassment and consternation respondent Alcantara had to seek postponement of his pre-arranged conference with the Director General of Trade of the host country. In one case, 13 this Court observed that a traveller would naturally suffer mental anguish, anxiety and shock when he finds that his luggage did not travel with him and he finds himself in a foreign land without any article of clothing other than what he has on. Thus, respondent is entitled to moral and exemplary damages. We however find the award by the Court of Appeals of P80,000.00 for moral damages excessive, hence, We reduce the amount to P30,000.00. The exemplary damages of

P20,000.00 being reasonable is maintained, as well as the attorney's fees of P25,000.00 considering that petitioner's act or omission has compelled Alcantara to litigate with third persons or to incur expenses to protect his interest. 14 WHEREFORE, the assailed decision of respondent Court of Appeals is AFFIRMED with the exception of the award of temperate damages of P10,000.00 which is deleted, while the award of moral damages of P80,000.00 is reduced to P30,000.00. The award of P20,000.00 for exemplary damages is maintained as reasonable together with the attorney's fees of P25,000.00. The moral and exemplary damages shall earn interest at the legal rate from 1 March 1976 when the complaint was filed until full payment.